UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 2, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
000-50646
Ultra Clean Holdings,
Inc.
(Exact name of Registrant as
specified in its charter)
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Delaware
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61-1430858
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(State or other jurisdiction
of
incorporation or organization)
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(IRS Employer
Identification No.)
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26462 Corporate Avenue
Hayward, California
(Address of principal
executive offices)
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94545
(Zip Code)
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Registrants telephone number, including area code:
(510) 576-4400
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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The NASDAQ Global Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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(Do not check if a smaller
reporting company)
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Smaller reporting
company
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Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2
of the
Act). Yes
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No
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The aggregate market value of the voting and non-voting stock
held by non-affiliates of the Registrant, based on the closing
sale price of the Registrants common stock on
June 27, 2008, as reported on the NASDAQ Global Market, was
approximately $167.8 million. Shares of common stock held
by each executive officer and director and by each person who
may be deemed to be an affiliate of the Registrant have been
excluded from this computation. The determination of affiliate
status for this purpose is not necessarily a conclusive
determination for other purposes.
Number of shares of the registrants common stock
outstanding as of February 27, 2009: 21,287,700
Portions of the registrants definitive proxy statement to
be delivered to stockholders in connection with the 2009 annual
meeting of stockholders are incorporated by reference in
Part III of this
Form 10-K.
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PART I
This Annual Report on
Form 10-K
contains forward-looking statements regarding future events and
our future results. These statements are based on current
expectations, estimates, forecasts, and projections about the
industries in which we operate and the beliefs and assumptions
of our management. Words such as expects,
anticipates, targets, goals,
projects, intends, plans,
believes, seeks, estimates,
continues, may, variations of such
words, and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements
include, but are not limited to, statements concerning the
following: projections of our financial performance, our
anticipated growth and trends in our business, levels of capital
expenditures, the adequacy of our capital resources to fund
operations and growth, our ability to compete effectively with
our competitors, our strategies and ability to protect our
intellectual property, future acquisitions, customer demand, our
manufacturing and procurement process, employee matters,
supplier relations, foreign operations (including our operations
in China), the legal and regulatory backdrop (including
environmental regulation), our exposure to market risks and
other characterizations of future events or circumstances
described in this Annual Report. Readers are cautioned that
these forward-looking statements are only predictions and are
subject to risks, uncertainties, and assumptions that are
difficult to predict, including those identified below, under
Risk Factors, and elsewhere herein. Therefore,
actual results may differ materially and adversely from those
expressed in any forward-looking statements. We undertake no
obligation to revise or update any forward-looking statements
for any reason.
Overview
We are a leading developer and supplier of critical subsystems,
primarily for the semiconductor capital equipment industry. We
also leverage the specialized skill sets required to support
semiconductor capital equipment to serve the technologically
similar markets in the flat panel, solar and medical device
industries, collectively referred to as Other Addressed
Industries. We develop, design, prototype, engineer,
manufacture and test subsystems which are highly specialized and
tailored to specific steps in the semiconductor manufacturing
process as well as the manufacturing process in Other Addressed
Industries. Our revenue is derived from the sale of gas delivery
systems and other critical subsystems including chemical
mechanical planarization (CMP) subsystems, chemical delivery
modules, top-plate assemblies, frame assemblies, process modules
and other high level assemblies.
Our customers are primarily original equipment manufacturers
(OEMs) in the industries we support. We provide our customers
complete subsystem solutions that combine our expertise in
design, test, component characterization and highly flexible
manufacturing operations with quality control and financial
stability. This combination helps us to drive down total
manufacturing costs, reduce design-to-delivery cycle times and
maintain high quality standards for our customers. We believe
these characteristics, as well as our standing as a leading
supplier of gas delivery systems and other critical subsystems,
place us in a strong position to benefit from the growing demand
for subsystem outsourcing.
We had sales of $266.9 million, $403.8 million and
$337.2 million for the 2008, 2007 and 2006 fiscal years,
respectively. Our four largest customers in 2008 were Applied
Materials, Inc., Intuitive Surgical, Inc., Lam Research
Corporation and Novellus Systems, Inc. To date, we have shipped
substantially all of our products to customers in the United
States. We conduct our operating activities primarily through
our four wholly owned subsidiaries, Ultra Clean Technology
Systems and Service, Inc., UCT-Sieger Engineering LLC, Ultra
Clean Technology (Shanghai) Co., Ltd and Ultra Clean
Micro-Electronics Equipment (Shanghai) Co., Ltd. Our
international sales represented 1.8%, 2.2% and 4.9% of sales for
the years ended January 2, 2009, December 28, 2007 and
December 29, 2006, respectively.
Ultra Clean Holdings, Inc. was founded in November 2002 for the
purpose of acquiring Ultra Clean Technology Systems and Service
Inc. Ultra Clean Technology Systems and Service, Inc. was
founded in 1991 by Mitsubishi Corporation and was operated as a
subsidiary of Mitsubishi until November 2002, when it was
acquired by Ultra Clean Holdings, Inc. Ultra Clean Holdings,
Inc. became a publicly traded company in March 2004. In June
2006, we completed the acquisition of Sieger Engineering, Inc.
Our subsidiary, UCT-Sieger, is a supplier of CMP modules and
other critical subsystems to the semiconductor, solar, flat
panel and medical device industries. We believe that the
acquisition enhanced our strategic position as a subsystem
supplier. Ultra Clean Technology (Shanghai) Co., Ltd and Ultra
Clean Micro-Electronics Equipment (Shanghai) Co., Ltd. were
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established in 2005 and 2007, respectively, to facilitate our
operations in China. Ultra Clean Asia Pacific, Pte, Ltd., was
established in fiscal 2008 to facilitate our operations in
Singapore.
Our
Solution
We are a leading developer and supplier of critical subsystems
for the semiconductor capital equipment industry and Other
Addressed Markets. Our products enable our OEM customers to
realize lower manufacturing costs and reduced design-to-delivery
cycle times while maintaining quality standards. We offer our
customers:
An integrated outsourced solution for gas delivery systems
and other critical subsystems.
We provide our OEM
customers a complete outsourced solution for the development,
design, prototyping, engineering, manufacturing and testing of
advanced gas delivery systems and other critical subsystems. We
combine highly specialized engineering and manufacturing
capabilities to produce high performance products that are
customized to meet the needs of our customers, as well as their
respective end users. We manage supply chain logistics in an
effort to reduce the overall number of suppliers and inventory
levels that our customers would otherwise be required to manage.
We also believe we are often in a position to negotiate reduced
component prices due to our large volume orders.
Improved design-to-delivery cycle times.
Our
strong relationships with our customers and intimate familiarity
with their products and requirements help us reduce
design-to-delivery cycle times for gas delivery systems or other
critical subsystems. We have optimized our supply chain
management, design and manufacturing coordination and controls
to respond rapidly to order requests, enabling us to decrease
design-to-delivery cycle times for our customers.
Component neutral design and manufacturing.
We
do not manufacture any of the components within our gas delivery
systems and other critical subsystems ourselves. Our component
neutral position enables us to recommend components on the basis
of technology, performance and cost and to optimize our
customers overall designs based on these criteria.
Furthermore, our neutral approach allows us to maintain close
relationships with a wide range of component suppliers.
Component testing capabilities.
We utilize our
engineering expertise to test and characterize key components
and subsystems. We have made significant investments in advanced
analytical and automated test equipment to test and qualify key
components. We can perform diagnostic tests, design verification
and failure analysis for customers and suppliers. Our analytical
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 subsystems.
Increased integration with OEMs through local
presence.
Our local presence in close proximity
to the facilities of most of our OEM customers enables us to
remain closely integrated with their design, development and
implementation teams. This level of integration enables us to
respond quickly and efficiently to customer changes and requests.
Precision machining capabilities.
We
manufacture high quality, precision machined parts using state
of the art equipment capable of efficiently providing complex
parts with exacting tolerance. Our diverse precision fabrication
equipment enables us to manufacture a broad range of machined
parts using a broad range of materials, from exotic metals to
basic plastics. Our manufacturing capabilities include
horizontal and vertical milling, turning and welding.
Our
Strategy
Our objective is to maintain our position as a leading developer
and supplier of gas delivery systems and become a leading
developer and supplier of other critical subsystems, primarily
for the semiconductor capital equipment, flat panel, solar and
medical device industries. Our strategy is comprised of the
following key elements:
Continue to expand our market share with Semiconductor
Capital Equipment OEMs.
We believe that the
increase in outsourcing among OEMs creates a significant market
opportunity for us to grow our business with existing and new
customers. While gas delivery systems are already largely
outsourced, we believe our customers
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will continue to outsource other critical subsystems at a rapid
pace and that we are well positioned to capture a significant
portion of these new outsourcing opportunities. We believe that
our continued focus on efficient manufacturing, reduced
design-to-delivery cycle times and quality and reliability will
also allow us to gain market share.
Continue to expand our market share in Other Addressed
Markets:
We believe we can leverage the
attributes and skill sets which allow us to succeed in the
Semiconductor Capital Equipment industry to increase our market
share in technologically similar markets including flat panel,
solar and medical device.
Leverage our expanding geographic presence in lower cost
manufacturing regions.
In March 2005, we
completed construction of a manufacturing facility in Shanghai,
China, allowing us to expand production in a low cost region. In
November 2007, we completed construction of a second
manufacturing facility in Shanghai, China to house our precision
machined parts and subsystem assembly operations. These
facilities put us in close proximity to the manufacturing
facilities of potential customers and their end users. In
October 2008 we opened a procurement and integration office in
Singapore.
Drive profitable growth with our flexible cost
structure.
We implement cost containment and
capacity enhancement initiatives throughout the semiconductor
capital equipment demand cycle and benefit greatly from our
supply chain efficiencies. In addition, we believe our Shanghai
and Singapore facilities position us to respond effectively to
future business demands.
Continue to selectively pursue strategic
acquisitions.
On June 29, 2006, with the
Sieger acquisition, we:
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Increased our presence in the subsystem market, adding CMP to
our addressable market;
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Expanded existing key customer relationships and added strategic
new customers;
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Increased our size and scope;
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Increased the operating leverage derived from our existing
presence in China; and,
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Increased our earnings per share.
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We may choose to further accelerate the growth of our business
by selectively pursuing additional strategic acquisitions. We
will continue to consider acquisitions that will enable us to
expand our geographic presence, secure new customers and
diversify into complementary products and markets as well as
broaden our technological capabilities in semiconductor capital
equipment manufacturing.
Products
We develop, design, prototype, engineer, manufacture and test
subsystems, primarily for the semiconductor capital equipment
industry, flat panel, solar and medical device industries. A
majority of our products consist of 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, cleaning and annealing. Our
gas delivery systems control the flow, pressure, sequencing and
mixing of specialty gases into and out of the reaction chambers
of semiconductor manufacturing tools. Our products also include
other critical subsystems, including chemical mechanical
planarization modules, chemical delivery modules, top-plate
assemblies, frame assemblies and process modules.
Gas delivery systems:
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. Our gas
delivery system designs are developed in collaboration with our
customers and are customized to meet the needs of specific OEMs.
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 and
component characterization capabilities to help them select the
appropriate components for their particular system.
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Chemical mechanical planarization (CMP) electro-mechanical
subsystems:
CMP is a process used to polish off
high spots on wafers or films deposited on wafers. CMP equipment
represents the front end polishing step in
semiconductor manufacturing. We produce over 40 different CMP
subsystem modules for one of our largest customers.
Chemical delivery modules:
Chemical delivery
modules deliver gases and reactive chemicals from a centralized
subsystem to the reaction chamber and may include gas delivery
systems, as well as liquid and vapor delivery systems.
Top-plate assemblies:
Top-plate assemblies
form the top portion of the reaction chamber within which gases
controlled by our gas delivery systems react to form thin films
or etch films on the wafer.
Frame assemblies:
Frame assemblies are steel
tubing that form the support structure to which all other
assemblies are attached and include pneumatic harnesses and
cables that connect other critical subsystems together.
Process modules:
Process modules refer to the
larger subsystems of semiconductor manufacturing tools that
process integrated circuits onto wafers. Process modules include
several smaller subsystems such as the frame assembly, top-plate
assembly and gas and chemical delivery modules, as well as the
chamber and electronic, pneumatic and mechanical subsystems.
Other high level assemblies:
Other high level
assemblies refer to large subsystems used in semiconductor
manufacturing, solar, flat panel and medical device industries.
Customers
We sell our products to semiconductor capital equipment, solar,
flat panel and medical device industry OEMs. The majority of our
revenue is in the semiconductor capital equipment industry,
which is highly concentrated, and we are therefore highly
dependent upon a small number of customers. Our four largest
customers in 2008 were Applied Materials, Inc., Intuitive
Surgical, Inc., Lam Research Corporation and Novellus Systems,
Inc., three of which accounted for more than 10% of our total
sales in 2008. As a group these four customers accounted for 88%
of the Companys sales for each of the fiscal years 2008,
2007 and 2006. The level of our customer concentration has
slightly declined in recent years due to our growth into
adjacent markets, a trend which we expect to continue as we
reinforce and expand our relationship with new, potentially
significant customers.
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 generally place
orders with suppliers who have met and continue to meet their
qualification criteria.
Sales and
Support
We sell our products through our direct sales force which, as of
January 2, 2009, consisted of a total of 34 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 and 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 systems and other critical
subsystems. Our new business development account managers
initiate and develop long-term, multilevel relationships with
customers 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 representative located at each of our
manufacturing facilities. In addition, we have developed a
service and support infrastructure to provide our customers with
service
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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 subsystems.
Technology
Development
We engage in ongoing technology development efforts in order to
remain a technology leader for gas delivery systems and to
further develop our expertise in other critical subsystems. 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. Our technology
development group participates in customer technology
partnership programs that focus on process application
requirements for gas delivery systems and other critical
subsystems. These development efforts are designed to meet
specific customer requirements in the areas of subsystem 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 analytical 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 and other critical subsystems. Our analytical and
testing capabilities also help us anticipate technological
changes and the requirements in component features for
next-generation gas delivery systems and other critical
subsystems. We are also developing additional features to
improve the performance and functionality of our gas delivery
systems and other critical subsystems. Our technology
development and new product engineering expenses were
approximately $2.9 million, $3.0 million and
$3.1 million for the 2008, 2007 and 2006 fiscal years,
respectively. We perform our technology development activities
principally at our facilities in Hayward, 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 upon our design, engineering,
manufacturing and testing know-how. We also rely on a
combination of trade secrets and confidentiality provisions, and
to a much lesser extent, patents, copyrights and trademarks, to
protect our proprietary rights. As of January 2, 2009, we
had six issued United States patents, all of which expire in
2018, and we had six United States patent applications pending.
None of our issued patents are material to our business.
Intellectual property that we develop on behalf of our customers
is generally owned exclusively by those customers.
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.
Competition
Our industry is highly fragmented. When we compete for new
business, we face competition from other suppliers of gas
delivery systems and other critical subsystems as well as the
internal manufacturing groups of OEMs. In addition, OEMs that
have elected to outsource their gas delivery systems and other
critical subsystems could elect in the future to develop and
manufacture these subsystems internally, leading to further
competition. Our principal competitors for our gas delivery
systems are Celerity Group, Inc., AIT (formerly known as
Integrated Flow Systems, LLC), and Wolfe Engineering, Inc., and
our principal competitors for other critical subsystems are
Flextronics International Ltd., Fox Semicon Integrated Tech
Inc., Sanmina-SCI Corporation and Benchmark Electronic. Some of
these 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. 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. We anticipate that increased competitive
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pressures will cause intensified price-based competition and we
may have to reduce the prices of our products. In addition, we
expect to face new competitors as we enter new markets.
Employees
As of January 2, 2009, we had 819 employees, of which
15 were temporary. Of our total employees, there were 59 in
engineering, 9 in technology development, 36 in sales and
support, 488 in direct manufacturing, 156 in indirect
manufacturing and 71 in executive and administrative functions.
These figures include 263 employees in Shanghai, China and
2 employees in Singapore. None of our employees is
represented by a labor union and we have not experienced any
work stoppages.
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.
Available
Information
We file with the SEC annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. You may
read and copy any materials we file with the SEC at the public
reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 100 F Street, N.E.,
Washington, D.C. 20549. You may also request copies of all
or any portion of such material from the SEC at prescribed
rates. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room. In addition, materials filed electronically with the SEC
are available at the SECs website at
http://www.sec.gov.
In addition, we make available free of charge, on or through our
website at
http://www.uct.com,
our annual, quarterly and current reports and any amendments to
those reports, as soon as reasonably practicable after
electronically filing such reports with, or furnishing them to,
the SEC. This website address is intended to be an inactive
textual reference only; none of the information contained on our
website is part of this report or is incorporated by reference
herein.
Executive
Officers
Set forth below is information concerning our executive officers
as of February 27, 2009:
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Name
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Age
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Position
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Clarence L. Granger
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60
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Chairman & Chief Executive Officer
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David Savage
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President and Chief Operating Officer
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Jack Sexton
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45
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Vice President and Chief Financial Officer
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Bruce Wier
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60
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Senior Vice President of Engineering
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Deborah Hayward
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47
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Senior Vice President of Sales
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Clarence L. Granger
has served as our
Chairman & Chief Executive Officer since October 2006,
as our Chief Executive Officer since November 2002, as Chief
Operating Officer from March 1999 to November 2002 and as a
member of our board of directors 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
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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.
David Savage
has served as our President and Chief
Operating Officer since January 2008. Before joining Ultra
Clean, Mr. Savage was Chief Executive Officer of Litel
Instruments, Inc., a semiconductor optical metrology business
from March 2007 to July 2007. Prior to Litel, Mr. Savage
was the President, Electronics Division of Meggitt USA, Inc.
where he led a division focusing on high performance sensors
from September 2002 to March 2007. Prior to Meggitt,
Mr. Savage founded and served as Chief Executive Officer of
DigMedia, a media delivery business focused on broadband service
providers from October 1998 to August 2002. Mr. Savage
holds a bachelor degree in metallurgical engineering from
Sheffield Hallam University in Sheffield, England. He holds
several patents in nuclear and semiconductor packaging materials.
Jack Sexton
has served as our Vice President and Chief
Financial Officer since May 2005. Before joining Ultra Clean,
Mr. Sexton was Corporate Controller of Credence Systems
Corporation, a manufacturer of test equipment and diagnostics
and failure analysis products used for testing semiconductor
integrated circuits. He was Controller and Chief Accounting
Officer of NPTest from May 2002 until its sale to Credence in
May 2004. Prior to NPTest, Mr. Sexton was Worldwide
Controller for Schlumberger Resource Management Services, now
Actaris Metering Systems. Mr. Sexton joined Schlumberger in
1990, prior to which he was a plant operations controller for
Texas Instruments. Mr. Sexton holds two Bachelor of Science
degrees, in finance and accounting from the Carroll School of
Management at Boston College, where he graduated magna cum
laude. He is also a Certified Public Accountant.
Bruce Wier
has served as our Senior Vice President of
Engineering since January 2007 and 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 Senior Vice President
of Sales since January 2007 and 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.
We are
exposed to risks associated with the ongoing financial crisis
and weakening global economy.
The recent weakening global economy, severe tightening of the
credit markets and turmoil in the financial markets are
contributing to slowdowns in the industries in which we operate.
Such slowdowns are expected to worsen if these economic
conditions are prolonged or deteriorate further. Reduced growth
and uncertainty regarding future growth in economies throughout
the world have caused companies to reduce capital investment and
may in the future cause further reduction of such investments.
These reductions have often been particularly severe in the
semiconductor capital equipment industry. Economic uncertainty
has led to historically low consumer confidence levels and has
caused and may in the future cause our customers to push out,
cancel, or refrain from placing orders with us, which in turn
would further reduce our sales and negatively impact our cash
flow. Our sales were $266.9 million in fiscal year 2008
compared to $403.8 million for fiscal year 2007, and we
expect sequential revenues to be lower in the first quarter of
2009, and we can not predict when our business will improve. We
incurred a net loss of $52.4 million, which included a
charge for impairment of goodwill and other long-lived assets
9
of $55.1 million, for the year ended January 2, 2009,
and we expect to incur additional losses in the future. While
there can be no assurance as to when the current economic
slowdown will end, a period of recovery may nonetheless result
in significant fluctuations in customer orders. In the recent
period of declining demand, there is a greater risk that we
acquire inventory in excess of levels demanded by our customers,
which could cause us to incur excess or obsolete inventory
charges. Also, as a result of the weakening global economy,
certain of our suppliers may be forced out of business, which
would require us to either procure products from high-cost
suppliers, or if no additional suppliers exist, reconfigure the
design and manufacture of our products, and we may be unable to
fulfill some customer orders. Furthermore, the tightening of
credit in financial markets may delay or prevent our customers
from securing funding adequate to operate their businesses and
purchase our products.
Furthermore, the equity and credit markets have been
experiencing extreme volatility and disruption at unprecedented
levels. In many cases, the markets have limited capacity for
issuers, and lenders have requested shorter terms. The market
for new equity and debt financing is extremely limited and in
some cases not available at all. In addition, the markets have
increased the uncertainty that lenders will be able to comply
with their previous commitments. If current levels of market
disruption and volatility continue or worsen, we may not be able
to draw upon our revolving credit facility, incur additional
debt or raise new equity in the event we need to do so.
These conditions and uncertainty about future economic
conditions make it challenging for us to forecast our operating
results, make business decisions, and identify the risks that
may affect our business, financial condition and results of
operations. We expect business conditions to remain difficult,
and we have implemented cost reduction programs aimed at
aligning our ongoing operating costs with our currently expected
revenues over the near term. These cost management initiatives
include reductions to headcount and reduced spending. If we are
not able to timely and appropriately adapt to changes resulting
from the difficult macroeconomic environment, our business,
financial condition and results of operations could be adversely
affected.
The
highly volatile nature of the industries we serve could harm our
operating results.
Our business and operating results depend in significant part
upon capital expenditures by manufacturers of semiconductors,
flat panel displays, solar and medical devices, which in turn
depend upon the current and anticipated market demand for such
products. Historically, the industries we serve (in particular
the semiconductor industry), have been highly cyclical, with
recurring periods of over-supply of products that have had a
severe negative effect on the demand for capital equipment used
to manufacture such products. We have experienced and anticipate
that we will continue to experience significant fluctuations in
customer orders for our products through such cycles. Slowdowns
in the industries we serve have had, and future slowdowns may
also have, a material adverse effect on our operating results.
During periods of decreasing demand for our products, we must be
able to appropriately align our cost structure with prevailing
market conditions, effectively manage our supply chain and
motivate and retain employees. During periods of increasing
demand, we must increase manufacturing capacity and inventory to
meet customer demands, effectively manage our supply chain and
attract, retain and motivate a sufficient number of qualified
employees. If we are not able to timely and appropriately adapt
to the changes in our business environment, our results of
operations will be harmed. Also, the cyclical and volatile
nature of the industries we serve make future revenues, results
of operations and net cash flows difficult to estimate.
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. Collectively, Applied Materials, Inc.,
Intuitive Surgical, Inc., Lam Research Corporation and Novellus
Systems, Inc., have accounted for 88% of our sales in each of
our fiscal years 2008, 2007 and 2006, respectively. Because of
the small number of OEMs in the markets we serve, most of which
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. Our customer contracts generally do not require them
to place any orders with us. Consolidation among our customers,
or a decision by any one or more of our customers to outsource
all or most manufacturing and assembly work to a single
equipment manufacturer may further concentrate our business in a
limited number of customers, and expose us to increased risks
relating to dependence on an even smaller number of customers.
10
In addition, by virtue of our customers size and the
significant portion of revenue that we derive from them, they
are able to exert significant influence and pricing pressure in
the negotiation of our commercial agreements and the conduct of
our business with them. We may also be asked to accommodate
customer requests that extend beyond the express terms of our
agreements in order to maintain our relationships with our
customers. If we are unable to retain and expand our business
with these customers on favorable terms, our business and
operating results will be adversely affected.
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. Our ability 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 is minimal 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.
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 which may
include:
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demand for and market acceptance of our products as a result of
the cyclical nature of the industries we serve or otherwise,
often resulting in reduced sales during industry downturns and
increased sales during periods of industry recovery;
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changes in the timing and size of orders by our customers;
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cancellations and postponements of previously placed orders;
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pricing pressure from either our competitors or our customers,
resulting in the reduction of our product prices;
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disruptions or delays in the manufacturing of our products or in
the supply of components or raw materials that are incorporated
into or used to manufacture our products, thereby causing us to
delay the shipment of products;
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decreased margins for several or more quarters following the
introduction of new products, especially as we introduce new
subsystems;
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delays in
ramp-up
in
production, low yields or other problems experienced at our
manufacturing facilities in China;
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changes in design-to-delivery cycle times;
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inability to reduce our costs quickly in step with reductions in
our prices or in response to decreased demand for our products;
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changes in our mix of products sold;
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write-offs of excess or obsolete inventory;
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one-time expenses or charges associated with failed acquisition
negotiations or completed acquisitions;
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announcements by our competitors of new products, services or
technological innovations, which may, among other things, render
our products less competitive; and
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geographic mix of worldwide earnings.
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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
11
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
have established, and as markets will allow, intend to expand
our operations in China, which exposes us to risks associated
with operating in a foreign country.
We intend to expand, as markets will allow, our operations in
China. Our total assets in China at January 2, 2009 and
December 28, 2007 were $24.1 million and
$27.0 million, respectively.
We are exposed to political, economic, legal and other risks
associated with operating in China, including:
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foreign currency exchange fluctuations;
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political, civil and economic instability;
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tariffs and other barriers;
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timing and availability of export licenses;
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disruptions to our and our customers operations due to the
outbreak of communicable diseases, such as SARS and avian flu;
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disruptions in operations due to the weakness of Chinas
domestic infrastructure, including transportation and energy;
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difficulties in developing relationships with local suppliers;
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difficulties in attracting new international customers;
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difficulties in accounts receivable collections;
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difficulties in staffing and managing a distant international
subsidiary and branch operations;
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the burden of complying with foreign and international laws and
treaties;
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difficulty in transferring funds to other geographic
locations; and
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potentially adverse tax consequences.
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Our operations in China also subject us to U.S. laws
governing the export of equipment. These laws are complex and
require us to obtain clearances for the export to China of
certain equipment. We may fail to comply with these laws and
regulations, which could require us to cease use of certain
equipment and expose us to fines or penalties.
Over the past several years the Chinese government has pursued
economic reform policies, including the encouragement of private
economic activity and greater economic decentralization. The
Chinese government may not continue these policies or may
significantly alter them to our detriment from time to time
without notice. Changes in laws and regulations or their
interpretation, the imposition of confiscatory taxation
policies, new restrictions on currency conversion or limitations
on sources of supply could materially and adversely affect our
Chinese operations, which could result in the partial or total
loss of our investment in that country and materially and
adversely affect our future operating results.
Third
parties have claimed and may in the future 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.
We have in the past and may in the future receive claims that
our products, processes or technologies infringe the patents or
other proprietary rights of third parties. For example, in 2007
we completed our defense of an infringement action brought
against us by Celerity, Inc. Our defense was successful only in
part. We incurred a total of approximately $130,000 in damages
and court costs related to the Celerity infringement. In
addition, we may be unaware of intellectual property rights of
others that may be applicable to our products. Any litigation
regarding
12
patents or other intellectual property could be costly and
time-consuming and divert our management and key personnel from
our business operations, any of which could have a material
adverse effect on our business and results of 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, manufacture and sale of
certain of our products if any such claims prove successful.
We are
subject to order and shipment uncertainties and 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. Occasionally, 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 usually
occur without penalty to, or compensation from, the customer.
Reductions, cancellations or delays in forecasted orders could
cause us to hold inventory 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 effect 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.
The
manufacturing of our products is highly complex, and if we are
not able to manage our manufacturing and procurement process
effectively, our business and operating results will
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 manage
this process effectively, we risk losing customers and damaging
our reputation. In addition, if we acquire inventory in excess
of demand or that does not meet customer specifications, we
could incur excess or obsolete inventory charges. These risks
are even greater during an economic downturn as we are currently
experiencing and as we continue to expand our business beyond
gas delivery systems into new subsystems. In this economic
downturn, certain of our suppliers may be forced out of
business, which would require us to either procure product from
higher-cost suppliers or, if no additional suppliers exist,
reconfigure the design and manufacture of our products. This
could limit our growth and have a material adverse effect on our
business, financial condition and operating results.
OEMs
may not continue to outsource other critical subsystems, which
would adversely impact our operating results.
The success of our business depends on OEMs continuing to
outsource the manufacturing of critical subsystems. Most of the
largest OEMs have already outsourced production of a significant
portion of their critical subsystems. If OEMs do not continue to
outsource critical subsystems for their capital equipment, our
revenue would be significantly reduced, which would have a
material adverse effect on our business, financial condition and
operating results. In addition, if we are unable to obtain
additional business from OEMs, even if they continue to
outsource their production of critical subsystems, our business,
financial condition and operating results could be adversely
affected.
13
If our
new products are not accepted by OEMs or if we are unable to
maintain historical margins on our new products, our operating
results would be adversely impacted.
We design, develop and market critical subsystems to OEMs. Sales
of new products are expected to make up an increasing part of
our total revenue. The introduction of new products is
inherently risky because it is difficult to foresee the adoption
of new standards, coordinate our technical personnel and
strategic relationships and win acceptance of new products by
OEMs. We may not be able to recoup design and development
expenditures if our new products are not accepted by OEMs. Newly
introduced products typically carry lower gross margins for
several or more quarters following their introduction. If any of
our new subsystems is not successful in the market, or if we are
unable to obtain gross margins on new products that are similar
to the gross margins we have historically achieved, our
business, operating results and financial condition could be
adversely affected.
We may
not be able to integrate efficiently the operations of past and
future acquired businesses.
We have made, and may in the future consider making, additional
acquisitions of, or significant investments in, businesses that
offer complementary products, services, technologies or market
access. For example, we acquired Sieger Engineering, Inc. in
June 2006. If we are to realize the anticipated benefits of past
and future acquisitions or investments, the operations of these
companies must be integrated and combined efficiently with our
own. The process of integrating supply and distribution
channels, computer and accounting systems, and other aspects of
operations, while managing a larger entity, have and will
present a significant challenge to our management. In addition,
it is not certain that we will be able to incorporate different
financial and reporting controls, processes, systems and
technologies into our existing business environment. The
difficulties of integration may increase because of the
necessity of combining personnel with varied business
backgrounds and combining different corporate cultures and
objectives. We may assume substantial debt and incur substantial
costs associated with these activities and we may suffer other
material adverse effects from these integration efforts which
could materially reduce our earnings, even over the long-term.
We may not succeed with the integration process and we may not
fully realize the anticipated benefits of the business
combinations. The dedication of management resources to such
integration or divestitures may detract attention from the
day-to-day business, and we may need to hire additional
management personnel to manage our acquisitions successfully.
In addition, we frequently evaluate acquisitions of, or
significant investments in, complementary companies, assets,
businesses and technologies. Even if an acquisition or other
investment is not completed, we may incur significant management
time and effort and financial cost in evaluating such
acquisition or investment, which has in the past had, and could
in the future have, an adverse effect on our results of
operations. Furthermore, due to the limited liquidity in the
credit market, the financing of any such acquisition may be
difficult to obtain, and the terms of such financing may be less
favorable.
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 would be if it were
protected by patents. If we fail to protect our proprietary
rights successfully, 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, and, in the event we do not detect
infringement of our proprietary rights, we 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.
If we
do not keep pace with developments in the industries we serve
and with technological innovation generally, our products may
not be competitive.
Rapid technological innovation in semiconductor, flat panel
displays, solar and medical device manufacturing requires
capital equipment providers to anticipate and respond quickly to
evolving customer requirements and could render our current
product offerings and technology obsolete. Technological
innovations are inherently
14
complex. We must devote resources to technology development in
order to keep pace with such rapidly evolving technologies. We
believe that our future success will depend upon our ability to
design, engineer and manufacture products that meet the changing
needs of our customers. This requires that we successfully
anticipate and respond to technological changes in design,
engineering and manufacturing processes in a cost-effective and
timely manner. If we are unable to integrate new technical
specifications into competitive product designs, develop the
technical capabilities necessary to manufacture new products or
make necessary modifications or enhancements to existing
products, our business prospects could be harmed.
The timely development of new or enhanced products is a complex
and uncertain process which requires that we:
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design innovative and performance-enhancing features that
differentiate our products from those of our competitors;
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identify emerging technological trends in the industries we
serve, including new standards for our products;
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accurately identify and design new products to meet market needs;
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collaborate with OEMs to design and develop products on a timely
and cost-effective basis;
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ramp-up
production of new products, especially new subsystems, in a
timely manner and with acceptable yields;
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successfully manage development production cycles; and
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respond effectively to technological changes or product
announcements by others.
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The
industries in which we participate are highly competitive and
rapidly evolving, and if we are unable to compete effectively,
our operating results would be harmed.
Although we have not faced competition in the past from the
largest subsystem and component manufacturers in the industries
we serve, 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 subject to 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 other 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 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 critical subsystems that we
produce, the loss of that customer could have a material adverse
effect on our business, financial condition and operating
results. The introduction of new technologies and new market
entrants may also increase competitive pressures.
We
must achieve design wins to retain our existing customers and to
obtain new customers.
New capital equipment typically has a lifespan of several years,
and OEMs frequently specify which systems, subsystems,
components and instruments are to be used in their equipment.
Once a specific system, subsystem, component or instrument is
incorporated into a piece of capital equipment, it will likely
continue to be incorporated into that piece of equipment for at
least several months before the OEM switches to the product of
another supplier.
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Accordingly, it is important that our products are designed into
the new semiconductor, solar, flat panel and medical device
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 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 may
not be able to respond quickly enough to increases in demand for
our products.
Demand shifts in the industries we serve 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:
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mobilize our supply chain in order to maintain component and raw
material supply;
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optimize the use of our design, engineering and manufacturing
capacity in a timely manner;
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deliver our products to our customers in a timely fashion;
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expand, if necessary, our manufacturing capacity; and
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maintain our product quality as we increase production.
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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, for many of the components we use in
our products. In addition, our customers often specify
components of particular suppliers that we must incorporate into
our 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. The risk of such a loss is
particularly high as a result of the current economic downturn,
as many of our suppliers have announced poor operating results
and have limited access to capital. In addition, the
manufacturing of certain components and subsystems is an
extremely complex process. Therefore, if a supplier were 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, which would adversely affect our
business, operating results and financial condition. We may also
experience difficulty in obtaining sufficient supplies of
components and raw materials in times of significant growth in
our business. For example, we have in the past 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, which could
result in a loss of market share.
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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:
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cause delays in product introductions and shipments;
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result in increased costs and diversion of development resources;
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cause us to incur increased charges due to unusable inventory;
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require design modifications;
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decrease market acceptance of, or customer satisfaction with,
our products, which could result in decreased sales and product
returns; or
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result in lower yields for semiconductor manufacturers.
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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 existing customers or impair our ability to attract new
customers. In addition, we may not find defects or failures in
our products until after they are installed in a
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.
We
have outstanding indebtedness; the restrictive covenants under
our debt agreements may limit our ability to expand or pursue
our business strategy; if we are forced to prepay some or all of
this indebtedness our financial position would be severely and
adversely affected.
We have outstanding indebtedness. At the end of fiscal 2008, our
long-term debt was $12.7 million and our short-term debt
was $5.8 million, for an aggregate total of
$18.5 million. Our loan agreement, as amended on
February 4, 2009, requires compliance with certain
financial covenants, including maintenance of a minimum monthly
tangible net worth and a minimum monthly liquidity coverage
ratio. The covenants contained in our line of credit with the
bank also restrict our ability to take certain actions,
including our ability to:
|
|
|
|
|
incur additional indebtedness;
|
|
|
|
pay dividends and make distributions in respect of our capital
stock;
|
|
|
|
redeem capital stock;
|
|
|
|
make investments or other restricted payments outside the
ordinary course of business;
|
|
|
|
engage in transactions with stockholders and affiliates;
|
|
|
|
create liens;
|
|
|
|
sell or otherwise dispose of assets;
|
|
|
|
make payments on our other debt, other than in the ordinary
course; and
|
|
|
|
engage in certain mergers and acquisitions.
|
We are currently in compliance with the financial and reporting
covenants in our loan agreement. In January 2009, we were out of
compliance with the reporting covenants, however, we received a
waiver from our bank. We cannot assure you that we will meet
these financial covenants in subsequent periods. If we are
unable to meet any
17
covenants, we cannot assure you that the bank will grant waivers
or amend the covenants, or that the bank will not terminate the
agreement, preclude further borrowings or require us to
immediately repay any outstanding borrowings. As long as our
indebtedness remains outstanding, the restrictive covenants
could impair our ability to expand or pursue our business
strategies or obtain additional funding. Forced prepayment of
some or all of our indebtedness would reduce our available cash
balances and have an adverse impact on our operating and
financial performance.
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 $9.4 million during fiscal
2008, of which $7.7 million related to improvements to our
new manufacturing facility in Hayward, California and
$1.7 million related to the development of our
manufacturing facilities in China. In 2007, we made capital
expenditures of $8.0 million, of which $4.3 million
related to the implementation of our new ERP system and
$1.7 million related to the development of our
manufacturing facilities in China, which includes
$1.5 million related to our second, leased manufacturing
facility in Shanghai, China. The amount of our future capital
requirements will depend on many factors, including:
|
|
|
|
|
general worldwide financial market conditions;
|
|
|
|
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.
|
Although we amended our loan agreement and extended the maturity
of our credit facility through January 29, 2012, we may
need to raise additional funds through public or private equity
or debt financing if our current cash and cash flow from
operations are insufficient to fund our future activities. Due
to very limited liquidity in the credit market, we may not be
able to obtain additional debt financing when and if necessary
in a timely manner. In addition, banks have sometimes been
unable or unwilling to satisfy their obligations under existing
credit arrangements. Access to capital markets has recently been
unavailable to most companies such as ours and there can be no
assurance as to when the capital markets will recover. Equity
financing, when and if available, could be dilutive to holders
of our common stock, and debt financings would likely 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.
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 and officers, including our Chief Executive
Officer, Chief Operating Officer or any of our Senior Vice
Presidents, or the failure to attract and retain new qualified
employees, would adversely affect our business, operating
results and financial condition.
18
We
have experienced and may continue to experience difficulties
with our new enterprise resource planning (ERP) system which has
impacted and could further impact our results of
operations.
We have experienced and may continue to experience, difficulties
with our new ERP system. For example, in the fourth quarter of
fiscal 2007, increased year-end rescheduling actions by our
customers, combined with the difficulties we experienced with
our new ERP system, resulted in inefficiencies which drove
higher operating costs. We implemented our new ERP system in our
China facilities during the beginning of our first quarter of
fiscal 2009. Difficulties related to implementing and working
with a new ERP system have adversely affected and could disrupt
our ability to timely and accurately process and report key
components of the results of a consolidated operations, our
financial position and cash flows.
Any disruptions or difficulties that may occur in connection
with this new ERP system could further adversely affect our
ability to complete the evaluation of our internal controls and
attestation activities required by SOX 404. System failure or
malfunctioning may result in disruption of operations and the
inability to process transactions and could adversely affect our
financial results.
Fluctuations
in currency exchange rates may adversely affect our financial
condition and results of operations.
Our international sales are denominated primarily, though not
entirely, in U.S. dollars. Many of the costs and expenses
associated with our Chinese subsidiaries are paid in Chinese
Renminbi, and we expect our exposure to Chinese Renminbi to
increase as we ramp up production in those facilities. In
addition, purchases of some of our components are denominated in
Japanese Yen. Changes in exchange rates among other currencies
in which our revenue or costs are denominated and the
U.S. dollar may affect our revenue, cost of sales and
operating margins. While fluctuations in the value of our
revenue, cost of sales and operating margins as measured in
U.S. dollars have not materially affected our results of
operations historically, we do not currently hedge our exchange
exposure, and exchange rate fluctuations could have an adverse
effect on our financial condition and results of operations in
the future.
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 foreign, domestic,
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 facility in South San Francisco,
California and our new manufacturing and headquarters facilities
in Hayward, 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 facilities. We do not
carry insurance policies that cover potential losses caused by
earthquakes or other natural disasters or power loss.
We
must maintain effective controls, and our auditors will report
on them.
The Sarbanes-Oxley Act of 2002 requires, among other things,
that we maintain effective disclosure controls and procedures
and internal control over financial reporting. In order to
maintain and improve the effectiveness of our disclosure
controls and procedures and internal control over financial
reporting, significant resources and management oversight are
required. As a result, our managements attention might be
diverted from other business concerns, which could have a
material adverse effect on our business, financial condition and
operating results.
19
During the audit of our financial statements for fiscal 2008 and
during the third quarter of 2008, material weaknesses in our
internal control over financial reporting were identified and,
in the future, we may identify additional material weaknesses in
our internal control over financial reporting. The material
weakness identified as of January 2, 2009 related to
year-end physical inventory count procedures and computation of
inventory reserves. The material weakness identified in the
third quarter of fiscal 2008 related to misclassification of
debt between current and non current liabilities in our balance
sheet as of September 26, 2008. We have remediated the
material weakness related to misclassification of debt and are
in the process of determining the steps required to remediate
the material weakness related to year-end physical inventory
count procedures and computation of inventory reserves, however
we cannot estimate the time required to complete these
remediation steps. Any failure by us to maintain adequate
controls or to adequately implement new controls could harm our
operating results or cause us to fail to meet our reporting
obligations. Inferior internal controls could also cause
investors to lose confidence in our reported financial
information, which could adversely affect the trading price of
our common stock. In addition, we might need to hire additional
accounting and financial staff with appropriate public company
experience and technical accounting knowledge, and we might not
be able to do so in a timely fashion.
The
market for our stock is subject to significant
fluctuation.
The size of our public market capitalization is relatively
small, and the volume of our shares that are traded is low. The
market price of our common stock could be subject to significant
fluctuations. 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;
|
|
|
|
the effects of war and terrorist attacks; 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.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
In September 2007, we entered into a new facility lease
agreement for approximately 104,000 square feet of office
space in Hayward, California. We moved into the new facility in
July 2008 and use this space as the new headquarters for our
principal administrative, sales and support, engineering and
technology development facilities and for manufacturing
purposes. This lease will expire in February 2015. We also have
manufacturing and engineering facilities in South
San Francisco and Sacramento. In South San Francisco
we lease approximately 102,000 square feet under 6 leases
with varying expiration dates and extension periods.
Approximately 12,300 square feet in South
San Francisco is a neat room facility and 1,300 square
feet is a clean room manufacturing facility. In Sacramento, we
lease approximately 20,000 square feet under a lease that
expires in August of 2010 with one five-year extension. We also
have manufacturing facilities in Austin, Texas, Tualatin,
20
Oregon and Shanghai, China. In Austin, we lease approximately
42,000 square feet of commercial space under a lease that
expires on August 31, 2010 with a one-year extension.
Approximately 6,800 square feet in Austin is a clean room
manufacturing facility. In Shanghai, we lease approximately
132,000 square feet of commercial space under two leases
which expire on June 30, 2009 and February 28, 2011.
Approximately 11,000 square feet of this space is a clean
room facility. In Singapore, we lease approximately
500 square feet under a six-month lease that expires in
April 2009. In Tualatin, we lease approximately
28,000 square feet of commercial space under a lease that
expires on November 7, 2010. Approximately
6,800 square feet in Tualatin is a clean room manufacturing
facility. Subsequent to our fiscal 2008 year end we vacated
this facility and are currently looking to sublease this space.
The table below lists our properties as of February 28,
2009:
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Principal Use
|
|
Square Footage
|
|
|
Ownership
|
|
|
Hayward, California
|
|
Headquarters, manufacturing, sales, engineering, technology
development
|
|
|
104,000
|
|
|
|
Leased
|
|
South San Francisco, California
|
|
Manufacturing, engineering
|
|
|
102,000
|
|
|
|
Leased
|
(1)
|
Sacramento, California
|
|
Manufacturing
|
|
|
20,000
|
|
|
|
Leased
|
|
Austin, Texas
|
|
Manufacturing, engineering
|
|
|
42,000
|
|
|
|
Leased
|
|
Tualatin, Oregon
|
|
Vacant with plans to sublet
|
|
|
28,000
|
|
|
|
Leased
|
|
Singapore Science Park III, Singapore
|
|
Customer support
|
|
|
500
|
|
|
|
Leased
|
|
Shanghai, China
|
|
Manufacturing, customer support
|
|
|
132,000
|
|
|
|
Leased
|
|
|
|
|
(1)
|
|
As part of the acquisition of Sieger, the Company leases a
facility from an entity controlled by one of the Companys
directors. The Company incurred rent expense resulting from the
lease of this facility of $0.3 million in the year ended
January 2, 2009 and $0.3 million in the year ended
December 28, 2007.
|
|
|
Item 3.
|
Legal
Proceedings
|
On June 25, 2007, a jury in the federal court for the
Northern District of California found that we infringed one of
the patents owned by Celerity, Inc. The jury awarded damages of
$45,000 to Celerity in royalty fees for gas panel sales to date
related to the product that was found to infringe the Celerity
patent and enjoined us from making, using, or selling such
product. The court also ordered us to pay Celerity $85,000 in
court costs. We appealed the jury verdict and injunction to the
Court of Appeals for the Federal Circuit (CAFC). In October
2008, the CAFC affirmed the verdict of infringement. The
CAFCs ruling has not and we do not expect it to have a
material impact on our operating results or cash flows.
From time to time, we are also subject to various legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business. Although the outcome
of the various legal proceedings and claims cannot be predicted
with certainty, we have not had a history of outcomes to date
that have been material to the statement of operations and do
not believe that any of these proceedings or other claims will
have a material adverse effect on our consolidated financial
condition or results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
21
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
|
COMPARISON
OF 57 MONTH CUMULATIVE TOTAL RETURN*
Among Ultra Clean Holdings, Inc., The NASDAQ Composite Index
And The RDG Semiconductor Composite Index
|
|
|
*
|
|
$100 invested on 3/25/04 in stock or 2/28/04 in index-including
reinvestment of dividends. Fiscal year ending December 31.
|
Our common stock has been traded on the NASDAQ Global Market
under the symbol UCTT since March 25, 2004. The
following table sets forth for the periods indicated the high
and low closing sales prices per share of our common stock as
reported by the NASDAQ Global Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal year 2007
First quarter
|
|
$
|
18.52
|
|
|
$
|
13.25
|
|
Second quarter
|
|
$
|
19.60
|
|
|
$
|
12.91
|
|
Third quarter
|
|
$
|
15.55
|
|
|
$
|
12.77
|
|
Fourth quarter
|
|
$
|
16.58
|
|
|
$
|
12.13
|
|
Fiscal year 2008
First quarter
|
|
$
|
12.20
|
|
|
$
|
8.98
|
|
Second quarter
|
|
$
|
11.49
|
|
|
$
|
8.08
|
|
Third quarter
|
|
$
|
8.38
|
|
|
$
|
6.02
|
|
Fourth quarter
|
|
$
|
5.41
|
|
|
$
|
1.03
|
|
To date, we have not declared or paid cash dividends to our
stockholders and we do not intend to do so for the foreseeable
future in order to retain earnings for use in our business. Our
credit facility limits our ability to pay dividends. As of
February 27, 2009, we had approximately 13 stockholders of
record.
22
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
You should read the following tables in conjunction with other
information contained under Managements Discussion
and Analysis of Financial Condition and Results of
Operations, our consolidated financial statements and
related notes and other financial information contained
elsewhere in this Annual Report.
Statements
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
1/02/2009
|
|
|
12/28/2007
|
|
|
12/29/2006*
|
|
|
12/30/2005
|
|
|
12/31/2004
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
266,919
|
|
|
$
|
403,807
|
|
|
$
|
337,228
|
|
|
$
|
147,535
|
|
|
$
|
184,204
|
|
Cost of goods sold
|
|
|
241,453
|
|
|
|
346,347
|
|
|
|
286,542
|
|
|
|
127,459
|
|
|
|
154,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25,466
|
|
|
|
57,460
|
|
|
|
50,686
|
|
|
|
20,076
|
|
|
|
29,209
|
|
Operating expenses
|
|
|
32,869
|
|
|
|
33,953
|
|
|
|
25,352
|
|
|
|
17,515
|
|
|
|
15,761
|
|
Impairment of goodwill
|
|
|
34,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
21,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(62,483
|
)
|
|
|
23,507
|
|
|
|
25,334
|
|
|
|
2,561
|
|
|
|
13,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(870
|
)
|
|
|
(1,797
|
)
|
|
|
(1,758
|
)
|
|
|
147
|
|
|
|
(387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(63,353
|
)
|
|
|
21,710
|
|
|
|
23,576
|
|
|
|
2,708
|
|
|
|
13,061
|
|
Income tax provision (benefit)
|
|
|
(10,936
|
)
|
|
|
5,817
|
|
|
|
7,266
|
|
|
|
705
|
|
|
|
4,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(52,417
|
)
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
|
$
|
2,003
|
|
|
$
|
8,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.43
|
)
|
|
$
|
0.75
|
|
|
$
|
0.85
|
|
|
$
|
0.12
|
|
|
$
|
0.59
|
|
Diluted
|
|
$
|
(2.43
|
)
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
$
|
0.12
|
|
|
$
|
0.55
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,542
|
|
|
|
21,293
|
|
|
|
19,220
|
|
|
|
16,241
|
|
|
|
14,605
|
|
Diluted
|
|
|
21,542
|
|
|
|
22,118
|
|
|
|
19,649
|
|
|
|
17,169
|
|
|
|
15,542
|
|
|
|
|
*
|
|
The results for the year ended December 29, 2006 include
the activity of UCT-Sieger beginning June 30, 2006, the
date of acquisition.
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/02/2009
|
|
|
12/28/2007
|
|
|
12/29/2006
|
|
|
12/30/2005
|
|
|
12/31/2004
|
|
|
Cash & cash equivalents
|
|
$
|
29,620
|
|
|
$
|
33,447
|
|
|
$
|
23,321
|
|
|
$
|
10,663
|
|
|
$
|
11,440
|
|
Working capital
|
|
|
73,197
|
|
|
|
80,498
|
|
|
|
71,587
|
|
|
|
33,889
|
|
|
|
29,861
|
|
Total assets
|
|
|
117,411
|
|
|
|
195,027
|
|
|
|
187,047
|
|
|
|
75,009
|
|
|
|
67,698
|
|
Bank borrowings and long- term debt
|
|
|
18,471
|
|
|
|
22,211
|
|
|
|
31,564
|
|
|
|
2,343
|
|
|
|
|
|
Short-and long-term rent obligations
|
|
|
388
|
|
|
|
1,062
|
|
|
|
379
|
|
|
|
354
|
|
|
|
528
|
|
Total stockholders equity
|
|
|
78,399
|
|
|
|
129,488
|
|
|
|
107,168
|
|
|
|
55,281
|
|
|
|
52,475
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This section and other parts of this Annual Report on
Form 10-K
contain forward-looking statements that involve risks and
uncertainties. Forward-looking statements can also be identified
by words such as anticipates, expects,
believes, plans, predicts,
and similar terms. Forward-looking statements are not guarantees
of future performance and the Companys actual results may
differ significantly from the result discussed in the
23
forward-looking statements. Factors that might cause such
differences include, but are not limited to, those discussed in
Item 1A Risk Factors above. The
following discussion should be read in conjunction with the
consolidated financial statement and notes thereto included in
Item 8 of this report. The Company assumes no obligation to
revise or update any forward-looking statements for any reason,
except as required by law.
Overview
We are a leading developer and supplier of critical subsystems,
primarily for the semiconductor capital equipment industry. We
also leverage the specialized skill sets required to support
semiconductor capital equipment to serve the technologically
similar markets in the flat panel, solar and medical device
industries, collectively referred to as Other Addressed
Industries. We develop, design, prototype, engineer,
manufacture and test subsystems which are highly specialized and
tailored to specific steps in the semiconductor manufacturing
process as well as the manufacturing process in Other Addressed
Industries. Our revenue is derived primarily from the sale of
gas delivery systems and other critical subsystems including
chemical mechanical planarization (CMP) subsystems,
chemical delivery modules, top-plate assemblies, frame
assemblies, process modules and other high level assemblies.
The recent weakening global economy, severe tightening of the
credit markets and turmoil in the financial markets are
contributing to slowdowns in the markets we serve. Uncertainty
regarding future growth in economies throughout the world have
caused companies to reduce capital investment, the impact of
which has been particularly severe in the semiconductor capital
equipment industry. This economic uncertainty has led our
customers to push out, cancel, or refrain from placing orders
with us, which in turn has reduced our sales and negatively
impacted our cash flow. Our sales were $266.9 million in
fiscal year 2008 compared to $403.8 million for fiscal year
2007. Four customers: Applied Materials, Inc., Intuitive
Surgical, Inc., Lam Research Corporation and Novellus Systems,
Inc., accounted for 88% of our sales for fiscal year 2008. We
incurred a net loss of $52.4 million, which included a
charge for impairment of goodwill and other long-lived assets of
$55.1 million, for the year ended January 2, 2009 and
we expect to incur additional losses in the future. We expect an
unusually challenging environment for fiscal 2009 and expect
sequential revenues to be lower in the first quarter of 2009.
Results
of Operations
The following table sets forth income statement data for the
periods indicated as a percentage of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
90.5
|
%
|
|
|
85.8
|
%
|
|
|
85.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9.5
|
%
|
|
|
14.2
|
%
|
|
|
15.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
0.9
|
%
|
Sales and marketing
|
|
|
2.2
|
%
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
General and administrative
|
|
|
9.1
|
%
|
|
|
6.2
|
%
|
|
|
5.2
|
%
|
Impairment of goodwill
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
32.9
|
%
|
|
|
8.4
|
%
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(23.4
|
)%
|
|
|
5.9
|
%
|
|
|
7.5
|
%
|
Interest and other income (expense), net
|
|
|
(0.3
|
)%
|
|
|
(0.4
|
)%
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(23.7
|
)%
|
|
|
5.5
|
%
|
|
|
7.0
|
%
|
Income tax provision (benefit)
|
|
|
(4.1
|
)%
|
|
|
1.4
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(19.6
|
)%
|
|
|
3.9
|
%
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Year
Ended January 2, 2009 Compared With Year Ended
December 28, 2007
Sales
Sales for the year ended January 2, 2009 decreased
$136.9 million, or 33.9%, to $266.9 million from
$403.8 million for the year ended December 28, 2007.
The decrease in sales reflects a decrease in semi-conductor
equipment demand as a result of the overall slowdown in the
industry, partially offset by sequential minor increases in
non-semiconductor revenue. We expect sequential revenues to be
lower in the first quarter of 2009.
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 January 2, 2009 decreased to $25.5 million,
or 9.5% of sales, from $57.5 million, or 14.2% of sales,
for the year ended December 28, 2007. The decrease in gross
profit was due primarily to declining unit volume manufactured
due to declining sales during fiscal year 2009, lower factory
utilization, costs associated with the centralization and
closure of our facilities and employee severance charges
resulting from a series of reductions in force.
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 remained relatively flat decreasing to
$2.9 million, or 1.1% of sales, for the year ended
January 2, 2009 compared to $3.0 million, or 0.7% of
sales for the year ended December 28, 2007. The increase as
a percentage of sales was due primarily to a lower revenue base
in 2009 as compared to 2008.
Sales and
Marketing Expense
Sales and marketing expense consists primarily of salaries and
commissions paid to our sales and service employees, salaries
paid to our engineers who work with our sales and service
employees to help determine the components and configuration
requirements for new products and other costs related to the
sales of our products. Sales and marketing expense was
$5.7 million and $5.9 million for the years ended
January 2, 2009 and December 28, 2007, respectively.
The decreased spending was due primarily to reduced travel
expense and sales commissions offset by an increase in severance
payments. As a percentage of sales, sales and marketing expense
increased to 2.2% for the year ended January 2, 2009
compared to 1.5% for the year ended December 28, 2007 due
to the lower revenue base in 2009 compared as to 2008.
General
and Administrative Expense
General and administrative expense consists primarily of
salaries and overhead of our administrative staff and
professional fees. General and administrative expense decreased
to $24.2 million, or 9.1% of sales, for the year ended
January 2, 2009, from $25.1 million, or 6.2% of sales,
for the year ended December 28, 2007. The decrease in
spending was due to lower outside service costs of approximately
$3.1 million resulting from reduced accounting and
consulting costs related to SOX 404 compliance and reduced legal
fees as the legal proceedings discussed in
Item 3 Legal Proceedings were finalized in
fiscal 2007. This decrease was partially offset by increases in
facility expenses related to the move to our new facility in
Hayward, California in mid-fiscal 2008, higher depreciation
costs due to the implementation of our new ERP system in late
fiscal 2007 and employee severance charges resulting from a
series of reductions in force.
Impairment
of goodwill
During the current year, as a result of our annual impairment
test of goodwill, we determined that the carrying amount of
certain reporting units exceeded their fair value resulting in
impairment charges of $34.1 million to goodwill (See
Note 4 to Consolidated Financial Statements for additional
discussion).
25
During the fourth quarter of fiscal 2008, we determined that an
adverse change in our business climate required us to test the
recoverability of our
long-lived
assets. As a result of these tests we determined that the
carrying amount of certain reporting units had exceeded their
fair value resulting in impairment charges of $10.7 million for
other intangible assets and $10.4 million for property, plant
and equipment. (See Note 4 to Consolidated Financial Statements
for further discussion).
Interest
and Other Income (Expense), net
Interest and other income (expense), net for the year ended
January 2, 2009 was $(0.9) million compared to
$(1.8) million in 2007. Components of interest and other
income (expense) relate primarily to the interest expense
incurred for debt financing. Interest expense for fiscal 2008
was $1.1 million compared to $2.2 million in 2007. The
decrease in 2008 was due primarily to a decrease in interest
rates on debt. This decrease in interest expense was partially
offset by a decrease in interest income of approximately
$0.3 million.
Income
Tax Provision
Our effective tax rate for the year ended January 2, 2009
was (17.3)% compared to 26.8% for the year ended
December 28, 2007. Our effective tax rate is substantially
impacted by several items including Section 199 deduction
for domestic production activities, state taxes and the effect
of foreign operations, and in the fourth quarter ended
January 2, 2009, our effective tax rate was impacted by the
impairment of goodwill for which there is no tax benefit. The
decreased rate in 2008 reflects primarily the impact of our
goodwill impairment charge as well as a change in our geographic
mix of US and China earnings.
Year
Ended December 28, 2007 Compared With Year Ended
December 29, 2006
Sales
Sales for the year ended December 28, 2007 increased
$66.6 million, or 19.7%, to $403.8 million from
$337.2 million for the year ended December 29, 2006.
The increase reflects continued market penetration and strong
demand in the first six months of 2007, offset, in part, by a
decrease in demand resulting from the overall slowdown in the
semiconductor capital equipment market in the second half of
2007. The increase includes incremental revenue of
$32.2 million derived from the acquisition of UCT-Sieger.
Gross
Profit
Gross profit for the year ended December 28, 2007 increased
to $57.5 million, or 14.2% of sales, from
$50.7 million, or 15.0% of sales, for the year ended
December 29, 2006. Gross profit for the year ended 2007
reflects a correction in inventory resulting from incorrect
material transfers in our newly implemented ERP system, which
increased our cost of goods sold by $0.3 million and
decreased gross margins by 0.1% from the 14.3% reported in our
earnings release dated February 19, 2008. The increase in
gross profit from 2006 was due primarily to an increase in
revenues, net of a decrease of approximately $3.2 million
resulting from a reduction in gross margins, primarily from our
US operations. The decrease in gross margin was due primarily to
declining, sequential quarterly revenue which began the first
quarter of fiscal 2007. A contributing factor to the decrease in
the gross margin in 2007 related to the increase in
SFAS 123(R) stock-based compensation expense of
$0.5 million.
Research
and Development Expense
Research and development expense remained relatively flat
decreasing to $3.0 million, or 0.7% of sales, for the year
ended December 28, 2007 compared to $3.1 million, or
0.9% of sales for the year ended December 29, 2006. The
decrease as a percentage of sales was due primarily to a higher
revenue base in 2007 as compared to 2006.
Sales and
Marketing Expense
Sales and marketing expense was $5.9 million and
$4.6 million for the years ended December 28, 2007 and
December 29, 2006, respectively. The increased spending was
due primarily to approximately $1.1 million in additional
compensation expense as a result of increases in sales and
service headcount to support higher revenue including the
26
Sieger revenue. The balance of the increase was attributed
primarily to increased travel expenses of $0.1 million and
$0.1 million of SFAS 123(R) stock compensation
expense. As a percentage of sales, sales and marketing expense
increased to 1.5% for the year ended December 28, 2007
compared to 1.4% for the year ended December 29, 2006.
General
and Administrative Expense
General and administrative expense increased to
$25.1 million, or 6.2% of sales, for the year ended
December 28, 2007 from $17.7 million, or 5.2% of
sales, for the year ended December 29, 2006. The increase
in spending was due to increases in labor costs of
$3.5 million in part related to the addition of UCT-Sieger
administrative personnel as well as increases in administrative
personnel related to our China facilities. The increase is also
due to accounting and consulting costs related to SOX 404
compliance of $1.3 million, legal fees related primarily to
legal proceedings described above in Item 3
Legal Proceedings of $1.4 million and SFAS 123(R)
stock compensation expenses of $0.7 million.
Interest
and Other Income (Expense), net
Interest and other income (expense), net for the year ended
December 28, 2007 was $(1.8) million compared to
$(1.8) million in 2006. Components of interest and other
income (expense) relate primarily to the interest expense
incurred for debt financing related to the Sieger acquisition.
Interest expense for the year 2007 was $2.2 million
compared to $1.4 million in 2006. The increase in 2007 was
due to interest on debt incurred for a full year in 2007
compared to interest on debt incurred for only a part of 2006 as
a result of the acquisition of Sieger in June 2006. This
increase in interest expense was partially offset by an increase
in interest income of approximately $0.1 million as well as
a decrease in other expense of approximately $0.5 million.
Other expense in fiscal 2006 included approximately
$0.5 million of stock offering expenses related to our
secondary offering in the first quarter of 2006.
Income
Tax Provision
Our effective tax rate for the year ended December 28, 2007
was 26.8% compared to 30.8% for the year ended December 29,
2006. Our effective tax rate is substantially impacted by
several items including Section 199 deduction for domestic
production activities, state taxes and the effect of foreign
operations. The decreased rate in 2007 reflects primarily a
change in our geographic mix of US and China earnings.
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 revenue recognition, inventory valuation,
accounting for income taxes, business combinations, valuation of
intangible assets and goodwill and equity incentives to
employees to be critical policies due to the estimates and
judgments involved in each.
Revenue
Recognition
Our revenue is highly concentrated in four OEM customers in the
semiconductor capital equipment, solar, flat panel and medical
device industries. 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;
|
27
|
|
|
|
|
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 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 creditworthiness 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 significant 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 subsystem or as
separate inventory. For the years ended January 2, 2009 and
December 28, 2007, we wrote off $0.7 million and
$0.9 million, respectively, in inventory determined to be
obsolete.
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.
We adopted the provision of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109, as of
January 1, 2007. Prior to adoption, our policy was to
establish reserves that reflected the best estimate of known tax
contingencies. FIN No. 48 requires application of a
more likely than not threshold to the recognition and
derecognition of uncertain tax positions. FIN No. 48
requires us to recognize the amount of tax benefit that has a
greater than 50 percent likelihood of success upon
settlement. The calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax law
and related regulations. Accordingly, we report a liability for
unrecognized tax benefits resulting from uncertain tax positions
taken or expected to be taken in a tax return. We recognize
interest and penalties, if any, related to unrecognized tax
benefits in income tax expense.
The Companys 2005 state income tax return is
currently under examination by the California Franchise Tax
Board (CFTB) and the Companys 2006 tax return
is currently under examination by the CFTB and the Internal
Revenue Service. The Company is currently open to audit under
the statute of limitations by the Internal Revenue Service for
fiscal year 2007 and the Companys state income tax returns
are open to audit under the statute of limitations for the
fiscal years 2005 through 2007.
28
Business
Combinations
In accordance with business combination accounting, we allocate
the purchase price of acquired companies to the tangible and
intangible assets acquired and liabilities assumed based on
their estimated fair values. We engage third-party appraisal
firms to assist management in determining the fair values of
acquired intangible assets such as trade name and customer
relationships. Such valuations require management to make
significant estimates and assumptions. Management makes
estimates of fair value based upon assumptions believed to be
reasonable. These estimates are based on historical experience
and information obtained from the management of the acquired
companies and are inherently uncertain.
Valuation
of Goodwill and Long-lived Assets
We evaluate our intangible assets and goodwill in accordance
with Statement of Financial Accounting Standards No. 142
(SFAS No. 142),
Goodwill and Other
Intangible Assets
, at least annually, for indications of
impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable, such as an
adverse change in our business climate or a decline in the
overall industry, that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The
Companys intangible assets include goodwill, customer
lists 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 require a goodwill
impairment test annually 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 reportable 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 the estimated fair value is less than the
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.
In accordance with SFAS No. 144,
Accounting for the
Impairment or Disposal of Long-lived Assets
(SFAS No. 144)
,
the Company tests other
long-lived assets, including property, equipment and leasehold
improvements and other intangible assets subject to
amortization, for recoverability whenever events or changes in
circumstances indicate that the carrying value of those assets
may not be recoverable. The Company assesses the recoverability
of an asset group by determining if the carrying value of the
asset group exceeds the sum of the projected undiscounted cash
flows expected to result from the use and eventual disposition
of the assets over the remaining economic life of the primary
asset in the asset group. If the recoverability test indicates
that the carrying value of the asset group is not recoverable,
the Company will estimate the fair value of the asset group
using the income approach, which is the present value technique
used to measure the fair value of future cash flow produced by
each asset group, and compare it to its carrying value. The
excess of the carrying value over the fair value is allocated
pro rata to derive the adjusted carrying value. The adjusted
carrying value of each asset in the asset group is not reduced
below its fair value.
See additional disclosure of these analyses in Note 4 to
our Consolidated Financial Statements including the impairment
charges recorded during the quarter ended January 2, 2009.
The process of evaluating the potential impairment of goodwill
or long-lived assets is subjective and requires significant
judgment on matters such as, but not limited to, the reporting
unit at which goodwill should be measured for impairment and the
asset group to be tested for recoverability. The Company is also
required to make estimates that may significantly impact the
outcome of the analyses. Such estimates include, but are not
limited to, future operating performance and cash flows, cost of
capital, terminal values, control premiums and remaining
economic lives of assets.
29
Equity
Incentives to Employees
We have accounted for stock-based compensation under Statement
of Financial Accounting Standards (SFAS) 123R
(revised 2004)
Share-Based Payment
(SFAS 123R) and SEC Staff Accounting Bulletin
(SAB) 107 which requires the use of option pricing
models that were not developed for use in valuing employee stock
options. The Black-Scholes option-pricing model that we use was
developed for use in estimating the fair value of short-lived
exchange traded options that have no vesting restrictions and
are fully transferable. In addition, option-pricing models
require the input of highly subjective assumptions, including
the options expected life and the price volatility of
underlying stock. Our expect stock price volatility assumption
was determined using the historical volatility of our common
stock. We determined that historical volatility reflects market
conditions and is a good indicator of future volatility. Our
expected term represents the period that our stock-based awards
are expected to be outstanding and was determined based on our
historical experience with similar awards, giving consideration
to the contractual terms of the stock-based awards and vesting
schedules. See Note 8 of Notes to Consolidated Financial
Statements for a detailed description.
Unaudited
Quarterly Financial Results
The following tables set forth statement of operations data, in
thousands, for the periods indicated. The information for each
of these periods is unaudited and has been prepared on the same
basis as our audited consolidated financial statements included
herein 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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
92,357
|
|
|
$
|
67,364
|
|
|
$
|
60,128
|
|
|
$
|
47,070
|
|
|
$
|
266,919
|
|
Gross profit
|
|
$
|
12,060
|
|
|
$
|
7,522
|
|
|
$
|
5,468
|
|
|
$
|
416
|
|
|
$
|
25,466
|
|
Net income (loss)
|
|
$
|
1,889
|
|
|
$
|
(162
|
)
|
|
$
|
(1,928
|
)
|
|
$
|
(52,216
|
)
|
|
$
|
(52,417
|
)
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
110,792
|
|
|
$
|
104,722
|
|
|
$
|
95,535
|
|
|
$
|
92,758
|
|
|
$
|
403,807
|
|
Gross profit
|
|
$
|
16,757
|
|
|
$
|
15,816
|
|
|
$
|
13,370
|
|
|
$
|
11,517
|
|
|
$
|
57,460
|
|
Net income
|
|
$
|
5,185
|
|
|
$
|
5,096
|
|
|
$
|
3,541
|
|
|
$
|
2,071
|
|
|
$
|
15,893
|
|
Our operating results for fiscal 2008 reflect a downturn in the
semiconductor capital equipment industry beginning in the second
quarter of 2007.
Liquidity
and Capital Resources
With the exception of the Sieger acquisition, which was funded
by third-party debt, historically, we have required capital
principally to fund our working capital needs, satisfy our debt
obligations, maintain our equipment and purchase new capital
equipment. As of January 2, 2009, we had cash of
$29.6 million compared to $33.4 million as of
December 28, 2007.
For the year ended January 2, 2009 we generated cash from
operating activities of $11.6 million compared to
$23.5 million for the year ended December 28, 2007.
Operating cash flow in 2008 was unfavorably impacted by our net
loss of $52.4 million, a decrease in accounts payable of
$25.6 million and an increase in prepaid and other assets
of $4.7 million. Operating cash flows were favorably
impacted by net non-cash activity of $58.9 million,
including changes in and impairment of goodwill and other
long-lived assets of $55.2 million, depreciation and
amortization of $4.2 million and $1.4 million,
respectively, stock-based compensation of $3.5 million and
increased net deferred income taxes of $5.2 million,
decreases in accounts receivable and inventory of
$21.1 million, $9.5 million, respectively, and an
increase in current liabilities of $4.7 million.
Net cash used in investing activities for the year ended
January 2, 2009 increased $1.7 million to
$9.4 million from $7.9 million in the year ended
December 28, 2008 due primarily to our investment in
equipment and leasehold improvements in our new Hayward,
California facility.
30
Net cash used in financing activities for the year ended
January 2, 2009 increased $0.3 million to
$6.0 million from $5.7 million in the year ended
December 28, 2007. Our use of cash in financing activities
was primarily due to payments on short-term and long-term debt
of $1.3 million and $2.4 million, respectively, and
the repurchase of common stock of $3.3 million (see
Note 7 to Consolidated Financial Statements), offset by
proceeds from the issuance of common stock from our employee
stock compensation plans of $1.2 million.
During fiscal 2008, we took steps to reduce our operating costs
in line with our declining revenues in the form of factory
shutdowns, reductions in headcount and other cost-cutting
measures. We will continue to monitor the state of the current
economic crisis and its impact on our business and will make
additional cost reductions as deemed necessary to align revenues
and expenses and ensure we maintain sufficient funds to
effectively run the business. We anticipate that our existing
cash balances and operating cash flow, together with available
borrowings under our credit facility as amended on
February 4, 2009 (see
Borrowing
Arrangements
below), will be sufficient to meet our
working capital requirements 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 state of the worldwide economy, the
cyclical expansion or contraction of the semiconductor capital
equipment industry and the other industries we serve and capital
expenditures required to meet possible increased demand for our
products.
Borrowing
Arrangements
In connection with our acquisition of Sieger in the second
quarter of 2006, we entered into a borrowing arrangement and a
term loan (Loan Agreement). The Loan Agreement
provided senior secured credit facilities in an aggregate
principal amount of up to $32.5 million, consisting of a
$25.0 million Revolving Line of Credit and a
$7.5 million term loan (Original Term Loan).
The outstanding balance of the Revolving Line of Credit as of
January 2, 2009, was approximately $14.8 million. The
balance of our Original Term Loan as of January 2, 2009,
was $1.2 million and will expire on June 29, 2009.
Interest rates on outstanding loans under the credit facilities
ranged from 3.5% to 6.5% per annum during the year ended
January 2, 2009 and were 3.5% per annum as of
January 2, 2009.
We also have a $5.0 million equipment loan that is secured
by certain of our equipment and expires May 2011. The interest
rate and outstanding balance on the equipment loan was 7.6% and
$2.5 million, respectively, as of January 2, 2009.
The combined balance outstanding on the Loan Agreement and
equipment loan at January 2, 2009 was $18.5 million.
On February 4, 2009, the Company amended its Loan Agreement
consisting of a reduction of the revolving credit facility from
$25.0 million to $20.0 million while extending its
maturity to January 29, 2012, and a new $3.0 million
three-year term loan, as amended, also maturing on
January 29, 2012. The aggregate amount of the revolving
credit facility is subject to a borrowing base equal to 80% of
eligible accounts receivable and 45% of eligible inventory
(total eligible inventory not to exceed $2.5 million) and
is secured by substantially all of our assets. The revolving
credit facility bears interest per annum at a variable rate
equal to the greater of the banks stated prime rate or 4%
plus a margin of 25 basis points. The new term loan, as
amended, bears interest per annum at a variable rate equal to
the greater of the banks stated prime rate or 4% plus a
margin of 75 basis points. The revolving credit facility
contains certain reporting and financial covenants, including
minimum tangible net worth and liquidity ratios, that must be
met on a monthly basis in order for the Company to remain in
compliance.
Capital
Expenditures
We made capital expenditures of $9.4 million in the year
ended January 2, 2009, $7.7 million of which was used
for our new headquarters in Hayward, California and
$1.7 million was used for expansion of our facilities in
China. Capital expenditures of $7.8 million in the year
ended December 28, 2007 was used primarily for facilities
expansion in China and the implementation of our new ERP system
which went live during the fourth quarter of 2007. Capital
expenditures in the year ended December 29, 2006 were
$4.0 million, the majority of which was used for domestic
cleanroom expansion activities and the purchase and
implementation of a new ERP system.
31
Contractual
Obligations
Other than operating leases for certain equipment and real
estate, we have no off-balance sheet transactions, unconditional
purchase obligations or similar instruments and, other than the
revolving credit facility described above, are not a guarantor
of any other entities debt or other financial obligations.
The following table summarizes our future minimum lease payments
and principal payments under debt obligations as of
January 2, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Capital lease
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13
|
|
Operating lease(1)
|
|
|
3,231
|
|
|
|
2,494
|
|
|
|
1,929
|
|
|
|
1,813
|
|
|
|
1,920
|
|
|
|
2,333
|
|
|
|
13,720
|
|
Borrowing arrangements
|
|
|
5,748
|
|
|
|
1,008
|
|
|
|
443
|
|
|
|
11,272
|
|
|
|
|
|
|
|
|
|
|
|
18,471
|
|
Purchase obligations
|
|
|
5,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(2)
|
|
$
|
14,325
|
|
|
$
|
3,502
|
|
|
$
|
2,372
|
|
|
$
|
13,085
|
|
|
$
|
1,920
|
|
|
$
|
2,333
|
|
|
$
|
37,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease expense reflects (a) the lease for our
headquarters facility in Hayward, California; (b) the lease
for a manufacturing facility in Portland, Oregon that expires on
October 31, 2010; (c) the leases for manufacturing
facilities in South San Francisco expire in 2009 and 2010;
(d) the leases for manufacturing facilities in Austin,
Texas that expire in 2010 and 2011. We have options to renew
certain of the leases in South San Francisco, which we
expect to exercise.
|
|
(2)
|
|
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48),
on December 30, 2006. As a result of the implementation of
FIN 48, we recorded an additional tax liability of
$0.4 million to offset the recognition of previously
recorded excess tax benefits. Because of the uncertainty
surrounding the future payment of these liabilities, the amounts
have been excluded from the table above.
|
Recently
Issued Accounting Standards
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles,
(SFAS No. 162).
SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be
used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States of
America. SFAS No. 162 is effective sixty days
following the SECs approval of the Public Company
Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present fairly in conformity with
generally accepted accounting principles
. The Company
is currently evaluating the potential impact, if any, of the
adoption of SFAS No. 162 on its consolidated financial
statements, results of operations and cash flows.
In April 2008, the FASB issued FASB Staff Position (FSP)
No. 142-3,
Determination of the Useful Life of Intangible
Assets.
FSP 142-3
amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under FASB Statement
No. 142, Goodwill and Other Intangible Assets.
This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets
in business combinations and asset acquisitions.
FSP 142-3
is effective for the Company for fiscal years beginning
January 1, 2009. The Company is evaluating the potential
impact of the provisions of this statement on its consolidated
financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS 141R and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 141R changes the
accounting for business combinations, including the measurement
of acquirer shares issued in consideration for a business
combination, the recognition of contingent consideration, the
accounting for pre-acquisition gain and loss contingencies, the
recognition of capitalized in-process research and development,
the accounting for acquisition-related restructuring cost
accruals, the treatment of acquisition related transaction
costs, and the recognition of changes in the acquirers
income tax valuation allowance. SFAS 160 will change the
accounting and reporting for minority interests, reporting them
as equity separate from the parent entitys equity, as well
as requiring expanded disclosures. The provisions of
SFAS 141R and SFAS 160 are effective
32
for the Company for fiscal years beginning January 1, 2009.
The Company is evaluating the provision of these statements on
its consolidated financial position, results of operations and
cash flows.
In February 2008, the FASB issued FASB Staff Position
157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13
(FSP 157-1)
and FSP157-2, Effective Date of FASB Statement
No. 157
(FSP 157-2).
FSP 157-1
amends SFAS No. 157 to remove certain leasing
transactions from its scope, and was effective upon initial
adoption of SFAS No. 157.
FSP 157-2
delays the effective date of SFAS 157 for all non-financial
assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), until the
beginning of the first quarter of fiscal 2009. The provisions of
FSP 157-1
and
FSP 157-2
are effective for the Company for fiscal years beginning
January 1, 2009. The Company is evaluating the impact of
the provisions of this statement on its consolidated financial
position, results of operations and cash flows.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Market risk represents the risk of changes in value of financial
instruments caused by fluctuations in interest rates and foreign
exchange rates.
Foreign
Exchange Rates
Currently, a significant majority of our sales and arrangements
with third-party suppliers provide for pricing and payment in US
dollars, and, therefore, are not subject to material exchange
rate fluctuations. Therefore, we do not expect foreign currency
exchange rate fluctuations to have a material effect on our
results of operations. Increases in the value of the United
States dollar relative to other currencies would make our
products more expensive, which could negatively impact our
ability to compete. Conversely, decreases in the value of the US
dollar relative to other currencies could result in our
suppliers raising their prices in order to continue doing
business with us.
Interest
Rates
Our interest rate risk relates primarily to our third party debt
which totals $18.5 million and carries interest rates
pegged to the LIBOR and PRIME rates. An immediate increase in
interest rates of 100 basis points would increase our
interest expense by approximately $46,000 per quarter. This
would be partially offset by increased interest income on our
invested cash. Conversely, an immediate decline of
100 basis points in interest rates would decrease our
interest expense by approximately $46,000 per quarter. This
would be partially offset by decreased interest income on our
invested cash.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
33
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ultra Clean
Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Ultra Clean Holdings, Inc. and subsidiaries (the
Company) as of January 2, 2009 and
December 28, 2007, and the related consolidated statements
of operations, stockholders equity, and cash flows for
each of the three years in the period ended January 2,
2009. 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 the standards of the
Public Company Accounting Oversight Board (United States). 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 consolidated financial statements present
fairly, in all material respects, the financial position of
Ultra Clean Holdings, Inc. and subsidiaries at January 2,
2009 and December 28, 2007, and the results of its
operations and its cash flows for each of the three years in the
period ended January 2, 2009, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 6 to the consolidated financial
statements, effective December 30, 2006, the Company
adopted FASB Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB No. 109
.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 2, 2009, and our report dated March 18, 2009
expressed an adverse opinion on the Companys internal
control over financial reporting because of a material weakness.
/s/ Deloitte & Touche LLP
San Jose, California
March 18, 2009
34
Ultra
Clean Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
January 2, 2009
|
|
|
December 28, 2007
|
|
|
|
(In thousands, except share amounts)
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
29,620
|
|
|
$
|
33,447
|
|
Accounts receivable, net of allowance of $406 and $287,
respectively
|
|
|
13,790
|
|
|
|
34,845
|
|
Inventory
|
|
|
39,814
|
|
|
|
49,342
|
|
Deferred income taxes
|
|
|
2,451
|
|
|
|
3,597
|
|
Prepaid expenses and other
|
|
|
8,817
|
|
|
|
4,110
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
94,492
|
|
|
|
125,341
|
|
|
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net
|
|
|
8,954
|
|
|
|
14,095
|
|
Goodwill
|
|
|
|
|
|
|
34,196
|
|
Purchased intangibles, net
|
|
|
8,987
|
|
|
|
20,762
|
|
Other non-current assets
|
|
|
4,978
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
117,411
|
|
|
$
|
195,027
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Bank borrowings
|
|
$
|
5,736
|
|
|
$
|
3,575
|
|
Accounts payable
|
|
|
11,275
|
|
|
|
36,817
|
|
Accrued compensation and related benefits
|
|
|
2,320
|
|
|
|
3,006
|
|
Deferred rent, current portion
|
|
|
401
|
|
|
|
33
|
|
Other current liabilities
|
|
|
1,563
|
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
21,295
|
|
|
|
44,843
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
12,735
|
|
|
|
18,636
|
|
Deferred and other tax liabilities
|
|
|
|
|
|
|
1,031
|
|
Deferred rent and other liabilities
|
|
|
4,982
|
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
39,012
|
|
|
|
65,539
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.001 par value, 10,000,000
authorized; none outstanding
|
|
|
|
|
|
|
|
|
Common stock $0.001 par value, 90,000,000
authorized; 21,287,700 and 21,562,836 shares issued and
outstanding, in 2008 and 2007, respectively
|
|
|
93,757
|
|
|
|
89,092
|
|
Common shares held in treasury, at cost, 601,944 shares and
none in 2008 and 2007, respectively
|
|
|
(3,337
|
)
|
|
|
|
|
Retained earnings (accumulated deficit)
|
|
|
(12,021
|
)
|
|
|
40,396
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
78,399
|
|
|
|
129,488
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
117,411
|
|
|
$
|
195,027
|
|
|
|
|
|
|
|
|
|
|
(See notes to consolidated financial statements)
35
Ultra
Clean Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
January 2, 2009
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Sales
|
|
$
|
266,919
|
|
|
$
|
403,807
|
|
|
$
|
337,228
|
|
Cost of goods sold
|
|
|
241,453
|
|
|
|
346,347
|
|
|
|
286,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25,466
|
|
|
|
57,460
|
|
|
|
50,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,904
|
|
|
|
2,985
|
|
|
|
3,051
|
|
Sales and marketing
|
|
|
5,739
|
|
|
|
5,914
|
|
|
|
4,644
|
|
General and administrative
|
|
|
24,226
|
|
|
|
25,054
|
|
|
|
17,657
|
|
Impairment of goodwill
|
|
|
34,063
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
21,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
87,949
|
|
|
|
33,953
|
|
|
|
25,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(62,483
|
)
|
|
|
23,507
|
|
|
|
25,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense, net
|
|
|
(870
|
)
|
|
|
(1,797
|
)
|
|
|
(1,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(63,353
|
)
|
|
|
21,710
|
|
|
|
23,576
|
|
Income tax provision (benefit)
|
|
|
(10,936
|
)
|
|
|
5,817
|
|
|
|
7,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(52,417
|
)
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.43
|
)
|
|
$
|
0.75
|
|
|
$
|
0.85
|
|
Diluted
|
|
$
|
(2.43
|
)
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
Shares used in computing net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,542
|
|
|
|
21,293
|
|
|
|
19,220
|
|
Diluted
|
|
|
21,542
|
|
|
|
22,118
|
|
|
|
19,649
|
|
(See notes to consolidated financial statements)
36
Ultra
Clean Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Earnings/
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Stock-based
|
|
|
(Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Compensation
|
|
|
Deficit)
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance, December 30, 2005
|
|
|
16,501,363
|
|
|
|
46,819
|
|
|
|
(350
|
)
|
|
|
8,812
|
|
|
|
55,281
|
|
Issuance of common stock for business acquisition
|
|
|
2,599,393
|
|
|
|
21,071
|
|
|
|
|
|
|
|
|
|
|
|
21,071
|
|
Sale of common stock
|
|
|
1,600,000
|
|
|
|
10,510
|
|
|
|
|
|
|
|
|
|
|
|
10,510
|
|
Net issuance under employee stock plans, including tax benefits
of $1,060
|
|
|
379,784
|
|
|
|
2,089
|
|
|
|
|
|
|
|
|
|
|
|
2,089
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
1,709
|
|
|
|
198
|
|
|
|
|
|
|
|
1,907
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,310
|
|
|
|
16,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 29, 2006
|
|
|
21,080,540
|
|
|
|
82,198
|
|
|
|
(152
|
)
|
|
|
25,122
|
|
|
|
107,168
|
|
Issuance of restricted common stock
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuance under employee stock plans, including tax benefits
of $1,323
|
|
|
457,296
|
|
|
|
3,759
|
|
|
|
|
|
|
|
|
|
|
|
3,759
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
3,162
|
|
|
|
125
|
|
|
|
|
|
|
|
3,287
|
|
Excess tax benefits recognized under adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(619
|
)
|
|
|
(619
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,893
|
|
|
|
15,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 28, 2007
|
|
|
21,562,836
|
|
|
$
|
89,119
|
|
|
$
|
(27
|
)
|
|
$
|
40,396
|
|
|
$
|
129,488
|
|
Issuance of restricted common stock
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(601,944
|
)
|
|
|
(3,337
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,337
|
)
|
Net issuance under employee stock plans, including tax benefits
of $112
|
|
|
289,308
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
|
1,126
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
3,512
|
|
|
|
27
|
|
|
|
|
|
|
|
3,539
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,417
|
)
|
|
|
(52,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 2, 2009
|
|
|
21,287,700
|
|
|
$
|
90,420
|
|
|
$
|
|
|
|
$
|
(12,021
|
)
|
|
$
|
78,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(See notes to consolidated financial statements)
37
Ultra
Clean Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(52,417
|
)
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,599
|
|
|
|
4,375
|
|
|
|
3,871
|
|
Deferred income tax
|
|
|
(5,225
|
)
|
|
|
(903
|
)
|
|
|
(2,002
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
112
|
|
|
|
(1,323
|
)
|
|
|
(1,060
|
)
|
Stock-based compensation
|
|
|
3,539
|
|
|
|
3,287
|
|
|
|
1,907
|
|
Changes in and impairment of goodwill and long-lived assets
|
|
|
55,214
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
21,055
|
|
|
|
9,698
|
|
|
|
(10,719
|
)
|
Inventory
|
|
|
9,528
|
|
|
|
(1,933
|
)
|
|
|
(14,073
|
)
|
Prepaid expenses and other
|
|
|
(5,029
|
)
|
|
|
(266
|
)
|
|
|
145
|
|
Other non-current assets
|
|
|
333
|
|
|
|
112
|
|
|
|
53
|
|
Accounts payable
|
|
|
(25,562
|
)
|
|
|
(772
|
)
|
|
|
8,749
|
|
Accrued compensation and related benefits
|
|
|
(686
|
)
|
|
|
(1,015
|
)
|
|
|
1,524
|
|
Income taxes payable
|
|
|
322
|
|
|
|
(4,921
|
)
|
|
|
2,944
|
|
Other current liabilities
|
|
|
4,799
|
|
|
|
1,288
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
11,582
|
|
|
|
23,520
|
|
|
|
7,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of equipment and leasehold improvements
|
|
|
(9,448
|
)
|
|
|
(7,707
|
)
|
|
|
(3,941
|
)
|
Proceeds from sale of equipment
|
|
|
|
|
|
|
27
|
|
|
|
|
|
Net cash used in acquisition
|
|
|
|
|
|
|
(46
|
)
|
|
|
(32,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(9,448
|
)
|
|
|
(7,726
|
)
|
|
|
(36,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(12
|
)
|
|
|
(67
|
)
|
|
|
(45
|
)
|
Proceeds from bank borrowings
|
|
|
|
|
|
|
|
|
|
|
31,991
|
|
Principal payments on short-term debt
|
|
|
(1,315
|
)
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(2,425
|
)
|
|
|
(9,353
|
)
|
|
|
(3,278
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
(112
|
)
|
|
|
1,323
|
|
|
|
1,060
|
|
Repurchase of common stock
|
|
|
(3,337
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
1,240
|
|
|
|
2,429
|
|
|
|
11,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(5,961
|
)
|
|
|
(5,668
|
)
|
|
|
41,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(3,827
|
)
|
|
|
10,126
|
|
|
|
12,658
|
|
Cash and cash equivalents at beginning of year
|
|
|
33,447
|
|
|
|
23,321
|
|
|
|
10,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
29,620
|
|
|
$
|
33,447
|
|
|
$
|
23,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,100
|
|
|
$
|
10,249
|
|
|
$
|
5,256
|
|
Interest paid
|
|
$
|
1,175
|
|
|
$
|
2,242
|
|
|
$
|
1,307
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued
|
|
$
|
394
|
|
|
$
|
335
|
|
|
$
|
|
|
Common stock issued in acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,071
|
|
Fixed asset purchases included in accounts payable
|
|
$
|
20
|
|
|
$
|
6
|
|
|
$
|
92
|
|
(See notes to consolidated financial statements)
38
Ultra
Clean Holdings, Inc.
|
|
1.
|
Organization
and Significant Accounting Policies
|
Organization
Ultra Clean Holdings, Inc. (the
Company) is a developer and supplier of critical
delivery subsystems, primarily for the semiconductor capital
equipment industry, producing primarily gas delivery systems and
other critical subsystems, including chemical mechanical
planarization (CMP) subsystems, chemical delivery modules, frame
and top plate assemblies and process modules. The Company also
leverages the specialized skill sets required to support
semiconductor capital equipment to serve the technologically
similar markets in the flat panel, solar and medical device
industries. The Companys products improve efficiency and
reduce the costs of our customers design and manufacturing
processes. The Companys customers are primarily original
equipment manufacturers (OEMs) of semiconductor
capital equipment. On June 29, 2006, the Company completed
the acquisition of Sieger Engineering, Inc. (Sieger)
which was renamed UCT-Sieger Engineering LLC
(UCT-Sieger).
Basis of Presentation
The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
This financial information reflects all adjustments which are,
in the opinion of the Company, normal, recurring and necessary
to present fairly the statements of financial position, results
of operations and cash flows for the dates and periods presented.
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 are subject to change and the best estimates and
judgments routinely require adjustment. Actual amounts may
differ from those estimates.
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 general state of the US and world economies, the
highly cyclical nature of the industries the company serves; the
loss of any of a small number of customers; ability to obtain
additional financing; pursuing acquisition opportunities;
regulatory changes; fundamental changes in the technology
underlying semiconductor, flat panel, solar and medical device
manufacturing processes or 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 cash equivalents and
accounts receivable. The Company sells its products primarily to
semiconductor capital equipment manufacturers in the United
States. The Company performs credit evaluations of its
customers financial condition and generally requires no
collateral.
The Company had significant sales to four
customers:
Applied Materials, Inc., Intuitive
Surgical, Inc., Lam Research Corporation and Novellus Systems,
Inc., three of which accounted for 10% or more of sales for the
year ended January 2, 2009. Sales to each of these
customers as a percentage of total sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Customer A
|
|
|
51
|
%
|
|
|
43
|
%
|
|
|
40
|
%
|
Customer B
|
|
|
20
|
%
|
|
|
29
|
%
|
|
|
32
|
%
|
Customer C
|
|
|
7
|
%
|
|
|
11
|
%
|
|
|
14
|
%
|
Customer D
|
|
|
10
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
88
|
%
|
|
|
88
|
%
|
|
|
88
|
%
|
39
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
These four significant customers represented a combined total of
80% of accounts receivable at January 2, 2009, three of
whose individual accounts receivable balances were greater than
10%.
Fair Value of Financial Instruments
Our
financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and bank borrowings. The
carrying value of these instruments approximates their fair
value because of their short-term nature.
Fiscal Year
The Company uses a
52-53 week
fiscal year ending on the Friday nearest December 31. All
references to quarters refer to fiscal quarters and all
references to years refer to fiscal years.
Inventories
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.
Inventory write downs inherently involve judgments as to
assumptions about expected future demand and the impact of
market conditions on those assumptions. Although the Company
believes that the assumptions it used in estimating inventory
write downs are reasonable, significant changes in any one of
the assumptions in the future could produce a significantly
different result. There can be no assurances that future events
and changing market conditions will not result in significant
increases in inventory write downs.
At January 2, 2009 and December 28, 2007, inventory
balances were $39.8 million and $49.3 million,
respectively, net of write-downs of $4.3 million and
$4.3 million, respectively. 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
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 fifteen 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. The warranty reserve is included
in other current liabilities on the consolidated balance sheet.
Warranty cost activity consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Beginning Balance
|
|
$
|
220
|
|
|
$
|
344
|
|
|
$
|
76
|
|
Adjustment for acquisition
|
|
|
|
|
|
|
|
|
|
|
214
|
|
Additions related to sales
|
|
|
136
|
|
|
|
109
|
|
|
|
376
|
|
Warranty costs incurred
|
|
|
(192
|
)
|
|
|
(233
|
)
|
|
|
(322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
164
|
|
|
$
|
220
|
|
|
$
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
Income taxes are reported under
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
(SFAS 109)
and, accordingly, deferred taxes are recognized using the asset
and liability method, whereby deferred tax assets and
liabilities are recognized for the future tax consequence
40
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax base, and operating loss and tax credit
carry-forwards. Valuation allowances are provided if it is more
likely than not that some or all of the deferred tax assets will
not be recognized.
The calculation of the Companys tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations. The Company records liabilities for anticipated tax
audit issues based on its estimate of whether, and the extent to
which, additional taxes may be due. Actual tax liabilities may
be different than the recorded estimates and could result in an
additional charge or benefit to the tax provision in the period
when the ultimate tax assessment is determined.
Stock-based
compensation and deferred stock-based compensation
The Company maintains stock-based compensation plans which allow
for the issuance of equity-based awards to executives and
certain employees. These equity-based awards include stock
options, restricted stock awards and restricted stock units. The
Company also maintains an employee stock purchase plan
(ESPP) that provides for the issuance of shares to
all eligible employees of the Company at a discounted price.
The Company applies the fair value recognition provisions of
SFAS 123(R). Stock-based compensation expense from stock
options and the related income tax benefit from the expense
recognized under SFAS 123(R) were $3.5 million and
$0.6 million, respectively, for the year ended
January 2, 2009, and $3.0 million and
$0.8 million, respectively, for the year ended
December 28, 2007. The estimated fair value of the
Companys equity-based awards, net of expected forfeitures,
is amortized over the awards vesting period on a
straight-line basis over a weighted average period of four years
and will be adjusted for subsequent changes in estimated
forfeitures and future option grants.
Determining
Fair Value
Valuation and amortization method.
The Company
estimates the fair value of stock options granted using the
Black-Scholes option valuation model and a single option award
approach. All options are amortized over the requisite service
periods of the awards, which are generally the vesting periods,
and are amortized using the straight-line basis method.
Expected term.
The expected term of options
granted represents the period of time that they are expected to
be outstanding. The Company estimates the expected term of
options granted based on historical exercise patterns, which the
Company believes are representative of future behavior.
Expected volatility.
The Company estimates the
volatility of its common stock in the Black-Scholes option
valuation at the date of grant based on historical volatility
rates over the expected term.
Risk-free interest rate.
The Company bases the
risk-free interest rate in the Black-Scholes option valuation
model on the implied yield in effect at the time of option grant
on U.S. Treasury zero-coupon issues with equivalent
remaining term.
Dividend yield.
The Company has never paid any
cash dividends on its common stock and does not anticipate
paying any cash dividends in the foreseeable future.
Consequently, the Company uses an expected dividend yield of
0.0% in the Black-Scholes option valuation model.
Forfeiture rate.
SFAS No. 123(R)
requires the Company to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. The Company uses
historical data to estimate pre-vesting option forfeitures and
records share-based compensation expense only for those awards
that are expected to vest.
The exercise price of each stock option equals the market price
of the Companys stock on the date of grant. The weighted
average estimated fair value of employee stock option grants for
the years ended January 2, 2009, December 28, 2007 and
December 29, 2006 was $4.71, $7.26 and $4.41, respectively.
Most options are scheduled to
41
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
vest over four years and expire no later than ten years from the
grant date. The fair value for the options granted during the
years ended January 2, 2009, December 28, 2007 and
December 29, 2006 was estimated at the date of grant using
the Black-Scholes option pricing model. The weighted average
assumptions used in the model are outlined in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
Risk-free interest rate
|
|
|
2.8
|
%
|
|
|
4.25
|
%
|
|
|
4.9
|
%
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
4.9
|
|
The following table summarizes the Companys restricted
stock units and restricted stock awards activity for the year
ended January 2, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value(1)
|
|
|
Unvested at December 28, 2007
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
492
|
|
|
|
|
|
Vested
|
|
|
(41
|
)
|
|
|
|
|
Forfeited
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at January 2, 2009
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
There is no weighted fair value associated with these restricted
stock awards.
|
During the years ended January 2, 2009, December 28,
2007 and December 29, 2006, the Company recorded
$3.0 million, $2.4 million, and $1.3 million,
respectively, of stock-based compensation expense, net of tax,
associated with employee and director stock plans and employee
stock purchase plan programs. As of January 2, 2009, there
was $4.8 million, net of forfeitures of $2.7 million, of
unrecognized compensation cost related to employee and director
stock which is expected to be recognized on a straight-line
basis over a weighted average period of approximately three
years, and will be adjusted for subsequent changes in estimated
forfeitures and future option grants.
Total stock-based compensation during the years ended
January 2, 2009, December 28, 2007 and
December 29, 2006, respectively, to various operating
expense categories was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Cost of goods sold(1)
|
|
$
|
1,009
|
|
|
$
|
915
|
|
|
$
|
376
|
|
Sales and marketing
|
|
|
246
|
|
|
|
203
|
|
|
|
111
|
|
Research and development
|
|
|
87
|
|
|
|
111
|
|
|
|
81
|
|
General and administrative
|
|
|
2,197
|
|
|
|
2,073
|
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,539
|
|
|
|
3,302
|
|
|
|
1,907
|
|
Income tax benefit
|
|
|
(612
|
)
|
|
|
(885
|
)
|
|
|
(586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense
|
|
$
|
2,927
|
|
|
$
|
2,417
|
|
|
$
|
1,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As of January 2, 2009 and December 28, 2007, there
were no stock-based compensation expenses capitalized in
inventory.
|
42
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
In accordance with SFAS 123(R), the cash flows resulting
from excess tax benefits (tax benefits related to the excess of
proceeds from employees exercises of stock options over
the stock-based compensation cost recognized for those options)
are classified as financing cash flows. During the year ended
January 2, 2009, we recorded $0.1 million of excess
tax benefits as a financing cash inflow.
Impairment of Goodwill and Other Long-lived
Assets
Purchased intangibles consist of
tradenames and customer relationships acquired as part of a
purchase business combination.
As part of the Sieger acquisition in June 2006, the Company
allocated the purchase price to the tangible and intangible
assets acquired and liabilities assumed based on their estimated
fair values. The intangible assets acquired from Sieger are
stated at cost less accumulated amortization and are being
amortized on a straight-line basis over their estimated useful
lives of six months to 10.7 years.
Ultra Clean Technology Systems and Service, Inc. was founded in
1991 by Mitsubishi Corporation and was operated as a subsidiary
of Mitsubishi until November 2002, when it was acquired by the
Company. As part of the Ultra Clean Technology Systems and
Services 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. Such valuations required
management to make significant estimates and assumptions,
especially with respect to intangible assets.
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 tradename
will continue to be used in the Companys product
portfolio. Based upon these estimates, the tradename asset was
assigned an indefinite life.
Goodwill represents the excess of the purchase price over the
fair value of tangible and identifiable intangible assets
acquired. SFAS No. 141,
Business Combinations
,
and SFAS No. 142,
Goodwill and Other Intangible
Assets
requires that all business combinations 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. Goodwill is not
amortized, but rather tested for impairment. The provisions of
SFAS No. 142 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. 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 No. 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 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. In the
event that the Company determines that the value of goodwill has
become impaired, the Company will incur an accounting charge for
the amount of impairment during the period in which such
determination is made.
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. The Company assesses the
recoverability of an asset group by determining whether the
carrying value exceeds the sum of the projected undiscounted
cash flows expected to result from the use and the eventual
disposition of the assets over the remaining useful life of the
asset group. If the recoverability test indicates that the
carrying value of the asset group is not recoverable, the
Company will estimate the fair value of the asset group and
compare it to its carrying value. The excess of the carrying
value over the fair value is allocated pro rata to derive the
43
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
adjusted carrying value. The adjusted carrying value of each
asset in the asset group is not reduced below its fair value.
Management performed the annual impairment test of its goodwill
and long-lived assets as of January 2, 2009, and determined
that goodwill was impaired during the quarter ended
January 2, 2009. As a result, impairment charges to
goodwill and long-lived assets of $34.1 million and
$21.0 million, respectively, were recorded. See additional
disclosure of these analyses in Note 4 to the
Companys Consolidated Financial Statements including the
impairment charges recorded during the fourth quarter of fiscal
2008.
The process of evaluating the potential impairment of goodwill
or long-lived assets is subjective and requires significant
judgment on matters such as, but not limited to, the reporting
unit at which goodwill should be measured for impairment and the
asset group to be tested for recoverability. The Company is also
required to make estimates that may significantly impact the
outcome of the analyses. Such estimates include, but are not
limited to, future operating performance and cash flows, cost of
capital, terminal values, control premiums and remaining
economic lives of assets.
Revenue Recognition
Product revenue 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 collectability 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 Costs
Research and
development costs are expensed as incurred.
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 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 anti-dilutive (see Note 9 to
Consolidated Financial Statements).
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 non-owner
sources. Comprehensive income (loss) for all periods presented
was the same as net income (loss).
SFAS 131,
Disclosure about Segments in an Enterprise and
Related Information
(SFAS 131), establishes
standards for the reporting by public business enterprises of
information about reportable segments, products and services,
geographic areas, and major customers. The method for
determining what information to report is based on the manner in
which management organizes the reportable segments within the
Company for making operational decisions and assessments of
financial performance. The Companys chief operating
decision-maker is considered to be the Chief Executive Officer.
The Company operates in one reporting segment.
Recently Issued Accounting Standards
In May
2008, the FASB issued SFAS No. 162,
The
Hierarchy of Generally Accepted Accounting Principles,
(SFAS No. 162). SFAS No. 162
identifies the sources of accounting principles and the
framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted
accounting principles in the United States of America.
SFAS No. 162 is effective sixty days following the
SECs approval of the Public Company Accounting Oversight
Board amendments to AU Section 411,
The Meaning of
Present fairly in conformity with generally accepted
accounting principles
. The Company is currently
evaluating the potential
44
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
impact, if any, of the adoption of SFAS No. 162 on its
consolidated financial statements, results of operations and
cash flows.
In April 2008, the FASB issued FASB Staff Position (FSP)
No. 142-3,
Determination of the Useful Life of Intangible
Assets.
FSP 142-3
amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under FASB Statement
No. 142,
Goodwill and Other Intangible
Assets.
This new guidance applies prospectively to
intangible assets that are acquired individually or with a group
of other assets in business combinations and asset acquisitions.
FSP 142-3
is effective for the Company for fiscal years beginning
January 1, 2009. The Company is evaluating the potential
impact of the provisions of this statement on its consolidated
financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS 141R and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
an amendment of
ARB No. 51 (SFAS 160).
SFAS 141R changes the accounting for business combinations,
including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of
contingent consideration, the accounting for pre-acquisition
gain and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment
of acquisition related transaction costs, and the recognition of
changes in the acquirers income tax valuation allowance.
SFAS 160 will change the accounting and reporting for
minority interests, reporting them as equity separate from the
parent entitys equity, as well as requiring expanded
disclosures. The provisions of SFAS 141R and SFAS 160
are effective for the Company for fiscal years beginning
January 1, 2009. The Company is evaluating the provision of
these statements on its consolidated financial position, results
of operations and cash flows.
In February 2008, the FASB issued FASB Staff Position
157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13
(FSP 157-1)
and FSP157-2,
Effective Date of FASB Statement
No. 157
(FSP 157-2).
FSP 157-1
amends SFAS No. 157 to remove certain leasing
transactions from its scope, and was effective upon initial
adoption of SFAS No. 157.
FSP 157-2
delays the effective date of SFAS 157 for all non-financial
assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), until the
beginning of the first quarter of fiscal 2009. The provisions of
FSP 157-1
and
FSP 157-2
are effective for the Company for fiscal years beginning
January 1, 2009. The Company is evaluating the impact of
the provisions of this statement on its consolidated financial
position, results of operations and cash flows.
In June 2006, the Company acquired Sieger, a supplier of CMP
modules and other critical subsystems to the semiconductor,
solar and flat panel capital equipment industries. The total
purchase price was approximately $53.5 million and was
comprised of cash consideration of $32.4 million, including
acquisition costs of $1.4 million, and stock consideration
of $21.1 million. In accordance with
EITF 99-12,
Determination of the Measurement Date for the Market
Price of Acquirer Securities Issued in a Purchase Business
Combination
, the Company valued the common stock
consideration based on the average closing sales price on the
NASDAQ Global Market for two days before and two days after
June 29, 2006, which was both the Companys
announcement date and transaction date for the acquisition.
45
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The Company accounted for the acquisition of Sieger as a
business combination and the operating results of Sieger have
been included in the Companys consolidated financial
statements from the date of acquisition. The allocation of the
purchase price to the assets acquired and liabilities assumed is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets, net
|
|
|
|
|
|
$
|
10,894
|
|
|
|
|
|
Customer lists
|
|
|
|
|
|
|
13,800
|
|
|
|
|
|
Tradename
|
|
|
|
|
|
|
800
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
27,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
53,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized amortization expense related to purchased
intangibles of approximately $1.4 million,
$1.4 million and $1.5 million for the years ended
January 2, 2009, December 28, 2007 and
December 29, 2006, respectively. The weighted average
useful life of customer lists was determined to be
10.7 years. The weighted average useful life of the
tradename was determined to be six months and therefore was
fully amortized by December 29, 2006.
Pro Forma Results
The following unaudited pro
forma financial information presents the combined results of
operations of the Company and UCT-Sieger as if the acquisition
had occurred as of the beginning of the period presented. The
unaudited pro forma financial information is not intended to
represent or be indicative of the consolidated results of
operations or financial condition of the Company that would have
been reported had the acquisition been completed as of the dates
presented, and should not be taken as being representative of
the future consolidated results of operations or financial
condition of the Company (in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29,
|
|
|
|
2006
|
|
|
Sales
|
|
$
|
396,610
|
|
Net income
|
|
$
|
18,825
|
|
Basic net income per share
|
|
$
|
0.92
|
|
Diluted net income per share
|
|
$
|
0.90
|
|
|
|
3.
|
Balance
Sheet Information
|
Inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
|
2009
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
32,464
|
|
|
$
|
35,625
|
|
Work in process
|
|
|
10,008
|
|
|
|
15,449
|
|
Finished goods
|
|
|
1,672
|
|
|
|
2,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,144
|
|
|
|
53,630
|
|
Reserve for obsolescence
|
|
|
(4,330
|
)
|
|
|
(4,288
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,814
|
|
|
$
|
49,342
|
|
|
|
|
|
|
|
|
|
|
46
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Equipment and leasehold improvements, net, consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
|
2009
|
|
|
2007
|
|
|
Computer equipment and software
|
|
$
|
5,858
|
|
|
$
|
6,980
|
|
Furniture and fixtures
|
|
|
425
|
|
|
|
622
|
|
Machinery and equipment
|
|
|
5,368
|
|
|
|
8,274
|
|
Leasehold improvements
|
|
|
10,893
|
|
|
|
8,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,544
|
|
|
|
24,097
|
|
Accumulated depreciation and amortization
|
|
|
(13,590
|
)
|
|
|
(10,002
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,954
|
|
|
$
|
14,095
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Impairment
of Goodwill and Long-lived Assets
|
Goodwill
In accordance with SFAS No. 142, the Company tests
goodwill for impairment on an annual basis and, more frequently
if required, should events occur or circumstances change that
would more likely than not reduce the fair value of goodwill
below its carrying value.
As part of our annual review for impairment of goodwill during
the quarter ended January 2, 2009, we determined that a
significant adverse change to our business environment had
occurred, which required that we evaluate the carrying value of
our goodwill for impairment. We made this determination as
evidenced from a sustained deterioration in our market
capitalization and the general business environment. Our key
customers reduced their financial outlook
and/or
otherwise disclosed that they were experiencing very challenging
market conditions with little visibility of any recovery in the
foreseeable future. In response to these adverse business
indicators and the rapidly declining revenue trends experienced
during our fourth quarter of fiscal 2008, we reduced our
near-term and long-term financial projections. Consequently, we
performed an analysis of goodwill for impairment, and of the
recoverability and impairment of long-lived assets, in
accordance with the guidance in SFAS No. 142.
In the review of goodwill for impairment, the Company followed
the two-step method described in SFAS No. 142. In step
one, the Company determined and compared the fair value of its
reporting unit with its respective carrying value, including
goodwill. The analysis indicated that the carrying value as of
January 2, 2009 exceeded its fair value. The Company then
continued to step two of the analysis, estimating the fair
values of all assets and liabilities. The fair value was then
allocated to the fair values of the identified assets and
liabilities to determine the implied fair value of goodwill.
We estimated the fair value of our reporting unit using two
valuation techniques discounted cash flow model
(income approach) and a market approach. Under the income
approach, we assumed a forecasted cash flow of five years with a
discount rate of 15.3% and a terminal value growth rate of 5%.
Under the market approach we utilized a price based on an
actively negotiated potential equity investment transaction.
Additionally, we compared the estimated fair value of the
reporting unit to the Companys overall capitalization. We
concluded that under the income or the market approach the fair
value of the reporting unit was below its carrying value.
Based on the review described above the Company recorded
impairment charges of $34.1 million for goodwill.
47
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The change in the carrying amount of goodwill during the year
ended January 2, 2009 is as follows (in thousands):
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Goodwill, as of December 28, 2007
|
|
$
|
34,196
|
|
FIN 48 adjustment
|
|
|
(133
|
)
|
Impairment
|
|
|
(34,063
|
)
|
|
|
|
|
|
Goodwill, as of January 2, 2009
|
|
$
|
|
|
|
|
|
|
|
Long-lived
Assets (Other intangible assets, property and equipment and
leasehold improvements)
In connection with completing our goodwill impairment analysis
the Company reviewed its other long-lived assets, including
property, equipment and leasehold improvements and other
intangible assets that are subject to amortization for
recoverability. The assessment of recoverability is based on
managements estimates of probability weighted undiscounted
cash flows expected to be generated from the use and disposition
of the long-lived asset groups over the remaining economic lives
as compared to their carrying value to determine recoverability.
Our asset group related to assets acquired as a result of the
acquisition of Sieger (Sieger Group) was determined not to be
recoverable. Our other asset group was determined to be
recoverable. The Company estimated the fair value of the Sieger
Group using the income approach. Under the income approach, we
assumed a probability weighted forecasted cash flow for a period
of 8.5 years with a discount rate of 15.3%.
Based on its analysis of impairment, the Company recorded
impairment charges of $21.1 million, consisting of
$10.4 million of the remaining net carrying value of its
Customer List purchased intangible as well as $10.7 million
of certain equipment and leasehold improvements. In addition,
the Company assessed the useful lives of its remaining property,
plant and equipment post-impairment and determined that they
were reasonable.
The following tables provide a summary of the carrying amounts
of purchased intangibles (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Net
|
|
|
Weighted
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Average
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Impairment
|
|
|
Amount
|
|
|
Years
|
|
|
Year Ended January 2, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer List
|
|
$
|
13,800
|
|
|
$
|
(3,375
|
)
|
|
$
|
(10,425
|
)
|
|
$
|
|
|
|
|
|
|
Tradenames
|
|
|
9,787
|
|
|
|
(800
|
)
|
|
|
|
|
|
|
8,987
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,587
|
|
|
$
|
(4,175
|
)
|
|
$
|
(10,425
|
)
|
|
$
|
8,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 28, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer List
|
|
$
|
13,800
|
|
|
$
|
(2,025
|
)
|
|
$
|
|
|
|
$
|
11,775
|
|
|
|
10.7
|
|
Tradenames
|
|
|
9,787
|
|
|
|
(800
|
)
|
|
|
|
|
|
|
8,987
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,587
|
|
|
$
|
(2,825
|
)
|
|
$
|
|
|
|
$
|
20,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Tradename associated with UCT-Sieger had an average life of six
months and, as of December 29, 2006, had been fully
amortized. Tradename associated with Ultra Clean Technology
Systems and Service, Inc. has an indefinite life.
|
Amortization expense related to purchased intangibles was
$1.4 million, $1.4 million and $1.5 million in
fiscal 2008, fiscal 2007 and fiscal 2006, respectively. As a
result of the impairment of entire remaining carrying value of
Customer List in the fourth quarter of fiscal 2008, there will
be no future amortization of intangibles.
48
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
5.
|
Debt and
Lease Obligations
|
In connection with our acquisition of Sieger in the second
quarter of 2006, we entered into a borrowing arrangement and a
term loan (Loan Agreement). The Loan Agreement
provided senior secured credit facilities in an aggregate
principal amount of up to $32.5 million, consisting of a
$25.0 million Revolving Line of Credit and a
$7.5 million term loan (Original Term Loan).
The outstanding balance of the Revolving Line of Credit as of
January 2, 2009, was approximately $14.8 million. The
balance of our Original Term Loan as of January 2, 2009,
was $1.2 million and will expire on June 29, 2009.
Interest rates on outstanding loans under the credit facilities
ranged from 3.5% to 6.5% per annum during the year ended
January 2, 2009 and were 3.5% per annum as of
January 2, 2009.
The Company also has a $5.0 million equipment loan that is
secured by certain of its equipment and expires May 2011. The
interest rate and outstanding balance on the equipment loan was
7.6% and $2.5 million, respectively, as of January 2,
2009.
The combined balance outstanding on the Loan Agreement and
equipment loan at January 2, 2009 was $18.5 million.
On February 4, 2009, the Company amended its Loan Agreement
consisting of a reduction of the revolving credit facility from
$25.0 million to $20.0 million while extending its
maturity to January 29, 2012, and a new $3.0 million
three-year term loan, as amended, also maturing on
January 29, 2012. The aggregate amount of the revolving
credit facility is subject to a borrowing base equal to 80% of
eligible accounts receivable and 45% of eligible inventory
(total eligible inventory not to exceed $2.5 million) and
is secured by substantially all of our assets. The revolving
credit facility bears interest per annum at a variable rate
equal to the greater of the banks stated prime rate or 4%
plus a margin of 25 basis points. The new term loan, as
amended, bears interest per annum at a variable rate equal to
the greater of the banks stated prime rate or 4% plus a
margin of 75 basis points. The revolving credit facility
contains certain reporting and financial covenants, including
minimum tangible net worth and liquidity ratios, that must be
met on a monthly basis in order for the Company to remain in
compliance.
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
non-cancelable operating leases. The Company has a renewal
option for its leased facilities in South San Francisco,
Hayward and Sacramento, California; Austin, Texas; Tualatin,
Oregon; and Shanghai, China.
The following table summarizes our future minimum lease payments
and principal payments under debt obligations as of
January 2, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Capital lease
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13
|
|
Operating lease(1)
|
|
|
3,231
|
|
|
|
2,494
|
|
|
|
1,929
|
|
|
|
1,813
|
|
|
|
1,920
|
|
|
|
2,333
|
|
|
|
13,720
|
|
Borrowing arrangements
|
|
|
5,748
|
|
|
|
1,008
|
|
|
|
443
|
|
|
|
11,272
|
|
|
|
|
|
|
|
|
|
|
|
18,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,992
|
|
|
$
|
3,502
|
|
|
$
|
2,372
|
|
|
$
|
13,085
|
|
|
$
|
1,920
|
|
|
$
|
2,333
|
|
|
$
|
32,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease expense reflects (a) the lease for our
headquarters facility in Hayward, California; (b) the lease
for a manufacturing facility in Portland, Oregon that expires on
October 31, 2010; (c) the leases for manufacturing
facilities in South San Francisco expire in 2009 and 2010;
(d) the leases for manufacturing facilities in Austin,
Texas that expire in 2010 and 2011. We have options to renew
certain of the leases in South San Francisco, which we
expect to exercise.
|
The cost of equipment under the capital leases included in
property and equipment at January 2, 2009 and
December 28, 2007, was approximately $0.1 million and
$0.4 million, respectively. Net book value of leased
equipment at January 2, 2009 and December 28, 2007,
was approximately $12,000 and $23,000, respectively.
49
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Rental expense for the years ended January 2, 2009,
December 28, 2007 and December 29, 2006 was
approximately $3.3 million, $2.9 million and
$2.0 million, respectively. Included within deferred rent
and other liabilities in 2008 and 2007 were $4.9 million
and $0.0 of deferred rent, respectively.
The provision for taxes on income consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(6,530
|
)
|
|
$
|
5,220
|
|
|
$
|
7,389
|
|
State
|
|
|
42
|
|
|
|
1,512
|
|
|
|
1,934
|
|
Foreign
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(6,175
|
)
|
|
|
6,732
|
|
|
|
9,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,681
|
)
|
|
|
(867
|
)
|
|
|
(2,111
|
)
|
State
|
|
|
(1,050
|
)
|
|
|
(48
|
)
|
|
|
54
|
|
Foreign
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(4,761
|
)
|
|
|
(915
|
)
|
|
|
(2,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
(10,936
|
)
|
|
$
|
5,817
|
|
|
$
|
7,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of net deferred tax assets and deferred
tax liabilities for federal and state income taxes were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
|
2009
|
|
|
2007
|
|
|
Net current deferred tax asset:
|
|
|
|
|
|
|
|
|
Inventory valuation and basis difference
|
|
$
|
1,962
|
|
|
$
|
2,390
|
|
Other accrued expenses
|
|
|
489
|
|
|
|
740
|
|
State taxes
|
|
|
|
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,451
|
|
|
|
3,597
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax liability (asset):
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
261
|
|
|
|
(29
|
)
|
Other accrued expenses
|
|
|
2,317
|
|
|
|
(1,744
|
)
|
Depreciation
|
|
|
2,135
|
|
|
|
(2,162
|
)
|
Net operating losses
|
|
|
888
|
|
|
|
|
|
State taxes
|
|
|
(689
|
)
|
|
|
380
|
|
Purchased intangibles
|
|
|
|
|
|
|
4,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,912
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,363
|
|
|
$
|
2,566
|
|
|
|
|
|
|
|
|
|
|
50
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The effective tax rate differs from the federal statutory tax
rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Federal income tax provision at statutory rate
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
(3.6
|
)%
|
|
|
4.0
|
%
|
|
|
4.4
|
%
|
Effect of foreign operations
|
|
|
0.3
|
%
|
|
|
(11.3
|
)%
|
|
|
(7.4
|
)%
|
Impairment of goodwill and long-lived assets
|
|
|
20.7
|
%
|
|
|
|
|
|
|
|
|
Exempt income
|
|
|
(
|
)%
|
|
|
(
|
)%
|
|
|
(2.5
|
)%
|
Other
|
|
|
0.3
|
%
|
|
|
(0.9
|
)%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(17.3
|
)%
|
|
|
26.8
|
%
|
|
|
30.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All foreign earnings are considered to be permanently reinvested
under APB Opinion No. 23, Accounting for Income
Taxes Special Areas.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on December 30, 2006. As a result of the
implementation of FIN 48, the Company recorded a long-term
tax liability of $827,000 for the recognition of excess tax
benefits, which was accounted for as a decrease of $619,000 in
retained earnings, including interest of $67,000, and an
increase of $208,000 in goodwill as of December 30, 2006.
The increase in goodwill is the result of certain tax benefits
related to the acquisition of Ultra Clean Technologies and
Services in 2002.
De-recognition in future periods of amounts recorded upon
adoption of FIN 48, will result in an income tax benefit.
The Company does not currently believe that the recognized tax
benefit will change significantly within the next twelve months.
There was no impact on the Companys estimated effective
tax rate for 2008 as a result of the adoption of FIN 48.
The following table summarizes the activity related to the
Companys unrecognized tax benefits (in thousands):
|
|
|
|
|
Balance as of December 28, 2007
|
|
$
|
750
|
|
Increases related to current year tax positions
|
|
|
34
|
|
Settlement of tax
|
|
|
|
|
Expiration of the statute of limitations for the assessment of
taxes
|
|
|
(356
|
)
|
|
|
|
|
|
Balance as of January 2, 2009
|
|
$
|
428
|
|
|
|
|
|
|
The Companys 2005 state income tax return is
currently under examination by the California Franchise Tax
Board (CFTB) and the Companys 2006 tax return
is currently under examination by the CFTB and the Internal
Revenue Service. The Company is currently open to audit under
the statute of limitations by the Internal Revenue Service for
fiscal year 2007 and the Companys state income tax returns
are open to audit under the statute of limitations for the
fiscal years 2005 through 2007.
Common Stock
On March 24, 2004, the
Company sold 6,000,000 shares of its common stock at a
price to the public of $7.00 per share in an initial public
offering (IPO). After deducting the underwriting
discount of $0.49 per share, the net proceeds to the Company
were approximately $39.1 million. Of the net proceeds,
approximately $31.1 million was used to redeem the
Companys outstanding Series A Senior Notes plus
accrued interest.
51
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
On April 21, 2004, as part of the Companys IPO,
FP-Ultra Clean, L.L.C., the Companys principal stockholder
sold 720,350 shares of the Companys common stock in
connection with the exercise by the underwriters of an
over-allotment option. The Company did not receive any of the
proceeds from the exercise of the over-allotment option.
On March 9, 2006, the Company sold 1,600,000 shares of
its common stock to the public in a secondary offering. After
deducting the underwriting discount and other costs of the
offering, the net proceeds to the Company were approximately
$10.5 million. As of December 31, 2006, FP-Ultra
Cleans ownership of the Company was approximately 9.5%.
On June 29, 2006, as part of the acquisition of Sieger
Inc., the Company issued 2,471,907 shares of its common
stock valued at approximately $20.1 million. On
November 13, 2006, the company issued 127,486 additional
shares of its common stock valued at approximately
$1.0 million as part of the acquisition of Sieger Inc. As
of December 28, 2007, FP-Ultra Cleans ownership of
the Company was 0.0%.
Stock Repurchase Plan
On July 24, 2008,
the Board of Directors approved a stock repurchase program for
up to $10.0 million. The Company commenced the repurchase
of its common stock on August 4, 2008, the total number of
shares repurchased and related cost of the stock repurchase
program were 601,994 shares at a cost of $3,337,000, or an
average cost of $5.54 per share.
|
|
8.
|
Employee
Benefit Plans
|
Stock Options
On February 20, 2003, the
Company adopted the 2003 Stock Incentive Plan (the 2003
Incentive Plan) which was subsequently amended and
restated. The Company has reserved 4,515,239 shares of its
common stock for issuance under the 2003 Incentive Plan, as
amended and restated. The 2003 Incentive Plan provides for the
issuance of options and other stock-based awards. 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 January 2, 2009,
729,115 shares were available for future grants under the
2003 Incentive Plan.
Option activity under the 2003 Incentive Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Outstanding, December 30, 2005
|
|
|
2,120,437
|
|
|
|
4.17
|
|
|
|
8.25
|
|
|
$
|
6,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,258,500
|
|
|
|
9.02
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(373,296
|
)
|
|
|
2.44
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(89,497
|
)
|
|
|
6.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 29, 2006
|
|
|
2,916,144
|
|
|
|
6.41
|
|
|
|
8.29
|
|
|
$
|
17,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
530,100
|
|
|
|
14.79
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(440,861
|
)
|
|
|
5.02
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(77,547
|
)
|
|
|
10.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 28, 2007
|
|
|
2,927,836
|
|
|
$
|
8.03
|
|
|
|
7.70
|
|
|
$
|
13,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
102,000
|
|
|
|
8.83
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(241,976
|
)
|
|
|
4.33
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(644,128
|
)
|
|
|
9.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 2, 2009
|
|
|
2,143,732
|
|
|
$
|
7.99
|
|
|
|
6.65
|
|
|
$
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes information with respect to
options outstanding and exercisable at January 2, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Exercise
|
|
|
Shares
|
|
|
Exercise
|
|
Range of Exercise Price
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$1.003.99
|
|
|
360,061
|
|
|
|
4.16
|
|
|
$
|
1.00
|
|
|
|
360,061
|
|
|
$
|
1.00
|
|
$4.006.99
|
|
|
563,918
|
|
|
|
6.33
|
|
|
|
6.49
|
|
|
|
503,395
|
|
|
|
6.49
|
|
$7.007.99
|
|
|
222,181
|
|
|
|
5.85
|
|
|
|
7.03
|
|
|
|
201,556
|
|
|
|
7.02
|
|
$8.008.99
|
|
|
424,199
|
|
|
|
7.41
|
|
|
|
8.46
|
|
|
|
270,816
|
|
|
|
8.49
|
|
$9.0017.90
|
|
|
573,373
|
|
|
|
8.26
|
|
|
|
13.86
|
|
|
|
235,280
|
|
|
|
14.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
2,143,732
|
|
|
|
6.65
|
|
|
$
|
7.99
|
|
|
|
1,571,108
|
|
|
$
|
6.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units and Restricted Stock
Awards
On November 26, 2002, the Company
granted 268,525 shares of common stock to certain key
employees and on March 1, 2004, the Company granted
62,500 shares of common stock to a board member under the
2003 Incentive Plan. These restricted shares vested, in equal
installments, over a four year period from the date of grant. On
May 31, 2007, the Company granted 25,000 shares of
common stock to its board members under the 2003 Incentive Plan.
These restricted shares vested 365 days from the date of
grant. On May 31, 2008, the Company issued
37,500 shares of restricted stock awards to its outside
directors. These shares fully vest on the one year anniversary
of the date of grant. The total unamortized expense of the
Companys unvested restricted stock awards as of
January 2, 2009, is $0.2 million.
During the first quarter of fiscal 2008, the Company began
granting Restricted Stock Units (RSUs) to employees as
part of the Companys long term equity compensation plan.
These RSUs are granted to employees with a per share or
unit purchase price of zero dollars and either have time based
or performance based vesting. RSUs typically vest over
three years, subject to the employees continued service
with the Company. Certain of these RSUs vest only if
specific performance goals set by the Compensation Committee are
achieved. For purposes of determining compensation expense
related to these RSUs, the fair value is determined based
on the closing market price of the Companys common stock
on the date of award and, for performance shares, expense
recognition begins once management determines it is probable
that the performance goals will be achieved. If the performance
goals are achieved, the grant vests over a specified service
period. If such goals are not achieved, no compensation cost is
recognized and any previously recognized compensation expense is
reversed. The expected cost of the grant is reflected over the
service period, and is reduced for estimated forfeitures. During
the year ended January 2, 2009, the Company approved and
granted 454,600 RSUs to employees with a weighted average
fair value of $9.1 per share. As of January 2, 2009,
$1.7 million of unrecognized stock-based compensation cost
related to RSUs remains to be amortized and is expected to
be recognized over an estimated period of two years.
For the years ended January 2, 2009, December 28, 2007
and December 29, 2006, the Company charged
$1.1 million, $0.3 million and $0.2 million,
respectively, to compensation expense related to the vesting of
restricted stock. The unvested amount is subject to forfeiture,
until the common stock is fully vested. At January 2, 2009,
448,000 shares were subject to repurchase.
53
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes the Companys restricted
stock unit and restricted stock award activity for the year
ended January 2, 2009 (in thousands):
|
|
|
|
|
|
|
Number of
|
|
|
|
Shares
|
|
|
Unvested restricted stock units and restricted stock awards at
December 28, 2007
|
|
|
41
|
|
Granted
|
|
|
492
|
|
Vested
|
|
|
(41
|
)
|
Forfeited
|
|
|
(44
|
)
|
|
|
|
|
|
Unvested restricted stock units and restricted stock awards at
January 2, 2009
|
|
|
448
|
|
|
|
|
|
|
Employee Stock Purchase Plan
In 2004 the
Company adopted an Employee Stock Purchase Plan
(ESPP) and is authorized to issue
555,343 shares of common stock under the ESPP. The ESPP
permits employees to purchase common stock at a discount through
payroll withholdings at certain specified dates (purchase
period) within a defined offering period. The purchase price is
95% of the fair market value of the common stock at the end of
the purchase period and is intended to qualify as an
employee stock purchase plan under Section 423
of the Internal Revenue Code. There were 47,532 shares
issued under the ESPP during the year ended January 2, 2009.
Employee Savings and Retirement Plan
The
Company sponsors a 401(k) savings and retirement 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 $15,500. The Company may make matching
contributions of up to 6% of employee contributions based upon
eligibility. The Company made approximately $0.9 million,
$0.6 million, and $0.5 million discretionary employer
contributions to the 401(k) Plan in the years ended
January 2, 2009, December 28, 2007 and
December 29, 2006, respectively.
54
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following is a reconciliation of the numerators and
denominators used in computing basic and diluted net income
(loss) per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(52,417
|
)
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
21,564
|
|
|
|
21,333
|
|
|
|
19,271
|
|
Weighted average common shares outstanding subject to repurchase
|
|
|
(22
|
)
|
|
|
(40
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
21,542
|
|
|
|
21,293
|
|
|
|
19,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
21,542
|
|
|
|
21,293
|
|
|
|
19,220
|
|
Dilutive effect of common shares outstanding subject to
repurchase
|
|
|
|
|
|
|
40
|
|
|
|
51
|
|
Dilutive effect of options outstanding
|
|
|
|
|
|
|
785
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
21,542
|
|
|
|
22,118
|
|
|
|
19,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic
|
|
$
|
(2.43
|
)
|
|
$
|
0.75
|
|
|
$
|
0.85
|
|
Net income (loss) per share diluted
|
|
$
|
(2.43
|
)
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
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 income (loss)
per share, as their effect would have been anti-dilutive. Such
outstanding securities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Outstanding options
|
|
|
1,229
|
|
|
|
499
|
|
|
|
161
|
|
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 compensation of approximately
$0.1 million and amortized approximately $0, $15,000 and
$27,000 as an expense during the years ended January 2,
2009, December 28, 2007 and December 29, 2006,
respectively.
|
|
10.
|
Related
Party Transactions
|
As part of the acquisition of Sieger, the Company leases a
facility from an entity controlled by one of the Companys
board members. The Company incurred rent expense resulting from
the lease of this facility of $0.3 million,
$0.3 million and $0.1 million for the years ended
January 2, 2009, December 28, 2007 and
December 29, 2006, respectively.
55
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The spouse of one of the Companys executives is the sole
owner of the Companys primary travel agency. The Company
incurred fees for travel-related services, including the cost of
airplane tickets, of $0.3 million, $0.4 million and
$0.3 million for the years ended January 2, 2009,
December 28, 2007 and December 29, 2006, respectively.
The sister, son and
sister-in-law
of one of the Companys directors worked for the Company
during fiscal years 2008 and 2007. They are no longer employed
by the Company. These employees were employees of Sieger prior
to the date of acquisition. Aggregate salaries paid by the
Company to these individuals were $52,000 and $161,000 the years
ended January 2, 2009 and December 28, 2007,
respectively. From the date of acquisition to December 29,
2006, aggregate payments by the Company to the aforementioned
individuals totaled $84,000.
In November 2002, the Company entered into an agreement with a
key executive of the Company to defer payment of $265,000 in
compensation until November 15, 2009. Under this
arrangement the Company 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 the Company 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 the Company.
The Company operates in one reportable segment and is engaged in
the development, manufacture and supply of critical subsystems
for the semiconductor capital equipment, flat panel, solar and
medical device industries. The nature of the Companys
products and production processes as well as type of customers
and distribution methods is consistent among all of the
Companys products. The Companys foreign operations
are conducted primarily through its wholly-owned subsidiary in
China. The Companys principal markets include North
America, Europe and Asia. Sales by geographic area represent
sales to unaffiliated customers.
All information on sales by geographic area is based upon the
location to which the products were shipped. The following table
sets forth revenue by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
December 29,
|
|
Sales
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
262,168
|
|
|
$
|
395,039
|
|
|
$
|
320,662
|
|
Export sales to Europe and Asia
|
|
|
4,751
|
|
|
|
8,768
|
|
|
|
16,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
266,919
|
|
|
$
|
403,807
|
|
|
$
|
337,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 2, 2009 and December 28, 2007,
approximately $1.6 million and $4.2 million,
respectively, of the Companys long-lived assets were
located in China and the balances were located in the United
States.
|
|
12.
|
Commitments
and Contingencies
|
The Company had commitments to purchase inventory totaling
approximately $5.3 million at January 2, 2009.
In September 2007, the Company entered into a facility lease
agreement for approximately 104,000 square feet of office
space in Hayward, California and began moving into the new
facility towards the latter part of the second quarter of 2008.
In lieu of a cash security deposit, the Company established an
irrevocable standby letter of credit in the amount of $156,000
naming the landlord of the new facility as the beneficiary.
Pursuant to the lease agreement, the Company received
approximately $4.1 million in tenant improvement allowances
and will receive incentives of approximately $1.2 million
in rent abatements over the first two years of the lease. The
Company has received $1.0 million in incentives as of
January 2, 2009. The operating lease term for the new
facility commenced on April 1, 2008, and will continue
through April 1, 2015, with minimum monthly lease payments
beginning at $119,000 and escalating annually after the first
two years. The Companys total future minimum lease
payments over the term of the lease will be approximately
$10.2 million.
56
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements (Continued)
On June 25, 2007, a jury found that we infringed one of the
patents owned by Celerity, Inc. The jury awarded damages of
$45,000 to Celerity in royalty fees for gas panel sales to date
related to the product that was found to infringe the Celerity
patent and enjoined us from making, using, or selling such
product. The court also ordered us to pay Celerity $85,000 in
court costs. We appealed the jury verdict and injunction to the
Court of Appeals for the Federal Circuit (CAFC). In October
2008, the CAFC affirmed the verdict of infringement. The
CAFCs ruling has not and we do not expect it to have a
material impact on our operating results or cash flows.
From time to time, we are subject to various legal proceedings
and claims, either asserted or unasserted, that arise in the
ordinary course of business. Although the outcome of the various
legal proceedings and claims cannot be predicted with certainty,
the Company has not had a history of outcomes to date that have
been material to the statement of operations and does not
believe that any of these proceedings or other claims will have
a material adverse effect on its consolidated financial
condition or results of operations.
57
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
Not Applicable
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We maintain disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be
disclosed in our filings with the SEC under the Securities
Exchange Act of 1934 (the Exchange Act) is recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms and that such
information is accumulated and communicated to management,
including our chief executive officer (CEO) and
chief financial officer (CFO), as appropriate, to
allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls
and procedures.
As required by SEC
Rule 13a-15(b),
in connection with filing this Annual Report on
Form 10-K,
management conducted an evaluation, with the participation of
our CEO and CFO, of the effectiveness of the design and
operation of our disclosure controls and procedures, as such
term is defined under
Rule 13a-15(e)
promulgated under the Exchange Act, as of January 2, 2009,
the end of the period covered by this report. Based upon our
evaluation, our CEO and CFO concluded that our disclosure
controls and procedures were not effective as of January 2,
2009 as a result of the material weakness described below.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined under
Rule 13a-15(f)
promulgated under the Exchange Act. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our CEO and CFO, we conducted an
assessment of the effectiveness of our internal control over
financial reporting as of January 2, 2009. In making this
assessment, we used the criteria established
in Internal
Control - Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO). A material weakness is a control deficiency,
or combination of control deficiencies, that results in more
than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or
detected on a timely basis. In connection with our assessment of
the Companys internal control over financial reporting
described above, we have identified the following control
deficiency which represents a material weakness in the
Companys internal control over financial reporting as of
January 2, 2009.
The Company did not maintain sufficient and qualified resources
with the proper training and experience related to year end
physical inventory count procedures at our new centralized
manufacturing facility in Hayward, California and in the
computation of inventory reserves with respect to the
Companys accounting policies and procedures in accordance
with accounting principles generally accepted in the United
States of America. Additionally, this control deficiency could
result in misstatements of the Companys financial
statement accounts and disclosures that would result in a
material misstatement to the annual or interim consolidated
financial statements that would not be prevented or detected.
As a result of this material weakness, management has concluded
that as of January 2, 2009, internal controls over
financial reporting were not effective based on the criteria in
Internal Control Integrated
Framework issued
by the COSO.
58
The effectiveness of the Companys internal controls over
financial reporting as of January 2, 2009 has been audited
by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report which appears
in this Annual Report on
Form 10-K.
Remediation
of The Material Weakness in Internal Control Over Financial
Reporting
In our
form 10-Q/A
filed on February 5, 2009 for the period ended
September 26, 2008, we disclosed in Item 4, Controls
and Procedures, that the Company did not maintain adequate
controls to apply the Companys accounting policies in
accordance with accounting principles generally accepted in the
United States of America. This control deficiency resulted in a
misclassification of debt between current and non current
liabilities in the Condensed Consolidated Balance Sheet as of
September 26, 2008. With regard to the above described
material weakness that existed as of September 26, 2008, we
have implemented and executed our remediation plan, and as of
January 2, 2009, this material weakness was successfully
tested and deemed remediated.
We are in the process of determining the steps required to
remediate the material weakness described above related to our
year-end physical inventory count procedures and the computation
of inventory reserves, however, we can not estimate the time
required to complete these remediation steps.
Changes
in Internal Control Over Financial Reporting
There have been no material changes, other than as noted above
in our internal controls over financial reporting occurred
during the last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal
controls over financial reporting.
59
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ultra Clean Holdings, Inc.
Hayward, California
We have audited Ultra Clean Holdings, Inc. and
subsidiaries (the Companys) internal
control over financial reporting as of January 2, 2009,
based on criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control Over Financial Reporting
(Managements Report). Our responsibility is to
express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
that risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
The following material weakness has been identified and included
in managements assessment. The Company did not maintain
sufficient and qualified resources with the proper training and
experience related to year end physical inventory count
procedures at the Companys new centralized manufacturing
facility in Hayward, California and in the computation of
inventory reserves with respect to the Companys accounting
policies and procedures in accordance with accounting principles
generally accepted in the United States of America.
Additionally, this control deficiency could result in
misstatements of the Companys financial statement accounts
and disclosures that would result in a material misstatement to
the annual or interim consolidated financial statements that
would not be prevented or detected on a timely basis. This
material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the
consolidated financial statements as of and for the year ended
January 2, 2009, of the Company and this report does not
affect our report on such financial statements.
60
In our opinion, because of the effect of the material weakness
identified above on the achievement of the objectives of the
control criteria, the Company has not maintained effective
internal control over financial reporting as of January 2,
2009, based on the criteria established in
Internal
Control Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
January 2, 2009, of the Company and our report dated
March 18, 2009, expressed an unqualified opinion on those
financial statements.
/s/
Deloitte
& Touche LLP
San Jose, California
March 18, 2009
61
|
|
Item 9B.
|
Other
Information
|
None.
PART III
Pursuant to Paragraph G(3) of the General Instructions to
Form 10-K,
portions of the information required by Part III of
Form 10-K
are incorporated by reference from our definitive Proxy
Statement to be filed with the SEC in connection with our 2009
Annual Meeting of Stockholders.
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
The information required by this item concerning directors,
including our audit committee financial expert, is incorporated
by reference to the section entitled, Election of
Directors in our definitive Proxy Statement for the 2009
Annual Meeting of Stockholders.
For information with respect to Executive Officers, see
Part I, Item 1 of this Annual Report on
Form 10-K,
under Executive Officers.
The information required by the item with respect to
Section 16(a) beneficial reporting compliance is
incorporated by reference to the section entitled,
Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive Proxy Statement for the 2009
Annual Meeting of Stockholders.
We have adopted a code of ethics that is designed to qualify as
a code of ethics within the meaning of
Section 406 of the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder. This code of ethics is available on our
website at
www.uct.com.
To the extent required by law,
any amendments to, or waivers from, any provision of the code of
ethics will be promptly disclosed to the public. To the extent
permitted by such legal requirements, we intend to make such
public disclosure by posting the relative material on our
website in accordance with SEC rules.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference to the sections entitled Executive Officer
Compensation and Election of Directors in the
Companys definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated by
reference to the sections entitled Security Ownership of
Certain Beneficial Owners and Management in the
Companys definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders.
62
This table summarizes our equity plan information as of
January 2, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
(a)
|
|
|
(b)
|
|
|
for Future Issuance
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
(Excluding
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants
|
|
|
Securities Reflected
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
in Column (a))
|
|
|
Equity compensation plans approved by security holders:(1)
|
|
|
2,143,742
|
|
|
$
|
7.99
|
|
|
|
2,371,507
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,143,742
|
|
|
|
|
|
|
|
2,371,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of the Amended and Restated Stock Incentive Plan and,
for purposes of column (c), the Employee Stock Purchase Plan.
The number of shares available under our Amended and Restated
Stock Incentive Plan automatically increases each year,
beginning January 1, 2005 through January 1, 2014, by
an amount equal to the lesser of (i) 370,228 shares,
(ii) 2% of the number of shares of the common stock
outstanding on the date of the increase or (iii) an amount
determined by the Board of Directors.
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information required by this item is incorporated by
reference to the section entitled Certain Relationships
and Related Transactions in the Companys definitive
Proxy Statement for the 2009 Annual Meeting of Stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is incorporated by
reference to the section entitled Ratification of
Independent Accountants in the Companys definitive
Proxy Statement for the 2009 Annual Meeting of Stockholders.
Part IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) The following documents are filed as part of this
Form 10-K:
1. Financial Statements:
|
|
|
|
|
|
|
Form 10-K
|
|
|
Page No.
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
2. Financial statement schedules not listed have been
omitted because they are not applicable or required, or the
information required to be set forth therein is included in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
63
Exhibit Index
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger dated as of October 30, 2002,
among Ultra Clean Holdings, Inc., Ultra Clean Technology Systems
and Service, Inc., Mitsubishi Corporation, Mitsubishi
International Corporation and Clean Merger Company(a)
|
|
2
|
.2
|
|
Agreement and Plan of Merger and Reorganization dated as of
June 29, 2006 by and among Sieger Engineering, Inc., Leonid
Mezhvinsky, Ultra Clean Holdings, Inc., Bob Acquisition Inc.,
Pete Acquisition LLC, Leonid and Inna Mezhvinsky as trustees of
the Revocable Trust Agreement of Leonid Mezhvinsky and Inna
Mezhvinsky dated April 26, Joe and Jenny Chen as trustees
of the Joe Chen and Jenny Chen Revocable Trust dated 2002,
Victor Mezhvinsky, Victor Mezhvinsky as trustee of the Joshua
Mezhvinsky 2004 Irrevocable Trust under Agreement dated
June 4, 2004, David Hongyu Wu and Winnie Wei Zhen Wu as
trustees of the Chen Minors Irrevocable Trust, Frank Moreman and
Leonid Mezhvinsky as Sellers Agent(g)
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Ultra Clean
Holdings, Inc.(b)
|
|
3
|
.2
|
|
Second Amended and Restated Bylaws of Ultra Clean Holdings,
Inc.(i)
|
|
4
|
.1
|
|
Amended and Restated Registration Rights Agreement dated as of
June 29, 2006 among Ultra Clean,
FP-Ultra
Clean L.L.C. and the Sieger Shareholders(g)
|
|
10
|
.1
|
|
Employment Agreement dated November 15, 2002 between
Clarence L. Granger and Ultra Clean Holdings, Inc.(a)
|
|
10
|
.2
|
|
Offer letter dated as of December 7, 2007 between Ultra
Clean and David Savage(h)
|
|
10
|
.3
|
|
Agreement to Preserve Corporate Opportunity dated as of
June 29, 2006 between Ultra Clean and Leonid Mezhvinsky(g)
|
|
10
|
.4
|
|
Amended and Restated 2003 Stock Incentive Plan(d)
|
|
10
|
.5
|
|
Form of Stock Option Agreement(c)
|
|
10
|
.6
|
|
Loan and Security Agreement dated as of June 29, 2006 among
Silicon Valley Bank, Ultra Clean Technology Systems and Service,
Inc., Bob Acquisition Inc. and Pete Acquisition LLC as amended
through February 4, 2009
|
|
10
|
.7
|
|
Unconditional Guaranty by Ultra Clean in favor of Silicon Valley
Bank dated as of June 29, 2006(g)
|
|
10
|
.8
|
|
Securities Pledge Agreement dated as of June 29, 2006
between Silicon Valley Bank and Ultra Clean(g)
|
|
10
|
.9
|
|
Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean(g)
|
|
10
|
.10
|
|
Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean
Technology(g)
|
|
10
|
.11
|
|
Employee Stock Purchase Plan (Restated as of October 21,
2004)(e)
|
|
10
|
.12
|
|
Form of Indemnification Agreement between Ultra Clean Holdings,
Inc. and each of its directors and executive officers(b)
|
|
10
|
.13
|
|
Amendment No. 1 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holdings, Inc. dated March 2,2004(b)
|
|
10
|
.14
|
|
Amendment No. 2 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holding, Inc. dated May 9, 2005(f)
|
|
10
|
.15
|
|
Form of Award Agreement(c)
|
|
10
|
.16
|
|
Severance Policy for Executive Officers (revised)
|
|
10
|
.17
|
|
Form of Restricted Stock Unit Award Agreement(j)
|
|
10
|
.18
|
|
Separation Agreement dated as of December 31, 2007 between
the Company and Leonid Mezhvinsky(k)
|
|
10
|
.19
|
|
Change of Control Severance Agreement dated as of July 28,
2008 by and between Ultra Clean Holdings, Inc. and Clarence L.
Granger
|
|
10
|
.20
|
|
Change of Control Severance Agreement dated as of July 28,
2008 by and between Ultra Clean Holdings, Inc. and David Savage
|
|
10
|
.21
|
|
Change of Control Severance Agreement dated as of July 28,
2008 by and between Ultra Clean Holdings, Inc. and Jack Sexton
|
64
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
21
|
.1
|
|
Subsidiaries of Ultra Clean Holdings, Inc.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
24
|
.1
|
|
Power of Attorney (included on signature page)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
(a)
|
|
Filed as an exhibit to the Registrants Registration
Statement on
Form S-1
(File
No. 333-11904),
filed January 14, 2004.
|
|
(b)
|
|
Filed as an exhibit to Amendment No. 2 to the
Registrants Registration Statement on
Form S-1/A
(File No. 333-11904),
filed March 2, 2004.
|
|
(c)
|
|
Filed as an exhibit to Amendment No. 3 to the
Registrants Registration Statement on
Form S-1/A
(File No. 333-11904),
filed March 8, 2004.
|
|
(d)
|
|
Filed as an exhibit to the Registrants Registration
Statement on
Form S-8
(File
No. 333-114051),
filed March 30, 2004.
|
|
(e)
|
|
Filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q
for the three months ended September 30, 2004.
|
|
(f)
|
|
Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed May 13, 2005.
|
|
(g)
|
|
Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed July 6, 2006.
|
|
(h)
|
|
Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed December 12, 2007.
|
|
(i)
|
|
Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed February 21, 2008.
|
|
(j)
|
|
Filed as an exhibit to the Registrants Annual Report on
Form 10-K
for the year ended December 28, 2008.
|
|
(k)
|
|
Filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q
for the three months ended March 28, 2008.
|
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Ultra Clean Holdings, Inc.
|
|
|
|
By:
|
/s/ Clarence
L. Granger
|
Clarence L. Granger
Chairman & Chief Executive Officer
Date: March 18, 2009
KNOW ALL PERSONS BY THESE PRESENTS
, that each person
whose signature appears below constitutes and appoints Clarence
L. Granger and Jack Sexton, and each of them, as his true and
lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him in any and all
capacities, to sign any and all amendments to this Annual Report
on
Form 10-K
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission hereby ratifying and confirming that each of
said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
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Signature
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Title
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Date
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/s/ Clarence
L. Granger
Clarence
L. Granger
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Chairman & Chief Executive Officer (Principal
Executive Officer) and Director
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March 18, 2009
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/s/ Jack
Sexton
Jack
Sexton
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Vice President and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
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March 18, 2009
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/s/ Leonid
Mezhvinsky
Leonid
Mezhvinsky
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Director
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March 18, 2009
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/s/ Brian
R. Bachman
Brian
R. Bachman
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Director
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March 18, 2009
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/s/ Susan
H. Billat
Susan
H. Billat
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Director
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March 18, 2009
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/s/ Kevin
C. Eichler
Kevin
C. Eichler
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Director
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March 18, 2009
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/s/ David
T. ibnAle
David
T. ibnAle
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Director
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March 18, 2009
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66
Exhibit Index
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Exhibit
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Description
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2
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.1
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Agreement and Plan of Merger dated as of October 30, 2002,
among Ultra Clean Holdings, Inc., Ultra Clean Technology Systems
and Service, Inc., Mitsubishi Corporation, Mitsubishi
International Corporation and Clean Merger Company(a)
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2
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.2
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Agreement and Plan of Merger and Reorganization dated as of
June 29, 2006 by and among Sieger Engineering, Inc., Leonid
Mezhvinsky, Ultra Clean Holdings, Inc., Bob Acquisition Inc.,
Pete Acquisition LLC, Leonid and Inna Mezhvinsky as trustees of
the Revocable Trust Agreement of Leonid Mezhvinsky and Inna
Mezhvinsky dated April 26, Joe and Jenny Chen as trustees
of the Joe Chen and Jenny Chen Revocable Trust dated 2002,
Victor Mezhvinsky, Victor Mezhvinsky as trustee of the Joshua
Mezhvinsky 2004 Irrevocable Trust under Agreement dated
June 4, 2004, David Hongyu Wu and Winnie Wei Zhen Wu as
trustees of the Chen Minors Irrevocable Trust, Frank Moreman and
Leonid Mezhvinsky as Sellers Agent(g)
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3
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.1
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Amended and Restated Certificate of Incorporation of Ultra Clean
Holdings, Inc.(b)
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3
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.2
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Second Amended and Restated Bylaws of Ultra Clean Holdings,
Inc.(i)
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4
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.1
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Amended and Restated Registration Rights Agreement dated as of
June 29, 2006 among Ultra Clean, FP-Ultra Clean L.L.C. and
the Sieger Shareholders(g)
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10
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.1
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Employment Agreement dated November 15, 2002 between
Clarence L. Granger and Ultra Clean Holdings, Inc.(a)
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10
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.2
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Offer letter dated as of December 7, 2007 between Ultra
Clean and David Savage(h)
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10
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.3
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Agreement to Preserve Corporate Opportunity dated as of
June 29, 2006 between Ultra Clean and Leonid Mezhvinsky(g)
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10
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.4
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Amended and Restated 2003 Stock Incentive Plan(d)
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10
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.5
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Form of Stock Option Agreement(c)
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10
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.6
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Loan and Security Agreement dated as of June 29, 2006 among
Silicon Valley Bank, Ultra Clean Technology Systems and Service,
Inc., Bob Acquisition Inc. and Pete Acquisition LLC as amended
through February 4, 2009
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10
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.7
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Unconditional Guaranty by Ultra Clean in favor of Silicon Valley
Bank dated as of June 29, 2006(g)
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10
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.8
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Securities Pledge Agreement dated as of June 29, 2006
between Silicon Valley Bank and Ultra Clean(g)
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10
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.9
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Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean(g)
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10
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.10
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Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean
Technology(g)
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10
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.11
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Employee Stock Purchase Plan (Restated as of October 21,
2004)(e)
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10
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.12
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Form of Indemnification Agreement between Ultra Clean Holdings,
Inc. and each of its directors and executive officers(b)
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10
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.13
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Amendment No. 1 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holdings, Inc. dated March 2,2004(b)
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10
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.14
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Amendment No. 2 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holding, Inc. dated May 9, 2005(f)
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10
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.15
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Form of Award Agreement(c)
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10
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.16
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Severance Policy for Executive Officers (revised)
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10
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.17
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Form of Restricted Stock Unit Award Agreement(j)
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10
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.18
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Separation Agreement dated as of December 31, 2007 between
the Company and Leonid Mezhvinsky(k)
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10
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.19
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Change of Control Severance Agreement dated as of July 28,
2008 by and between Ultra Clean Holdings, Inc. and Clarence L.
Granger
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10
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.20
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Change of Control Severance Agreement dated as of July 28,
2008 by and between Ultra Clean Holdings, Inc. and David Savage
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10
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.21
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Change of Control Severance Agreement dated as of July 28,
2008 by and between Ultra Clean Holdings, Inc. and Jack Sexton
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67
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Exhibit
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Description
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21
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.1
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Subsidiaries of Ultra Clean Holdings, Inc.
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23
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.1
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Consent of Independent Registered Public Accounting Firm
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24
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.1
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Power of Attorney (included on signature page)
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31
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.1
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Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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31
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.2
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Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32
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.1
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Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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32
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.2
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Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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(a)
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Filed as an exhibit to the Registrants Registration
Statement on
Form S-1
(File
No. 333-11904),
filed January 14, 2004.
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(b)
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Filed as an exhibit to Amendment No. 2 to the
Registrants Registration Statement on
Form S-1/A
(File No. 333-11904),
filed March 2, 2004.
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(c)
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Filed as an exhibit to Amendment No. 3 to the
Registrants Registration Statement on
Form S-1/A
(File No. 333-11904),
filed March 8, 2004.
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(d)
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Filed as an exhibit to the Registrants Registration
Statement on
Form S-8
(File
No. 333-114051),
filed March 30, 2004.
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(e)
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Filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q
for the three months ended September 30, 2004.
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(f)
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Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed May 13, 2005.
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(g)
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Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed July 6, 2006.
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(h)
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Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed December 12, 2007.
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(i)
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Filed as an exhibit to the Registrants Current Report on
Form 8-K,
filed February 21, 2008.
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(j)
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Filed as an exhibit to the Registrants Annual Report on
Form 10-K
for the year ended December 28, 2008.
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(k)
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Filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q
for the three months ended March 28, 2008.
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68
Exhibit 10.6
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this Agreement) dated as of the Effective Date among
SILICON VALLEY BANK, a California corporation (Bank), and ULTRA CLEAN TECHNOLOGY SYSTEMS AND
SERVICE, INC., a California company (Ultra Clean), BOB ACQUISITION INC. (and any successor by
merger), a California corporation, and PETE ACQUISITION LLC (to be renamed UCT Sieger Engineering
LLC), a Delaware limited liability company (Sieger, together with Ultra Clean and Bob, each a
Borrowers and collectively, Borrowers), provides the terms on which Bank shall lend to
Borrowers and Borrowers shall repay Bank. The parties agree as follows:
1.
ACCOUNTING AND OTHER TERMS.
Accounting terms not defined in this Agreement shall be construed following GAAP.
Calculations and determinations must be made following GAAP. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the
Code to the extent such terms are defined therein.
2.
LOAN AND TERMS OF PAYMENT.
2.1.
Promise to Pay
. Each Borrower hereby unconditionally, jointly and severally,
promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and
unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1. Revolving Advances
.
(a)
Availability
. Subject to the terms and conditions of this Agreement, Bank will
make Advances to Borrowers from time to time up to an aggregate amount (Net Borrowing
Availability) not to exceed the lesser of: (a) the Revolving Line; or (b) amounts available under
the Borrowing Base.
(b)
Streamline Period
. Borrowers may, at their option, elect not to have any Advances
outstanding during specified periods of time (each, a Streamline Period). At least 5 days prior
to requesting that a Streamline Period be put into effect, Borrowers shall give Bank written notice
thereof, specifying the date the Streamline Period is to begin. On or prior to the Business Day
immediately preceding the commencement of the Streamline Period, Borrowers will pay to Bank, by
wire transfer, an amount sufficient to repay in full all outstanding Advances, all accrued interest
thereon, and all other outstanding monetary Obligations then due hereunder. A Streamline Period
may not be put into effect if there are outstanding Obligations in connection with Cash Management
Services in excess of $500,000. Notwithstanding the foregoing, a Streamline Period may be
permitted to exist even if Advances are outstanding so long as the Trigger Availability is in
excess of $3,000,000 at all times during such period. During a Streamline Period, Borrowers will
not be permitted to incur Obligations in connection with Cash Management Services in an amount more
than $500,000 and no additional Letters of Credit will be issued. During a Streamline Period,
Borrowers may not request any Advances, and Bank shall have no obligation to make any Advances. To
terminate a Streamline Period, Borrowers shall provide Bank at least 15 days prior written notice
thereof together with such information relating to the
Eligible Accounts, the Cash Management Services Sublimit and other Collateral as Bank may
reasonably request.
(c)
Termination; Repayment
. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all
other Obligations relating to the Revolving Line shall be immediately due and payable.
2.1.2. Letters of Credit Sublimit.
(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit for a
Borrowers account for such Borrowers benefit or for the benefit of any of its Subsidiaries or its
Affiliate, Shanghai. The sum of (i) the aggregate undrawn amount of all outstanding Letters of
Credit
plus
(ii) the amount of reimbursement obligations in respect of Letters of Credit
plus
(iii)
any Letter of Credit Reserve may not exceed $10,000,000 minus the sum of (x) the Cash Management
Services Sublimit and (y) the FX Sublimit (the L/C Sublimit). The amount otherwise available for
Advances under the Revolving Line (calculated as provided in Section 2.1.1(a)) will be reduced by
the sum of amounts described in clauses (i) through (iii) and clauses (x) and (y) above. If, on
the Revolving Maturity Date, there are any outstanding Letters of Credit, then on such date
Borrowers shall provide to Bank cash collateral in an amount equal to 105% of the sum of the
undrawn amount of all such Letters of Credit plus the amount of all reimbursement obligations in
respect of Letters of Credit, to secure all of the Obligations relating to said Letters of Credit.
All Letters of Credit shall be in form and substance reasonably acceptable to Bank and shall be
subject to the terms and conditions of Banks standard Application and Letter of Credit Agreement
(the Letter of Credit Application). Borrowers agree to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request. Borrowers further agree to
be bound by the terms of each letter of credit (and letter of credit application applicable
thereto) guarantied by Bank and opened for a Borrowers account or by Banks interpretations of any
Letter of Credit issued by Bank for a Borrowers account, and Borrowers understand and agree that
Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission,
in following a Borrowers instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto, except to the extent resulting directly from the
gross negligence or wilful misconduct of Bank. The sum of (i) the aggregate undrawn amount of all
outstanding Letters of Credit
plus
(ii) the amount of all reimbursement obligations in respect of
Letters of Credit may not exceed the Availability Amount.
(b) The obligation of Borrowers to immediately reimburse Bank for drawings made under Letters
of Credit shall be absolute, unconditional, irrevocable, and joint and several and shall be
performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the
Letter of Credit Application.
(c) Each Borrower may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such
demand as an Advance to such Borrower of the equivalent of the amount thereof (plus fees and
charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the
then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency
for transfer to the country issuing such Foreign Currency.
(d) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter
of Credit payable in a Foreign Currency (a Foreign Currency Letter of Credit), Bank shall create
a reserve (the Letter of Credit Reserve) under the Revolving Line in an amount equal to ten
percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit
Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate.
The
- 2 -
availability of Advances and for Letters of Credit under the Revolving Line shall be reduced
by the amount of such Letter of Credit Reserve for as long as any Foreign Currency Letter of Credit
remains outstanding.
2.1.3. Foreign Exchange Sublimit
. As part of the Revolving Line, Borrowers may enter
into foreign exchange contracts with Bank under which Borrowers commit to purchase from or
sell to Bank a specific amount of Foreign Currency (each, a FX Forward Contract) on a
specified date (the Settlement Date). FX Forward Contracts shall have a Settlement Date
of at least one (1) FX Business Day after the contract date and shall be subject to a
reserve of ten percent (10%) of each outstanding FX Forward Contract in a maximum aggregate
amount equal to $250,000 (the FX Reserve). The aggregate amount of FX Forward Contracts
at any one time may not exceed $10,000,000 minus the sum of (i) the L/C Sublimit and (ii)
the Cash Management Services Sublimit (the FX Sublimit). The obligations of Borrowers
relating to this section may not exceed the Availability Amount.
2.1.4. Cash Management Services Sublimit
. Borrowers may use up to $10,000,000 minus
the sum of (i) the L/C Sublimit and (ii) the FX Sublimit (the Cash Management Services
Sublimit) of the Revolving Line for Banks cash management services which may include
merchant services, direct deposit of payroll, business credit card, and check cashing
services identified in Banks various cash management services agreements (collectively, the
Cash Management Services). Any amounts Bank pays on behalf of Borrowers or any amounts
that are not paid by Borrowers for any Cash Management Services will be treated as Advances
under the Revolving Line and will accrue interest at the interest rate applicable to
Advances. The obligations of the Borrowers relating to this section may not exceed the
Availability Amount.
2.1.5. Term Loan.
(a)
Availability
. Bank shall make one (1) term loan available to Borrowers in an
amount up to the Term Loan Amount on the Effective Date subject to the satisfaction of the terms
and conditions of this Agreement.
(b)
Repayment
. Borrowers shall repay the Term Loan in (i) thirty-six (36) equal
installments of principal, plus (ii) monthly payments of accrued interest (the Term Loan
Payment). Beginning on the first day of the month following the month in which the Funding Date
occurs, each Term Loan Payment shall be payable on the last day of each month. Borrowers final
Term Loan Payment, due on the Term Loan Maturity Date, shall include all outstanding principal and
accrued and unpaid interest under the Term Loan. Borrowers shall have the right at any time to
prepay the Term Loan prior to the Term Loan Maturity Date, as a whole or in part, without premium
or penalty. Any such prepayment of principal shall include accrued and unpaid interest to the date
of prepayment and shall be applied against the scheduled installments of principal in the inverse
order of maturity. No amount repaid hereunder may be reborrowed.
2.2.
Overadvances
. If at any time or for any reason the total of all outstanding
Advances and all other monetary Obligations (other than the Term Loan) exceeds Net Borrowing
Availability (an Overadvance), Borrowers shall if the amount of the Overadvance is (a) equal or
greater than $500,000, immediately pay the full amount of the Overadvance to Bank, without notice
or demand, or (b) less than $500,000, within one (1) Business Day after the receipt of a request by
Bank therefore, pay the full amount of the Overadvance to Bank. Without limiting each Borrowers
obligation to repay to Bank the full amount of any Overadvance, Borrowers agree to pay Bank
interest at the Default Rate on the outstanding amount of any Overadvance on demand.
- 3 -
2.3.
Payment of Interest on the Credit Extensions
.
(a)
Interest Rate
(i)
Advances
. Subject to Section 2.3(b), Advances shall accrue
interest at a per annum rate equal to, so long as the Senior Leverage Ratio as set
forth in the most recent Compliance Certificate is less than 1.0:1.0, 0.75
percentage points below the Prime Rate, and if greater than 1.0:1.0, 0.50 percentage
points below the Prime Rate, which interest shall be payable monthly.
(ii)
Term Loan
. Subject to Section 2.3(b), the principal amount
outstanding under the Term Loan shall accrue interest at a per annum rate equal to,
so long as the Senior Leverage Ratio as set forth in the most recent Compliance
Certificate is less than 1.0:1.0, 0.25 percentage points below the Prime Rate, and
if greater than 1.0:1.0, the Prime Rate.
(iii)
Change in Interest Rate
. Any increase or decrease in the
interest rate in paragraphs (i) and (ii) above resulting from a change in the Senior
Leverage Ratio shall become effective commencing on the first Business Day of the
month immediately following the date a Compliance Certificate is delivered pursuant
to Section 6.2(a)(iv); provided, however, that if a Compliance Certificate is not
delivered when due in accordance with Section 6.2(a)(iv), the highest interest rate
set forth in paragraphs (i) and (ii) above shall apply commencing on the first
Business Day of the month following the date such Compliance Certificate was
required to have been delivered and continuing until the day that is two (2)
Business Days after the date that such Compliance Certificate is delivered to Bank.
The interest rate in effect from the Effective Date through the first Business Day
of the month immediately following the date the Compliance Certificate for the
period ending June 29, 2006 is required to be delivered pursuant to Section
6.2(a)(iv) shall be the highest interest rate set forth in paragraphs (i) and (ii)
above.
(b)
Default Rate
. Upon the occurrence and during the continuance of an Event of
Default, Obligations shall bear interest at a rate per annum which is two (2) percentage points
above the rate effective immediately before the Event of Default (the Default Rate) commencing on
the date that Bank gives Borrowers notice that such Default Rate is then applicable. Payment or
acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted
alternative to timely payment and shall not constitute a waiver of any Event of Default or
otherwise prejudice or limit any rights or remedies of Bank.
(c)
Adjustment to Interest Rate
. Changes to the interest rate of any Credit Extension
based on changes to the Prime Rate shall be effective on the effective date of any change to the
Prime Rate and to the extent of any such change.
(d)
365-Day Year
. Interest shall be computed on the basis of a 365-day year for the
actual number of days elapsed.
(e)
Debit of Accounts
. Bank may automatically debit any of Borrowers deposit
accounts, including the Designated Deposit Account, for principal and interest payments when due
and for any other amounts Borrowers owe Bank when overdue. These debits shall not constitute a
set-off.
- 4 -
(f)
Change to Revolving Line
. Subject to prior satisfaction with applicable
conditions set forth in Section 3 with respect to any Credit Extension, Borrowers may request an
Advance to be applied to the payment of any interest and/or Bank Expenses due under the Loan
Documents.
(g)
Payment; Interest Computation; Float Charge
. Interest is payable monthly on the
last calendar day of each month. In computing interest on the Obligations, all Payments received
after 12:00 p.m. Pacific time on any day shall be deemed received on the next Business Day. In
addition, so long as any principal or interest with respect to any Credit Extension remains
outstanding, Bank shall be entitled to charge Borrowers a float charge in an amount equal to
three (3) Business Days interest, at the interest rate applicable to the Credit Extensions, on all
Payments received by Bank. Said float charge is not included in interest for purposes of computing
Minimum Monthly Interest (if any) under this Agreement. The float charge for each month shall be
payable on the last day of the month. Bank shall not, however, be required to credit any
Borrowers account for the amount of any item of payment which is unsatisfactory to Bank in its
good faith business judgment, and Bank may charge any Borrowers Designated Deposit Account for the
amount of any item of payment which is returned to Bank unpaid.
2.4.
Fees
. Borrowers shall jointly and severally pay to Bank:
(a)
Commitment Fee
. A fully earned, non-refundable commitment fee of $121,875, on the
Effective Date;
(b)
Letter of Credit Fee
. Banks customary fees and expenses for the issuance or
renewal of Letters of Credit, including, without limitation, a Letter of Credit Fee of 0.75
percentage points per annum of the face amount of each Letter of Credit issued, upon the issuance
or renewal of such Letter of Credit by Bank. In the event that any Letter of Credit is cancelled
or terminated and returned to Bank prior to its stated expiry date, Bank shall return to Borrowers
the pro rata portion of such fee applicable to what would have been the unexpired period.
(c)
Termination Fee
. Subject to the terms of Section 4.1, the termination fee
specified in Section 4.1;
(d)
Collateral Monitoring Fee
. So long as any Advances or Letters of Credit are
outstanding during any month or portion thereof, a monthly collateral monitoring fee of $1,500,
payable in arrears on the last day of such month (prorated for any partial month), commencing on
the last day of the month during which the Effective Date occurs, and upon termination of this
Agreement; and
(e)
Bank Expenses
. All Bank Expenses (including reasonable attorneys fees and
expenses, plus expenses, for documentation and negotiation of this Agreement, and amounts due under
Section 6.6) incurred through and after the Effective Date, when due.
3.
CONDITIONS OF LOANS.
3.1.
Conditions Precedent to Initial Credit Extension
. Banks obligation to make the
initial Credit Extension is subject to the condition precedent that Bank shall have received, in
form and substance satisfactory to Bank, such documents (and when required in original form, it
shall be sufficient to deliver facsimiles of such documents followed by delivery of executed
originals to Bank within three (3) days of the Effective Date by personal delivery or United States
mail as otherwise provided in this Section 10), and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without limitation:
- 5 -
(a) Borrowers shall have delivered duly executed original signatures to the Loan Documents to
which it is a party;
(b) Borrowers shall have delivered its Operating Documents and a good standing certificate of
each Borrower certified (in original form) by the Secretary of State of its jurisdiction of
incorporation as of a date no earlier than thirty (30) days prior to the Effective Date;
(c) Borrowers shall have delivered copies of the Borrowing Resolutions for each Borrower
accompanied by duly executed original officers certificates certifying thereto;
(d) Borrowers shall have delivered final copies of all Merger Documents and evidence of
consummation of the Acquisition, including but not limited to, all necessary filings with any
Governmental Authority;
(e) Borrowers shall have delivered a payoff letter from Union Bank of California;
(f) Borrowers shall have delivered (i) evidence that the Liens securing Indebtedness owed by
Borrowers to Union Bank of California under the existing credit facility have been or will,
substantially contemporaneously with the initial Credit Extension, be terminated and (ii) evidence
of (or such documents as Bank shall reasonably require to effect) the termination as of record of
(A) such Liens, including without limitation any financing statements, Intellectual Property
filings and/or control agreements in connection therewith, and (B) all financing statements,
Intellectual Property filings and/or control agreements filed by, or entered into by Ultra Clean or
Holdings with, Wells Fargo Foothill, Inc.
(g) Bank shall have received certified copies, dated as of a recent date, of such financing
statement searches as Bank shall reasonably request with respect to the assets of Borrowers or
Holdings, accompanied by evidence reasonably satisfactory to Bank (including any UCC termination
statements) that the Liens indicated in any such financing statement searches either constitute
Permitted Liens or have been or, in connection with the initial Credit Extension, will be
terminated or released;
(h) Borrowers shall have delivered originals of the Perfection Certificate(s) executed by each
Borrower and Guarantor;
(i) Borrowers shall have delivered an original landlords consent with respect to each
leasehold property of a Borrower in favor of Bank;
(j) Borrowers shall have delivered opinions of (i) Morris, Nichols, Arsht & Tunnell LLP,
special Delaware counsel, and (ii) Baker & McKenzie LLP, special California counsel, each dated as
of the Effective Date together with the duly executed original signatures thereto;
(k) Holdings shall have delivered a duly executed original signature (or facsimile copies
thereof to the Guaranty and the Holdings IP Pledge Agreement, together with the completed Borrowing
Resolutions for Holdings;
(l) Borrowers shall have delivered certificates of insurance satisfactory to Bank evidencing
that the insurance policies required by Section 6.7 hereof are in full force and effect, and
containing loss payable and/or additional insured clauses or endorsements in favor of Bank to the
extent required thereunder; and
(m) Borrowers shall have paid the fees and Bank Expenses then due as specified in Section 2.4
hereof.
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3.2.
Conditions Precedent to all Credit Extensions
. Banks obligations to make each
Credit Extension, including the initial Credit Extension, is subject to the following:
(a) except as otherwise provided in Section 3.4(a), timely receipt by Bank of an executed
Payment/Advance Form;
(b) the representations and warranties in Section 5, as any such representation or warranty
may be modified in a manner expressly permitted by the Loan Documents (e.g., a change in a
Borrowers legal name in accordance with Section 7.2) , shall be true in all material respects on
the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided,
however, that such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text thereof; and provided,
further that those representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no Default or Event of
Default shall have occurred and be continuing or result from the Credit Extension. Each Credit
Extension is each Borrowers representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and warranties that already
are qualified or modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be true, accurate and
complete in all material respects as of such date; and
(c) in Banks sole discretion, there has not been a Material Adverse Change.
3.3.
Covenant to Deliver
. Each Borrower agrees to deliver to Bank each item required
to be delivered to Bank under this Agreement prior to the Funding Date thereof, as a condition to
any Credit Extension. Each Borrower expressly agrees that the extension of a Credit Extension
prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrowers
obligation to deliver such item, and any such extension in the absence of such a required item
shall be in Banks sole discretion.
3.4.
Procedures for Borrowing
. Subject to the prior satisfaction of all other
applicable conditions to the making of a Credit Extension set forth in this Agreement, to obtain a
Credit Extension (other than Advances under Sections 2.1.2 or 2.1.4), Borrowers shall notify Bank
(which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m.
Pacific time on the Funding Date of the Credit Extension. Together with such notification,
Borrowers must promptly deliver to Bank by electronic mail or facsimile a completed Transaction
Report, each executed by a Responsible Officer or his or her designee. Bank shall credit Credit
Extensions to the Designated Deposit Account. Bank may make Credit Extensions under this Agreement
based on instructions from a Responsible Officer or his or her designee or without instructions if
the Advances are necessary to satisfy Obligations that are not paid when due. Bank may rely on any
telephone notice given by a person whom Bank believes is a Responsible Officer or designee.
4.
CREATION OF SECURITY INTEREST
.
4.1.
Grant of Security Interest
. Each Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing security interest in, and
pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof. Each Borrower represents, warrants, and covenants
that the security interest granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral (subject only to Permitted Liens that may have
superior priority to Banks Lien under this Agreement). If any Borrower shall acquire a commercial
tort claim or claims involving claims in an amount, individually or in the aggregate, of at least
$100,000, such Borrower shall promptly notify Bank
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in a writing signed by such Borrower of the general details thereof and grant to Bank in such
writing a security interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.
This Agreement may be terminated prior to the Revolving Maturity Date by Borrowers, effective
three (3) Business Days after written notice of termination is given to Bank or if Banks
obligation to fund Credit Extensions terminates pursuant to the terms of Section 2.1.1(c).
Notwithstanding any such termination, Banks lien and security interest in the Collateral shall
continue until Borrowers fully satisfy their Obligations. If such termination is at Borrowers
election, Borrowers shall jointly and severally pay to Bank, in addition to the payment of any
other expenses or fees then owing under any Loan Document, a termination fee in an amount equal to
one percent (1.0%) of the Revolving Line plus the outstanding principal amount of the Term Loan at
such time provided that no termination fee shall be charged if the credit facility hereunder is
replaced with a new facility from another division of Silicon Valley Bank. Upon payment in full of
the Obligations and at such time as Banks obligation to make Credit Extensions has terminated,
Bank shall release its liens and security interests in the Collateral and all rights therein shall
revert to the pledgors thereof.
4.2.
Authorization to File Financing Statements
. To the extent permitted by
applicable law, each Borrower hereby authorizes Bank to file Uniform Commercial Code financing
statements, without notice to such Borrower, with all appropriate jurisdictions to perfect or
protect Banks interest or rights under this Section 4.
5.
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant as follows:
5.1.
Due Organization and Authorization
. Each Borrower and each of their Subsidiaries
are duly existing and in good standing in their respective jurisdictions of formation and are
qualified and licensed to do business and are in good standing in any jurisdiction in which the
conduct of their business or their ownership of property requires that they be qualified except
where the failure to do so could not reasonably be expected to have a material adverse effect on
Borrowers businesses. In connection with the execution and delivery of this Agreement, Borrowers
have delivered to Bank completed certificates substantially in the
form attached hereto as
Exhibit
C
each signed by each Borrower and Guarantor, respectively, entitled Perfection Certificate.
Each Borrower represents and warrants to Bank that, as of the Effective Date, (a) such Borrowers
exact legal name is that indicated on the Perfection Certificate and on the signature page hereof;
(b) such Borrower is an organization of the type and is organized in the jurisdiction set forth in
the Perfection Certificate; (c) the Perfection Certificate accurately sets forth such Borrowers
organizational identification number or accurately states that such Borrower has none; (d) the
Perfection Certificate accurately sets forth such Borrowers place of business, or, if more than
one, its chief executive office as well as such Borrowers mailing address (if different than its
chief executive office); (e) except as otherwise described in the Perfection Certificate, such
Borrower (and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of organization, organizational structure or type, or any organizational number
assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate
pertaining to such Borrower and each of its Subsidiaries is accurate and complete. If a Borrower
is not now a Registered Organization but later becomes one, such Borrower shall promptly notify
Bank of such occurrence and provide Bank with such Borrowers organizational identification number.
The execution, delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with any Borrowers organizational documents, nor constitute an event of default
under any material agreement by which any Borrower is bound. No Borrower is in default under any
agreement
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to which it is a party or by which it is bound, except for any defaults which could not
reasonably be expected to have a material adverse effect on the Borrowers businesses, taken as a
whole.
5.2.
Collateral
. Each Borrower has good title to the Collateral, free of Liens except
Permitted Liens. As of the Effective Date, each Borrower has no deposit account other than (a) the
deposit accounts with Union Bank of California specified in the Union Bank Control Agreement, (b)
the deposit accounts described in the Perfection Certificate delivered to Bank in connection
herewith and (c) other deposit accounts located in the United States so long as the aggregate cash
balances contained therein do not exceed $25,000 per account or $100,000 in the aggregate with
respect to all such accounts.
The Collateral is not in the possession of any third party bailee (such as a warehouse).
Except as hereafter disclosed to Bank in writing by Borrowers, none of the components of the
Collateral shall be maintained at locations other than as provided in the Perfection Certificate.
In the event that any Borrower, after the date hereof, intends to store or otherwise deliver any
material portion of the Collateral to a bailee, then such Borrower will first receive the written
consent of Bank and such bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank.
All Inventory is in all material respects of good and marketable quality, free from material
defects.
Each Borrower is the sole owner of its Intellectual Property, except for non-exclusive
licenses granted to its customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or unenforceable, in
whole or in part, and to the best of each Borrowers knowledge, no claim has been made that any
part of the Intellectual Property violates the rights of any third party.
Except as noted on the Perfection Certificate, no Borrower is a party to, nor is bound by, any
material license or other agreement with respect to which such Borrower is the licensee that
prohibits or otherwise restricts such Borrower from granting a security interest in such Borrowers
interest in such license or agreement or any other property. Each Borrower shall provide written
notice to Bank within ten (10) days of entering or becoming bound by any such license or agreement
which is reasonably likely to have a material impact on such Borrowers business or financial
condition (other than over-the-counter software that is commercially available to the public).
Each Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any
person whose consent or waiver is necessary for all such licenses or contract rights to be deemed
Collateral and for Bank to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such license or agreement (such consent or authorization
may include a licensors agreement to a contingent assignment of the license to Bank if Bank
determines that is necessary in its good faith judgment), whether now existing or entered into in
the future.
5.3.
Accounts Receivable
.
(a) To the extent any Account is included in any Transaction Report as an Eligible Account,
such Account shall constitute an Eligible Account as of the date of such Transaction Report.
(b) All statements made and all unpaid balances appearing in all invoices, instruments and
other documents evidencing the Accounts are and shall be true and correct and all such invoices,
instruments and other documents, and all of any Borrowers Books are genuine and in all respects
what they purport to be. All sales and other transactions underlying or giving rise to each
Account shall comply in all material respects with all applicable laws and governmental rules and
regulations. No Borrower has knowledge of any actual or imminent Insolvency Proceeding of any
- 9 -
Account Debtor whose accounts are an Eligible Account in any Transaction Report. To the best
of each Borrowers knowledge, all signatures and endorsements on all documents, instruments, and
agreements relating to all Accounts are genuine, and all such documents, instruments and agreements
are legally enforceable in accordance with their terms.
5.4.
Litigation
. There are no actions or proceedings pending or, to the knowledge of
the Responsible Officers, threatened in writing by or against any Borrower or any of its
Subsidiaries that could reasonably be expected to result in a Material Adverse Change.
5.5.
No Material Deviation in Financial Statements
. The consolidated financial
statements for Holdings and its Subsidiaries for the fiscal year ended December 31, 2005, the
fiscal quarter ended March 31, 2006 and any monthly statements since such date delivered to Bank
fairly present in all material respects Holdings consolidated financial condition as of such date
and Holdings consolidated results of operations for the period covered thereby. There has not been
any Material Adverse Change since December 31, 2005.
5.6.
Solvency
. Immediately prior to and after giving effect to the initial Credit
Extensions and the Acquisition, the fair salable value of each Borrowers assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; each Borrower is not
left with unreasonably small capital; and each Borrower is able to pay its debts (including trade
debts) as they mature.
5.7.
Regulatory Compliance
. No Borrower is an investment company or a company
controlled by an investment company under the Investment Company Act. No Borrower nor any of
its Subsidiaries is a holding company, or a subsidiary company of a holding company, or an
affiliate of a holding company, as such terms are defined in the Public Utility Holding Company
Act of 2005; and no Borrower nor any of its Subsidiaries is subject to regulation as a public
utility under the Federal Power Act, as amended. No Borrower is engaged as one of its important
activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve
Board of Governors). Each Borrower is in compliance in all material respects with the Federal Fair
Labor Standards Act and no Borrower has failed to meet the minimum funding requirements of ERISA,
permitted a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; failed to
comply with the Federal Fair Labor Standards Act; withdrawn or permitted any Subsidiary to withdraw
from participation in, permit partial or complete termination of, or permit the occurrence of any
other event with respect to, any present pension, profit sharing and deferred compensation plan
which could reasonably be expected to result in any liability of any Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors. No Borrower has violated
any laws, ordinances or rules, the violation of which could reasonably be expected to have a
material adverse effect on its business. None of any Borrowers or any of its Subsidiaries
properties or assets has been used by such Borrower or any Subsidiary or, to the best of such
Borrowers knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than in compliance with applicable law (except for
Siegers storage of hazardous substances in violation of such law including its failure to file
toxic release inventory forms in 2000-2004 as required by the Emergency Planning Community Right to
Know Act of 1986 which violation has since been remedied). Each Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.8.
Subsidiaries; Investments
. No Borrower owns any stock, partnership interest or
other equity securities except for Permitted Investments. As of the Effective Date, Borrowers and
Ultra Clean International Holding Company (International) are the only direct Subsidiaries of
Holdings, Shanghai is the only Subsidiary of International, and Borrowers have no Subsidiaries.
- 10 -
5.9.
Tax Returns and Payments; Pension Contributions
. Each Borrower has timely filed
all required material tax returns and reports, and each Borrower has timely paid all material
foreign, federal, state and local taxes, assessments, deposits and contributions owed by such
Borrower. Each Borrower may defer payment of any contested taxes, provided that such Borrower (a)
in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, and (b) posts bonds or takes any other steps required to
prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of
the Collateral that is other than a Permitted Lien. No Borrower is aware of any claims or
adjustments proposed for any of such Borrowers prior tax years which could result in additional
material taxes becoming due and payable by such Borrower. Each Borrower has paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation plans in accordance
with their terms, and no Borrower has withdrawn from participation in, and has permitted partial or
complete termination of, or permitted the occurrence of any other event with respect to, any such
plan which could reasonably be expected to result in any liability of such Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental
agency.
5.10.
Use of Proceeds
. Borrowers shall use the proceeds of the Credit Extensions in
connection with the Acquisition, as working capital, and to fund its general business requirements
and not for personal, family, household or agricultural purposes.
5.11.
Full Disclosure
. No written representation, warranty or other statement of any
Borrower in any certificate or written statement given to Bank, as of the date such
representations, warranties, or other statements were made, taken together with all such written
certificates and written statements given to Bank, contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and forecasts provided
by a Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that
actual results during the period or periods covered by such projections and forecasts may differ
from the projected or forecasted results).
6.
AFFIRMATIVE COVENANTS
Borrowers shall do all of the following:
6.1.
Government Compliance
. Maintain its and all its Subsidiaries legal existence
and good standing in their respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to have a material
adverse effect on such Borrowers business or operations. Each Borrower shall comply, and have
each Subsidiary comply, with all laws, ordinances and regulations to which it is subject,
noncompliance with which could have a material adverse effect on such Borrowers business or
operations.
6.2.
Financial Statements, Reports, Certificates
.
(a) Borrowers shall provide Bank with the following:
(i) within fifteen (15) days after the end of each month, a Transaction Report
so long as Borrowers maintain an Availability Amount of at least $3,000,000;
otherwise, weekly. Notwithstanding the foregoing, in the event Borrowers are
providing a monthly Transaction Report, but fail to maintain an Availability Amount
of at least $3,000,000, Borrowers will be required to deliver eight (8) consecutive
weekly Transaction Reports before the monthly reporting option shall be available to
Borrowers;
- 11 -
(ii) within fifteen (15) days after the end of each month, (A) monthly accounts
receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged
by invoice date, and outstanding or held check registers, if any, and (C) monthly
reconciliations of accounts receivable agings (aged by invoice date), transaction
reports, and general ledger;
(iii) as soon as available, and in any event within thirty (30) days after the
end of each month, unaudited consolidated (and, for the first six (6) months
following the Effective Date, consolidating with respect to Borrowers) financial
statements of Holdings and its Subsidiaries, in each case as of the end of or for
such month;
(iv)
within thirty (30) days after the end of each month, a Compliance
Certificate signed by a Responsible Officer, certifying that as of the end of such
month, no Default or Event of Default had occurred and was continuing, and setting
forth calculations showing compliance with the financial covenants set forth in this
Agreement and such other information as Bank shall reasonably request;
(v) within thirty (30) days after the end of each fiscal year of Holdings, (A)
annual operating budgets (including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Holdings, and (B) annual
financial projections for the following fiscal year (on a quarterly basis) as
approved by Holdings board of directors, together with any related business
forecasts used in the preparation of such annual financial projections; and
(vi) as soon as available, and in any event within 120 days following the end
of Holdings fiscal year, annual consolidated financial statements of Holdings and
its Subsidiaries certified by, and with an unqualified opinion of, independent
public accountants of recognized national standing or otherwise reasonably
acceptable to Bank.
(b) Within five (5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission or a link thereto on such Borrowers or another website on the
Internet.
6.3.
Accounts Receivable
.
(a)
Schedules and Documents Relating to Accounts
. Borrowers shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on Banks standard
forms; provided, however, that a Borrowers failure to execute and deliver the same shall not
affect or limit Banks Lien and other rights in all of each Borrowers Accounts, nor shall Banks
failure to advance or lend against a specific Account affect or limit Banks Lien and other rights
therein. If requested by Bank, Borrowers shall furnish Bank with copies (or, at Banks request,
originals) of all contracts, orders, invoices, and other similar documents, and all shipping
instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Accounts. In addition, Borrowers shall deliver to
Bank, on its request, the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any Accounts, in the same form
as received, with all necessary endorsements, and copies of all credit memos.
(b)
Disputes
. Borrowers shall promptly notify Bank of all disputes or claims relating
to Accounts. Borrowers may forgive (completely or partially), compromise, or settle any Account
for less than payment in full, or agree to do any of the foregoing so long as (i) Borrowers do so
in good faith, in a commercially reasonable manner, in the ordinary course of business, in
arms-length transactions, and
- 12 -
reports the same to Bank in the regular reports provided to Bank; (ii) no Default or Event of
Default has occurred and is continuing; and (iii) after taking into account all such discounts,
settlements and forgiveness, the total outstanding Advances will not exceed the lesser of the
Revolving Line or the Aggregate Borrowing Base.
(c)
Collection of Accounts
. Borrowers shall have the right to collect all Accounts,
unless and until a Default or an Event of Default has occurred and is continuing and Bank have
notified the Borrowers under this Section. If a Default or an Event of Default has occurred and is
continuing or if the Trigger Availability shall be less than $3,000,000, Borrowers shall hold all
payments on, and proceeds of, Accounts in trust for Bank, and, if requested by Bank, Borrowers
shall immediately deliver all such payments and proceeds to Bank in their original form, duly
endorsed, to be applied to the Obligations pursuant to the terms of Section 9.4 hereof unless,
provided that no Event of Default has occurred and is continuing, (i) a Streamline Period shall be
in effect and/or (ii) the Trigger Availability shall be in excess of $3,000,000, all such payments
and proceeds need not be applied to the Obligations. Bank may, in its good faith business
judgment, require that all proceeds of Accounts be deposited by Borrowers into a lockbox account,
or such other blocked account as Bank may specify, pursuant to a blocked account agreement in
such form as Bank may specify in its good faith business judgment.
(d)
Returns
. Upon the request of Bank, Borrowers shall promptly provide Bank with an
Inventory return history.
(e)
Verification
. Bank may, from time to time, verify directly with the respective
Account Debtors the validity, amount and other matters relating to the Accounts, either in the name
of one of Borrowers or Bank or such other name as Bank may choose.
(f)
No Liability
. Bank shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of
which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any Account, or for settling
any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrowers obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence
or willful misconduct.
6.4.
Remittance of Proceeds
. Except as otherwise provided in Section 6.3(c), deliver,
in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form
in which received by any Borrower not later than the following Business Day after receipt by such
Borrower, to be applied to the Obligations pursuant to the terms of Section 9.4 hereof; provided
that, if no Default or Event of Default has occurred and is continuing, Borrowers shall not be
obligated to remit to Bank the proceeds of the sale of worn out or obsolete Equipment disposed of
by any Borrower in good faith in an arms length transaction for an aggregate purchase price of
$250,000 or less (for all such transactions in any fiscal year) or of Transfers otherwise permitted
by Section 7.1. Each Borrower agrees that it will not commingle proceeds of Collateral with any of
such Borrowers other funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Bank. Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this Agreement.
6.5.
Taxes; Pensions
. Timely file all required material tax returns and reports and
timely pay all material foreign, federal, state and local taxes, assessments, deposits and
contributions owed by such Borrower except for deferred payment of any taxes contested pursuant to
the terms of Section 5.9 hereof, and pay all amounts necessary to fund all present pension, profit
sharing and deferred compensation plans in accordance with their terms.
- 13 -
6.6.
Access to Collateral; Books and Records
. At reasonable times, on three (3)
Business Days notice not more than twice in any calendar year (provided no notice is required if
an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to
inspect the Collateral and the right to audit and copy each Borrowers Books, the first of which
shall be within six (6) months after the Effective Date. The foregoing inspections and audits
shall be at Borrowers expense, and the charge therefor shall be $750 per person per day (or such
higher amount as shall represent Banks then-current standard charge for the same), plus reasonable
out-of-pocket expenses. In the event Borrowers and Bank schedule an audit more than ten (10) days
in advance, and Borrowers cancel or seek to reschedule the audit with less than ten (10) days
written notice to Bank, then (without limiting any of Banks rights or remedies), Borrowers shall
pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for
the anticipated costs and expenses of the cancellation or rescheduling.
6.7.
Insurance
. Keep its business and the Collateral insured for risks and in amounts
standard for companies in Borrowers industry and location and as Bank may reasonably request.
Insurance policies shall be in a form, with companies, and in amounts that are reasonably
satisfactory to Bank. All property policies shall have a lenders loss payable endorsement showing
Bank as loss payee and waive subrogation against Bank, and all liability policies shall show, or
have endorsements showing, Bank as an additional insured. All policies (or the loss payable and
additional insured endorsements) shall provide that the insurer must give Bank at least twenty (20)
days notice before canceling, amending, or declining to renew its policy. At Banks request, a
Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy shall, at Banks option, be payable to Bank on account of the Obligations.
Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing,
Borrowers shall have the option of applying the proceeds of any casualty policy up to $50,000, in
the aggregate, toward the replacement or repair of destroyed or damaged property; provided that any
such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired
Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority
security interest, and (b) after the occurrence and during the continuance of an Event of Default,
all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on
account of the Obligations. If Borrowers fail to obtain insurance as required under this Section
6.7 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank
may make all or part of such payment or obtain such insurance policies required in this Section
6.7, and take any action under the policies Bank deems prudent.
6.8.
Operating Accounts, Etc.
(a) Within fifteen (15) Business Days of the Effective Date, deposit into one or more
Collateral Accounts maintained with Bank all unrestricted cash of Borrowers in excess of
$7,500,000.
(b) (i) Maintain its and its Subsidiaries depository and operating accounts and lock boxes
with Bank or (ii) so long as no Default or Event of Default shall have occurred and be continuing
and the Trigger Availability is equal to or greater than $3,000,000, until such time as all such
accounts and lock boxes are established and maintained with Bank, jointly and severally pay to Bank
on the last day of each month a fee of $1,500.
(c) Following the occurrence of a Default or Event of Default or in the event the Trigger
Availability shall at anytime be less than $3,000,000, the Borrowers shall, and shall cause their
Subsidiaries, to promptly (but in any Event within forty-five (45) days thereof) transfer all
depository and operating accounts and lock boxes located within the United Stated (other than a
deposit account whose balance at no time exceeds $25,000 and so long as the balance in all such
accounts at no time exceeds $100,000) not maintained with Bank to Bank.
-14-
(d) Provide Bank five (5) days prior written notice before establishing any Collateral Account
at or with any bank or financial institution other than Bank or its Affiliates or, to the extent
that the Union Bank Control Agreement remains in place, Union Bank of California. In addition, for
each Collateral Account that Borrowers at any time maintain, Borrowers shall cause the applicable
bank or financial institution (other than Bank) at or with which any Collateral Account is
maintained to execute and deliver a Control Agreement or other appropriate instrument with respect
to such Collateral Account to perfect Banks Lien in such Collateral Account in accordance with the
terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts
exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of any Borrowers employees and identified to Bank by such Borrower as such or any
deposit account whose balance at no time exceeds $25,000 and so long as the balance in all such
accounts at no time exceeds $100,000.
6.9.
Financial Covenants
. Borrower shall maintain at all times on a consolidated
basis with respect to Holdings and its Subsidiaries (except as otherwise provided in paragraph (c)
below):
(a)
Senior Leverage Ratio
. The ratio of Senior Funded Debt to EBITDA calculated as of
the last day of each fiscal quarter for the four (4) consecutive fiscal quarters ending on such
date (the Senior Leverage Ratio), of not more than 2.0 to 1.0; provided, however, the Senior
Leverage Ratio determined as of (i) June 29, 2006 shall be the Senior Funded Debt as of such date
divided by EBITDA for the 2
nd
fiscal quarter of 2006 multiplied by 4, (ii) September 30,
2006 shall be the Senior Funded Debt as of such date divided by (EBITDA for the 2
nd
and
3
rd
fiscal quarters of 2006) multiplied by 2, and (iii) December 31, 2006 shall be the
Senior Funded Debt as of such date divided by (EBITDA for the 2
nd
, 3
rd
and
4
th
fiscal quarters of 2006) multiplied by 1.333, in each case calculated on a proforma
basis after giving effect to the Acquisition as of the first day of such period.
(b)
Fixed Charge Coverage Ratio
. The ratio of EBITDA to Fixed Charges as of the last
day of each fiscal quarter for the two (2) consecutive fiscal quarters ending on such date (the
Fixed Charge Coverage Ratio), of at least 2.0 to 1.0; provided, however, the Fixed Charge
Coverage Ratio determined as of June 29, 2006 shall be EBITDA for the 2
nd
fiscal quarter
of 2006 divided by Fixed Charges for the 2
nd
fiscal quarter of 2006.
(c)
Liquidity
. Borrowers unrestricted cash and Cash Equivalents plus the Committed
Availability of at least $5,000,000.
6.10.
Protection and Registration of Intellectual Property Rights
. Borrowers shall:
(a) protect, defend and maintain the validity and enforceability of its material Intellectual
Property; (b) promptly advise Bank in writing of material infringements of its Intellectual
Property; and (c) not allow any Intellectual Property material to Borrowers business to be
abandoned, forfeited or dedicated to the public without Banks written consent. If any Borrower
decides to register any material copyrights or mask works in the United States Copyright Office,
such Borrower shall: (x) provide Bank with at least five (5) days prior written notice of its
intent to register such copyrights or mask works together with a copy of the application it intends
to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an
Intellectual Property security agreement or such other documents as Bank may reasonably request to
maintain the perfection and priority of Banks security interest in the copyrights or mask works
intended to be registered with the United States Copyright Office; and (z) record such Intellectual
Property security agreement with the United States Copyright Office contemporaneously with filing
the copyright or mask work application(s) with the United States Copyright Office. Borrowers shall
promptly provide to Bank a copy of any such application(s) filed with the United States Copyright
Office together with evidence of the recording of the Intellectual Property security agreement
necessary for Bank to maintain the perfection and priority of its security interest in such
copyrights or mask works. Borrowers shall provide written notice to Bank of any material
application filed by any Borrower in the
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United States Patent and Trademark Office for a patent or to register a trademark or service
mark within 30 days after any such filing.
6.11.
Identification of Subsidiaries; Provision of Collateral
.
(a) If and whenever any direct or indirect Domestic Subsidiary of a Borrower shall be created,
formed or acquired by a Borrower or any of its Subsidiaries at any time after the Effective Date:
(i) furnish to Bank a written notice identifying such Subsidiary and setting
forth with respect to such Subsidiary all of the following information: (A) the
State or other jurisdiction of organization or formation of each such Person; (B)
the number of authorized and outstanding shares or other units of each class of
equity interests in each such Person; and (C) with respect to each Subsidiary of
such Borrower, (1) each Person which owns or controls (whether legally or
beneficially) any of the equity interests of each such Subsidiary, and (2) the
number of shares or units of each class or kind of equity interests so owned or
controlled by each such Person; and
(ii) promptly comply with, and cause such Subsidiary to comply with, the
applicable terms of paragraph (b) of this Section 6.11.
(b) Promptly (and in any event within five (5) days) after the creation or formation or the
consummation of the acquisition of any new Subsidiary of the Borrower:
(i) in the case of any acquisition of equity interests of any such Subsidiary
by a Borrower or its Subsidiaries, whether in connection with the creation,
formation or acquisition of a Subsidiary or otherwise: (A) deliver or cause to be
delivered to Bank in pledge all of the certificates, if any, representing such
equity interests, such equity interests together with transfer or stock powers to be
held by Bank in pledge in accordance with the terms of the Securities Pledge
Agreement (provided that no such Domestic Subsidiary shall be required to pledge
more than 65% of the equity interests in any of its Foreign Subsidiaries); and (B)
cause such Subsidiary to execute and deliver to Bank (1) joinder agreements in form
and substance reasonably satisfactory to Bank upon the terms of which such
Subsidiary shall become a party to and bound by (a) this Agreement as a Borrower
or by a guaranty as a guarantor, (b) an intellectual property security agreement
substantially in the form of the IP Security Agreements, and (c) a securities pledge
agreement in substantially the form of the Securities Pledge Agreement, the effect
of which shall be that, as of the date set forth in such joinder agreements, such
Subsidiary shall become a party to each such instrument, as applicable, and be bound
by the terms thereof, (2) a duly completed Perfection Certificate, and (3) such UCC
financing statements and other security instruments as shall be reasonably required
by Bank to perfect the security interests and Liens in Collateral being pledged and
granted by such Subsidiary pursuant to a security agreement and the other collateral
documents; and
(ii) in each such case, provide to Bank all such other documentation,
organizational documents and resolutions as Bank shall reasonably deem necessary in
connection with such Acquisition or the creation, formation or acquisition of such
Subsidiary.
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6.12.
Litigation Cooperation
. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank, such Borrower and
its officers, employees and agents and Borrowers books and records, to the extent that Bank may
deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted
by or against Bank with respect to any Collateral or relating to Borrower.
6.13.
Further Assurances
. Borrower shall execute any further instruments and take
further action as Bank reasonably requests to perfect or continue Banks Lien in the Collateral or
to effect the purposes of this Agreement.
7.
NEGATIVE COVENANTS
No Borrower shall do any of the following without Banks prior written consent:
7.1.
Dispositions
. Convey, sell, lease, transfer or otherwise dispose of
(collectively, Transfer), or permit any of its Subsidiaries to Transfer, all or any part of its
business or property, except for (a) Transfers of Inventory in the ordinary course of business; (b)
Transfers of worn-out, damaged or obsolete Equipment; (c) Transfers in connection with Permitted
Liens and Permitted Investments; (d) the use or Transfer of money or Cash Equivalents in the
ordinary course; (e) the licensing, on a non-exclusive basis, of patents, trademarks, copyrights,
and other intellectual property rights in the ordinary course of business; (f) Transfers to another
Borrower or their respective Subsidiaries, or to Shanghai
provided
that any such Transfers to
Shanghai shall be upon fair and reasonable terms that are no less favorable to Borrowers than would
be obtained in an arms length transaction with a non-affiliated Person or shall not exceed, in the
aggregate, $1,000,000 (in cash
plus
Equipment) during the term of this Agreement; (g)
Transfers in connection with any transaction permitted under Section 7.3 or 7.7; and (h) so long as
no Default or Event of Default shall have occurred and be continuing or would result therefrom,
other Transfers (other than Accounts) at fair market value, the net cash proceeds of which shall
not exceed $250,000 in any fiscal year.
7.2.
Changes in Business, Control, or Business Locations
. (a) Engage in or permit any
of its Subsidiaries to engage in any business other than the businesses currently engaged in by
such Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or
dissolve; or (c) permit or suffer any Change in Control. No Borrower shall without at least
fifteen (15) days prior written notice to Bank: (1) add any new offices or business locations,
including warehouses (unless such new offices or business locations contain less than $25,000) in
Borrowers assets or property), (2) change its jurisdiction of organization, (3) change its
organizational structure or type, (4) change its legal name (except in connection with the
Acquisition on the Effective Date), or (5) change any organizational number (if any) assigned by
its jurisdiction of organization;
provided
that a Borrower may change its name so long as such
Borrower notifies Bank of such change within twenty (20) days prior to the effectiveness thereof
and provides any financing statements necessary to perfect and continue perfected the Banks liens
in the Collateral.
7.3.
Mergers or Acquisitions
. Merge or consolidate, or permit any of its Subsidiaries
to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another Person, except (i) in
connection with the Acquisition on the Effective Date; (ii) a Subsidiary may merge or consolidate
into another Domestic Subsidiary or into a Borrower, or (iii) in connection with any transaction
permitted under Section 7.7.
7.4.
Indebtedness
. Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness.
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7.5.
Encumbrance
. (a) Except for Permitted Liens, create, incur, or allow any Lien on
any of its property, or assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, or permit any Collateral not to be subject to
the first priority security interest granted herein; or (b) be a party to any agreement, document,
instrument or other arrangement (except with or in favor of Bank) with any Person which directly or
indirectly prohibits or has the effect of prohibiting any Borrower or any Subsidiary from
assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of
such Borrowers or any Subsidiarys Intellectual Property, except for (i) any such restrictions and
conditions imposed by law or regulation or by any Loan Document or Merger Document; (ii) any such
restrictions and conditions permitted under Section 7.1 hereof or the definition of Permitted
Lien herein, (iii) any such restrictions and conditions existing on the date hereof (but shall not
apply to any extension or renewal of, or any amendment or modification expanding the scope of, any
such restriction or condition), (iv) customary restrictions and conditions contained in agreements
relating to the sale of any assets pending such sale, provided that such restrictions and
conditions apply only to the assets that are to be sold and such sale is permitted hereunder; (v)
restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by
this Agreement if such restrictions or conditions apply only to the property or assets securing
such Indebtedness; (vi) customary provisions in leases or licenses of Intellectual Property
restricting the assignment thereof; and (vii) any such restrictions or conditions (A) on cash or
other deposits imposed by lessors or required by insurance, surety or bonding companies, in each
case, under contracts entered into in the ordinary course of business, or (B) existing under, by
reason of or with respect to Indebtedness incurred to refinance any Indebtedness, in each case as
permitted under Section 7.4; provided that the restrictions contained in the agreements governing
the Indebtedness incurred to refinance Indebtedness are no more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being refinanced.
7.6.
Maintenance of Collateral Accounts
. Maintain any Collateral Account except
pursuant to the terms of Section 6.8(b) hereof.
7.7.
Investments; Distributions
. (a) Directly or indirectly make any Investment other
than Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends or
make any distribution or payment or redeem, retire or purchase any capital stock (Restricted
Payments), provided that (i) each Borrower or any Subsidiary may pay dividends solely in common
stock; (ii) any Subsidiary of Borrowers may pay dividends to its direct parent, (iii) any Loan
Party may make Restricted Payments in connection with the consummation of the Acquisition or any
other transaction contemplated by the Merger Documents as in effect on the Effective Date, (iv)
Sieger may make advances to each of its members (collectively, the Member Advances) in an amount
sufficient to cover that members actual tax liability due and payable as a result of income of
Sieger attributed to the member during any period that Sieger is eligible for taxation as a limited
liability company under the Internal Revenue Code; provided, however, that no Member Advances may
be made if, at the time thereof, an Event of Default has occurred and is continuing or would result
therefrom; (v) so long as no Default or Event of Default shall have occurred and be continuing or
would result therefrom, each Borrower or any of its Subsidiaries may make Restricted Payments to
Holdings to permit Holdings to (A) purchase or redeem its stock in connection with and pursuant to
the terms of employee benefit and stock option plans, in an amount not exceed, in the aggregate,
$500,000 during the term of this Agreement, or (B) pay income taxes, franchise fees and other fees
required to maintain its existence and provide for other operating costs; (vi) so long as no
Default or Event of Default shall have occurred and be continuing or would result therefrom, any
Loan Party may make Restricted Payments that constitute (or permit Holdings or any of its
Subsidiaries to pay) fees permitted by Section 7.8; and (vii) so long as no Default or Event of
Default shall have occurred and be continuing or would result therefrom, make Restricted Payments
to Holdings solely for the purpose of making Investments by Holdings in Shanghai that do not exceed
$1,000,000 (in cash
plus
Equipment) per annum.
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7.8.
Transactions with Affiliates
. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrowers, except for (i) transactions that
are upon fair and reasonable terms that are no less favorable to Borrowers than would be obtained
in an arms length transaction with a non-affiliated Person which would be otherwise permitted
hereunder; (ii) the payment of reasonable fees, compensation to, and any indemnity provided for the
benefit of, outside directors of Holdings; (iii) the consummation of the Acquisition or any other
related transaction contemplated by the Merger Documents as in effect on the Effective Date and the
entering into or payment of any amount in connection therewith; (iv) transactions permitted under
Section 7.3; (v) Restricted Payments permitted under Section 7.7(b); and (vi) Investments permitted
under Section 7.7(a).
7.9.
Subordinated Debt
. Make or permit to be made any payment on any Subordinated
Debt, or amend any provision in any document relating to the Subordinated Debt which would increase
the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.
8.
EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an Event of Default) under
this Agreement:
8.1.
Payment Default
. Any Borrower fails to (a) make any payment of principal or
interest on any Credit Extension on its due date, or (b) pay any other Obligations within ten (10)
Business Days after such Obligations are due and payable. During the cure period, the failure to
cure the payment default is not an Event of Default (but no Credit Extension will be made during
the cure period);
8.2.
Covenant Default
.
(a) Any Borrower fails or neglects to perform any obligation in Sections 6.2 within five (5)
days after such obligation is required to be performed (but if an Event of Default has occurred and
is continuing, such five (5) day grace period shall not be applicable), 6.8, 6.9, or violates any
covenant in Section 7; or
(b) Any Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any
default (other than those specified in Section 8 below) under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure the default within fifteen
(15) days after the occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the fifteen (15) day period or cannot after diligent attempts by such Borrower be
cured within such fifteen (15) day period, and such default is likely to be cured within a
reasonable time, then such Borrower shall have an additional period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period
the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions
shall be made during such cure period). Grace periods provided under this section shall not apply,
among other things, to financial covenants or any other covenants set forth in subsection (a)
above;
8.3.
Material Adverse Change
. A Material Adverse Change occurs;
8.4.
Attachment
. (a) Any material portion of any Borrowers assets is attached,
seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or
levy is not removed in ten (10) days; (b) the service of process upon Bank seeking to attach, by
trustee or similar process, any funds of such Borrower on deposit with Bank, or any entity under
control of such Borrower (including a Subsidiary); (c) Borrower is enjoined, restrained, or
prevented by court order from
-19-
conducting a material part of its business; (d) a judgment or other claim in excess of Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate becomes a Lien on any of such Borrowers
assets; or (e) a notice of lien, levy, or assessment is filed against any of such Borrowers assets
by any government agency and not paid within ten (10) days after such Borrower receives notice.
These are not Events of Default if stayed or if a bond is posted pending contest by such Borrower
(but no Credit Extensions shall be made during the cure period);
8.5.
Insolvency
. (a) Any Borrower is unable to pay its debts (including trade debts)
as they become due; (b) any Borrower voluntarily begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against such Borrower and not dismissed or stayed within thirty (30)
days (but no Credit Extensions shall be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);
8.6.
Other Agreements
. There is a default in any agreement to which any Borrower or
Holdings is a party with a third party or parties resulting in a matured right (after giving effect
to all applicable notice requirements and grace and cure periods) by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness in a principal amount in
excess of Two Hundred Fifty Thousand Dollars ($250,000), other than and only to the extent any such
Indebtedness that is supported, directly or indirectly, by a Letter of Credit issued hereunder;
8.7.
Judgments
. A judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) (not
covered by independent third-party insurance) shall be rendered against any Borrower and shall
remain unsatisfied and unstayed for a period of thirty (30) days after the entry thereof (provided
that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);
8.8.
Misrepresentations
. Any Borrower makes any representation, warranty, or other
statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or
to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or
other statement is incorrect in any material respect when made;
8.9.
Subordinated Debt
. A default or breach occurs under any agreement between any
Borrower and any creditor of such Borrower that signed a subordination, intercreditor, or other
similar agreement with Bank, or any creditor that has signed such an agreement with Bank breaches
any terms of such agreement; or
8.10.
Guaranty
. (a) The Guaranty or any other guaranty of any Obligations terminates
or ceases for any reason other than the expiration or voluntary release of such guaranty to be in
full force and effect; (b) Guarantor or any other guarantor does not perform any obligation or
covenant under the Guaranty of the Obligations; (c) any circumstance described in Sections 8.4,
8.5, 8.7, or 8.8. occurs with respect to Guarantor or any other guarantor, or (d) the liquidation,
winding up, or termination of existence of Guarantor or any other guarantor.
9.
BANKS RIGHTS AND REMEDIES
9.1.
Rights and Remedies
. While an Event of Default occurs and continues Bank may,
without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of Default described
in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
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(b) stop advancing money or extending credit for any Borrowers benefit under this Agreement
or under any other agreement between any Borrower and Bank;
(c) demand that Borrowers (i) deposit cash with Bank in an amount equal to the aggregate
amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any
future drawings under such Letters of Credit, and Borrowers shall forthwith jointly and severally
deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be
paid or payable over the remaining term of any Letters of Credit;
(d) terminate any FX Contracts;
(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing any Borrower money of
Banks security interest in such funds, and verify the amount of such account;
(f) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Each Borrower shall assemble the
Collateral if Bank requests and make it available as Bank designates. Bank may enter premises
where the Collateral is located, take and maintain possession of any part of the Collateral, and
pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Each Borrower grants Bank a license to enter and
occupy any of its premises, without charge, to exercise any of Banks rights or remedies;
(g) apply to the Obligations any (i) balances and deposits of each Borrower it holds, or (ii)
any amount held by Bank owing to or for the credit or the account of each Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, each Borrowers labels, patents, copyrights, mask works, rights
of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing production of, advertising
for sale, and selling any Collateral and, in connection with Banks exercise of its rights under
this Section, Borrowers rights under all licenses and all franchise agreements inure to Banks
benefit;
(i) place a hold on any account maintained with Bank and/or deliver a notice of exclusive
control, any entitlement order, or other directions or instructions pursuant to any Control
Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of each Borrowers Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of the Collateral
pursuant to the terms thereof).
9.2.
Power of Attorney
. Each Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse such Borrowers name on any checks or other forms of payment or security;
(b) sign such Borrowers name on any invoice or bill of lading for any Account or drafts against
Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all
claims under such Borrowers insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse
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claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third
party as the Code permits. Each Borrower hereby appoints Bank as its lawful attorney-in-fact to
sign such Borrowers name on any documents necessary to perfect or continue the perfection of any
security interest regardless of whether an Event of Default has occurred until all Obligations have
been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.
Banks foregoing appointment as such Borrowers attorney in fact, and all of Banks rights and
powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and
performed and Banks obligation to provide Credit Extensions terminates.
9.3.
Protective Payments
. If any Borrower fails to obtain the insurance called for by
Section 6.7 or fails to pay any premium thereon or fails to pay any other amount which such
Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such
insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately
due and payable, bearing interest at the then highest applicable rate, and secured by the
Collateral. Bank will make reasonable efforts to provide such Borrower with notice of Bank
obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No
payments by Bank are deemed an agreement to make similar payments in the future or Banks waiver of
any Event of Default.
9.4.
Application of Payments and Proceeds
. Unless an Event of Default has occurred
and is continuing, Bank shall apply any funds in its possession, whether from Borrowers account
balances, payments, or proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, first, to the principal of the Obligations; second, to Bank
Expenses, including without limitation, the reasonable costs, expenses, liabilities, obligations
and attorneys fees incurred by Bank in the exercise of its rights under this Agreement; third, to
the interest due upon any of the Obligations; and finally, to any applicable fees and other
charges, in such order as Bank shall determine in its sole discretion. Any surplus shall be paid
to any Borrowers by credit to the Designated Deposit Account or other Persons legally entitled
thereto; each Borrowers shall remain jointly and severally liable to Bank for any deficiency. If
an Event of Default has occurred and is continuing, Bank may apply any funds in its possession,
whether from any Borrower account balances, payments, proceeds realized as the result of any
collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in
such order as Bank shall determine in its sole discretion. Any surplus shall be paid to any
Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto;
each Borrower shall remain jointly and severally liable to Bank for any deficiency. If Bank, in
its good faith business judgment, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Bank shall have the option,
exercisable at any time, of either reducing the Obligations by the principal amount of the purchase
price or deferring the reduction of the Obligations until the actual receipt by Bank of cash
therefor.
9.5.
Banks Liability for Collateral
. So long as Bank complies with reasonable
banking practices regarding the safekeeping of the Collateral in the possession or under the
control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Each
Borrower bears all risk of loss, damage or destruction of the Collateral.
9.6.
No Waiver; Remedies Cumulative
. Banks failure, at any time or times, to require
strict performance by any Borrower of any provision of this Agreement or any other Loan Document
shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and
compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and
then is only effective for the specific instance and purpose for which it is given. Banks rights
and remedies under
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this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Banks exercise of one right or remedy is not an
election, and Banks waiver of any Event of Default is not a continuing waiver. Banks delay in
exercising any remedy is not a waiver, election, or acquiescence.
9.7.
Demand Waiver
. Each Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper,
and guarantees held by Bank on which Borrower is liable.
10.
NOTICES
All notices, consents, requests, approvals, demands, or other communication (collectively,
Communication), other than Advance requests made pursuant to Section 3.4, by any party to this
Agreement or any other Loan Document must be in writing and be delivered or sent by facsimile at
the addresses or facsimile numbers listed below. Bank or Borrower may change its notice address by
giving the other party written notice thereof. Each such Communication shall be deemed to have
been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3)
Business Days after deposit in the U.S. mail, registered or certified mail, return receipt
requested, with proper postage prepaid; (b) upon transmission, when sent by facsimile transmission
(with such facsimile promptly confirmed by delivery of a copy by personal delivery or United States
mail as otherwise provided in this Section 10); (c) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent to the address or
facsimile number indicated below. Advance requests made pursuant to Section 3.4 must be in writing
and may be in the form of electronic mail, delivered to Bank by Borrower at the e-mail address of
Bank provided below and shall be deemed to have been validly served, given, or delivered when sent
(with such electronic mail promptly confirmed by delivery of a copy by personal delivery or United
States mail as otherwise provided in this Section 10). Bank or Borrower may change its address,
facsimile number, or electronic mail address by giving the other party written notice thereof in
accordance with the terms of this Section 10.
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If to Borrower:
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Ultra Clean Technology Systems and Services, Inc.
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150 Independence Drive
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Menlo Park, CA 94025
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Attn: Jack Sexton
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Fax: 650-326-0929
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Email: jsexton@uct.com
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If to Bank:
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Silicon Valley Bank Mail Sort NC 200
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3979 Freedom Circle, Suite 600
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Santa Clara, CA 95054
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Attn: Chitra Arunachalam
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Fax: 408-654-5517
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Email: carunachalam@svb.com
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11.
CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in
Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed
to operate to preclude Bank from bringing suit or taking other legal action in any other
jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce
a judgment or other court order in favor
-23-
of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any
action or suit commenced in any such court, and Borrower hereby waives any objection that it may
have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed appropriate by such court.
Borrower hereby waives personal service of the summons, complaints, and other process issued in
such action or suit and agrees that service of such summons, complaints, and other process may be
made by registered or certified mail addressed to Borrower at the address set forth in Section 10
of this Agreement and that service so made shall be deemed completed upon the earlier to occur of
Borrowers actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage
prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW BORROWER AND BANK EACH WAIVE THEIR RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN
DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH
PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the
parties hereto agree that any and all disputes or controversies of any nature between them arising
at any time shall be decided by a reference to a private judge, mutually selected by the parties
(or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior
Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the
federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby
submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to
and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1,
inclusive. The private judge shall have the power, among others, to grant provisional relief,
including without limitation, entering temporary restraining orders, issuing preliminary and
permanent injunctions and appointing receivers. All such proceedings shall be closed to the public
and confidential and all records relating thereto shall be permanently sealed. If during the
course of any dispute, a party desires to seek provisional relief, but a judge has not been
appointed at that point pursuant to the judicial reference procedures, then such party may apply to
the Santa Clara County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a court under the rules
of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which
shall be conducted in the same manner as it would be before a court under the rules of discovery
applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all
discovery rules and order applicable to judicial proceedings in the same manner as a trial court
judge. The parties agree that the selected or appointed private judge shall have the power to
decide all issues in the action or proceeding, whether of fact or of law, and shall report a
statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing
in this paragraph shall limit the right of any party at any time to exercise self-help remedies,
foreclose against collateral, or obtain provisional remedies. The private judge shall also
determine all issues relating to the applicability, interpretation, and enforceability of this
paragraph.
12.
GENERAL PROVISIONS
12.1.
Successors and Assigns
. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. No Borrower may assign this Agreement or any
rights or obligations under it without Banks prior written consent (which consent may be granted
or withheld in Banks
-24-
discretion) and Bank may not assign this Agreement or any rights or obligations under it
without Borrowers prior written consent (unless a Default or Event of Default shall have occurred
and be continuing);
provided
that Bank has the right, without the consent of or notice to Borrower,
to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in,
Banks obligations, rights, and benefits under this Agreement and the other Loan Documents.
12.2.
Indemnification
. Borrower agrees to indemnify, defend and hold Bank and its
directors, officers, employees, agents, attorneys, or any other Person affiliated with or
representing Bank harmless against: (a) all obligations, demands, claims, and liabilities
(collectively, Claims) asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank
from, following, or arising from transactions between Bank and Borrower (including reasonable
attorneys fees and expenses), except for Claims and/or losses directly caused by Banks gross
negligence or willful misconduct.
12.3.
Limitation of Actions
. Any claim or cause of action by Borrower against Bank,
its directors, officers, employees, agents, accountants, attorneys, or any other Person affiliated
with or representing Bank based upon, arising from, or relating to this Loan Agreement or any other
Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or
thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Bank, its directors, officers, employees, agents, accountants or attorneys, shall be barred
unless asserted by Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is based, and the service
of a summons and complaint on an officer of Bank, or on any other person authorized to accept
service on behalf of Bank, within thirty (30) days thereafter. Borrower agrees that such one-year
period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim
or cause of action. The one-year period provided herein shall not be waived, tolled, or extended
except by the written consent of Bank in its sole discretion. This provision shall survive any
termination of this Loan Agreement or any other Loan Document.
12.4.
Time of Essence
. Time is of the essence for the performance of all Obligations
in this Agreement.
12.5.
Severability of Provisions
. Each provision of this Agreement is severable from
every other provision in determining the enforceability of any provision.
12.6.
Amendments in Writing; Integration
. All amendments to this Agreement must be in
writing signed by both Bank and Borrower. This Agreement and the Loan Documents represent the
entire agreement about this subject matter and supersede prior negotiations or agreements. All
prior agreements, understandings, representations, warranties, and negotiations between the parties
about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the
Loan Documents.
12.7.
Counterparts
. This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.
12.8.
Survival
. All covenants, representations and warranties made in this Agreement
continue in full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other obligations which, by their
terms, are to survive the termination of this Agreement) have been satisfied. The obligation of
Borrower in Section 12.2 to
-25-
indemnify Bank shall survive until the statute of limitations with respect to such claim or
cause of action shall have run.
12.9.
Confidentiality
. In handling any confidential information, Bank shall exercise
the same degree of care that it exercises for its own proprietary information, but disclosure of
information may be made: (a) to Banks Subsidiaries or Affiliates; (b) to prospective transferees
or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferees or purchasers agreement to
the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to
Banks regulators or as otherwise required in connection with Banks examination or audit; and (e)
as Bank considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (i) is in the public domain or in Banks
possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank;
or (ii) is disclosed to Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.
12.10.
Attorneys Fees, Costs and Expenses
. In any action or proceeding between
Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be
entitled to recover its reasonable attorneys fees and other costs and expenses incurred, in
addition to any other relief to which it may be entitled.
12.11.
Waiver of Surety Defenses
. To the extent permitted by applicable law, each
Borrower hereby waives any and all defenses and rights of discharge based upon suretyship or
impairment of collateral (including lack of attachment or perfection with respect thereto) that it
may now have or may hereafter acquire with respect to Bank or any of its Obligations hereunder,
under any Loan Document or under any other agreement that it may have or may hereafter enter into
with Bank.
12.12.
Joint and Several Obligations and Related Matters
. The obligations of each
Borrower hereunder and under the other Loan Documents shall be joint and several in nature
notwithstanding which Borrower actually or directly received the proceeds of any particular Credit
Extension. Each Borrower acknowledges that for purposes of the Loan Documents, Borrowers
constitute a single integrated financial entity or enterprise and that each receives a benefit from
the availability of the financing hereunder to all Borrowers. Each Borrower waives all defenses
arising under the laws of suretyship, to the extent that such laws are applicable, in connection
with its joint and several obligations under this Agreement and the other Loan Documents.
12.13.
Subordination of Claims
. As further consideration for the Credit Extensions by
the Bank Borrowers and as a material inducement to Bank to make the Credit Extensions and accept
this Agreement, each Borrower hereby irrevocably subordinates in all respects all claims, whether
based in equity or law, whether by contract, statute or otherwise, that it might now or hereafter
have against other Borrower or that arise from the existence or performance of the Obligations
under this Agreement, including, but not limited to, any right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation, to any and all of the Obligations of
such Borrower to Bank hereunder and under the other Loan Documents.
12.14.
USA PATRIOT Act Notice
.
Bank hereby notifies Borrowers that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) (the Act), it is required to obtain, verify and record information that identifies
Borrowers, which information includes the name and address of Borrowers and other information that
will allow Bank to identify Borrowers in accordance with the Act.
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12.15.
Name Change of Pete Acquisition to UCT Sieger Engineering LLC
.
Substantially
simultaneously with the consummation of the Acquisition, the name of Pete Acquisition LLC shall be
changed to UCT Sieger Engineering LLC by filing such name change with the Secretary of State of the
State of Delaware. From and after such time, all references to Sieger shall mean UCT Sieger
Engineering LLC, a Delaware limited liability company.
13.
DEFINITIONS
13.1.
Definitions
. As used in this Agreement, the following terms have the following
meanings:
Account is any account as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable and other sums owing
to Borrower.
Account Debtor is any account debtor as defined in the Code with such additions to such
term as may hereafter be made.
Acquisition means the mergers and acquisitions resulting in the acquisition of Sieger by
Holdings on or prior to the Effective Date as contemplated the Merger Documents.
Advance or Advances means an advance (or advances) under the Revolving Line.
Affiliate of any Person is a Person that owns or controls directly or indirectly the Person,
any Person that controls or is controlled by or is under common control with the Person, and each
of that Persons senior executive officers, directors, partners and, for any Person that is a
limited liability company, that Persons managers and members.
Agreement is defined in the preamble hereof.
Availability Amount is (a) the lesser of (i) the Revolving Line or (ii) the Borrowing Base
minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit) plus an amount equal to the Letter of Credit Reserves, minus (c) the FX Reserve, and
minus (d) the outstanding principal balance of any Advances (including any amounts used for Cash
Management Services).
Bank is defined in the preamble hereof.
Bank Expenses are all audit fees and expenses, costs, and expenses (including reasonable
attorneys fees and expenses) of Bank for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) or otherwise incurred by Bank with respect to Borrower.
Bankruptcy-Related Defaults is defined in Section 9.1.
Borrower and Borrowers is defined in the preamble hereof.
Borrowers Books are all Borrowers books and records including ledgers, federal and state
tax returns, records regarding Borrowers assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any equipment containing
such information.
-27-
Borrowing Base is 80% of Eligible Accounts less Reserves as determined by Bank from
Borrowers most recent Transaction Report; provided, however, that Bank may decrease the foregoing
percentage in its good faith business judgment based on events, conditions, contingencies, or risks
which, as determined by Bank, may adversely affect Collateral.
Borrowing Resolutions are, with respect to any Person, those resolutions adopted by such
Persons Board of Directors or members and delivered by such Person to Bank approving the Loan
Documents to which such Person is a party and the transactions contemplated thereby, together with
a certificate executed by its secretary or other authorized officer on behalf of such Person
certifying that (a) such Person has the authority to execute, deliver, and perform its obligations
under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct, and complete copy of the resolutions then in full force and effect
authorizing and ratifying the execution, delivery, and performance by such Person of the Loan
Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan
Documents on behalf of such Person, together with a sample of the true signature(s) of such
Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person
shall have delivered to Bank a further certificate canceling or amending such prior certificate.
Business Day is any day that is not a Saturday, Sunday or a day on which Bank is closed.
Cash Equivalents means (a) marketable direct obligations issued or unconditionally
guaranteed by the United States or any agency or any State thereof having maturities of not more
than one (1) year from the date of acquisition; (b) marketable direct obligations issued by any
state of the United States or any political subdivision of any such state or any public
instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the
time of acquisition, having one of the two highest ratings obtainable from either Standard & Poors
Rating Group (S&P) or Moodys Investors Service, Inc. (Moodys); (c) commercial paper maturing
no more than one (1) year after its creation and, at the time of acquisition, having the highest
rating from either S&P or Moodys; (d) Banks certificates of deposit issued maturing no more than
one (1) year after issue; (e) Deposit Accounts, certificates of deposit or, bankers acceptances or
time deposits maturing within 1 year from the date of acquisition thereof issued by or guaranteed
by or placed with any bank organized under the laws of the United States or any state thereof
having at the date of acquisition thereof combined capital and surplus of not less than
$250,000,000; (f) Deposit Accounts maintained with (i) any bank that satisfies the criteria
described in clause (e) above or (ii) any other bank organized under the laws of the United States
or any state thereof so long as the amount maintained with any such other bank is less than or
equal to $100,000; (g) fully collateralized repurchase agreements with a term not more than 30 days
for securities described in clause (a) above and entered into with a financial institution
satisfying the criteria in clause (e) above; (h) money market funds substantially all of the assets
of which are invested in the kinds of assets described in clauses (a) through (g) of this
definition. In addition, for all purposes hereunder other than the calculation of the liquidity
covenant set forth in Section 6.9(c), Cash Equivalents shall also include foreign investments
substantially comparable to any of the foregoing in connection with managing cash of any Subsidiary
having operations in a foreign country.
Cash Management Services is defined in Section 2.1.4.
Cash Management Services Sublimit is defined in Section 2.1.4.
Change in Control means any event, transaction, or occurrence as a result of which Holdings
shall directly or indirectly own less than 100% of the outstanding capital stock of any Subsidiary.
-28-
Code is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California; provided, that, to the extent that the Code is used to define
any term herein or in any Loan Document and such term is defined differently in different Articles
or Divisions of the Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of mandatory provisions of law, any or
all of the attachment, perfection, or priority of, or remedies with respect to, Banks Lien on any
Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the
State of California, the term Code shall mean the Uniform Commercial Code as enacted and in
effect in such other jurisdiction solely for purposes on the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions relating to such
provisions.
Collateral is any and all properties, rights and assets of Borrower described on
Exhibit
A
.
Collateral Account is any Deposit Account, Securities Account, or Commodity Account.
Collateral Assignment of Merger Documents that certain Collateral Assignment of Merger
Documents executed and delivered by Holdings and Borrowers to Bank dated as of the Effective Date.
Committed Availability means, as the date of determination, an amount equal to the sum of
the Revolving Line availability minus all outstanding Credit Extensions.
Commodity Account is any commodity account as defined in the Code with such additions to
such term as may hereafter be made.
Communication is defined in Section 10.
Compliance Certificate is that certain certificate in the form attached hereto as
Exhibit E
.
Contingent Obligation is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any Indebtedness or any obligation referred to in clauses (b) and (c)
below of another such as an obligation directly or indirectly guaranteed, endorsed, co-made,
discounted or sold with recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c)
all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; but Contingent
Obligation does not include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability
for it determined by the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.
Control Agreement is any control agreement entered into among the depository institution at
which any Borrower maintains a Deposit Account or the securities intermediary or commodity
intermediary at which Borrower maintains a Securities Account or a Commodity account, such
Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over
such Deposit Account, Securities Account, or Commodity Account.
Credit Extension is any Advance, Letter of Credit, Term Loan, FX Forward Contract, amount
utilized for Cash Management Services, or any other extension of credit by Bank for Borrowers
benefit.
-29-
Current Assets are amounts that under GAAP should be included on that date as current assets
on Borrowers consolidated balance sheet.
Default means any event which with notice or passage of time or both, would constitute an
Event of Default.
Default Rate is defined in Section 2.3(b).
Deferred Revenue is all amounts received or invoiced in advance of performance under
contracts and not yet recognized as revenue.
Deposit Account is any deposit account as defined in the Code with such additions to such
term as may hereafter be made.
Designated Deposit Account is Borrowers deposit account, account number 3300538419,
maintained with Bank.
Dollars, dollars and $ each mean lawful money of the United States.
Domestic Subsidiary means a Subsidiary organized under the laws of the United States or any
state or territory thereof or the District of Columbia.
EBITDA shall mean (a) Net Income, plus to the extent included in the determination of Net
Income, (b) net Interest Expense, plus (c) depreciation expense, (d) amortization expense, (e)
income tax expense, (f) all other charges which are both non-cash and non-recurring, (g) any
non-cash amounts related to the granting of stock options in accordance with FAS 123R, plus (h) all
non-cash income.
Effective Date is the date Bank executes this Agreement and as indicated on the signature
page hereof.
Eligible Accounts are Accounts which arise in the ordinary course of each Borrowers
business that meet all such Borrowers representations and warranties in Section 5.3. Bank
reserves the right at any time and from time to time after the Effective Date, to adjust any of the
criteria set forth below and to establish new criteria in its good faith business judgment. Unless
Bank agrees otherwise in writing, Eligible Accounts shall not include:
(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date;
(b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have
not been paid within ninety (90) days of invoice date;
(c) Credit balances over ninety (90) days from invoice date;
(d) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to
any Borrower exceed thirty-five (35%) of all Accounts, except for Applied Materials and Lam
Research, for which such percentages shall be 60% and 40%, respectively, for the amounts that
exceed that percentage, unless Bank approves in writing;
(e) Accounts owing from an Account Debtor which does not have its principal place of business
in the United States unless (y) the Account is supported by an irrevocable letter of credit
-30-
advised and negotiated through Bank and satisfactory to Bank (as to form, substance, and
issuer or domestic confirming bank), or (z) the Account is covered by credit insurance in form,
substance, and amount, and by an insurer, satisfactory to Bank;
(f) Accounts owing from an Account Debtor which is a federal government entity or any
department, agency, or instrumentality thereof except for Accounts of the United States if each
Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the
Federal Assignment of Claims Act of 1940, as amended;
(g) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated
in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise sometimes called
contra accounts, accounts payable, customer deposits or credit accounts), with the exception of
customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the
ordinary course of its business;
(h) Accounts for demonstration or promotional equipment, or in which goods are consigned, or
sold on a sale guaranteed, sale or return, sale on approval, bill and hold, or other terms
if Account Debtors payment may be conditional;
(i) (1) Accounts for which the Account Debtor (if other than a Permitted Portfolio Company) is
a Borrowers Affiliate, officer or employee and (2) with respect to Accounts as to which the
Account Debtor is a Permitted Portfolio Company, to the extent the amount of such Accounts exceeds
10% of all Eligible Accounts;
(j) Accounts in which the Account Debtor has made a claim disputing liability (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding,
or goes out of business;
(k) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred
Revenue (but only to the extent of such Deferred Revenue);
(l) Accounts for which Bank in its good faith business judgment determines collection to be
doubtful; and
(m) other Accounts Bank deems ineligible in the exercise of its good faith business judgment.
Equipment is all equipment as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
Equipment Financing means the equipment financing provided by U.S. Bancorp Equipment
Finance, Inc (USBancorp) to Sieger evidenced by a Master Loan Agreement, dated as of June 29,
2006 between USBancorp and Sieger and guarantied by Holdings and Ultra Clean, including any
refinancing thereof.
ERISA is the Employment Retirement Income Security Act of 1974, and its regulations.
Event of Default is defined in Section 8.
-31-
Fixed Charges means, as of the last day of each fiscal quarter, principal and interest of
Indebtedness of Guarantor, Borrowers and their Subsidiaries determined on a consolidated basis.
Fixed Charge Coverage Ratio is defined in Section 6.9(b).
Foreign Currency means lawful money of a country other than the United States.
Foreign Subsidiary means any Subsidiary which is not a Domestic Subsidiary.
Funding Date is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.
FX Business Day is any day when (a) Banks Foreign Exchange Department is conducting its
normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to
Bank from the entity from which Bank shall buy or sell such Foreign Currency.
FX Forward Contract is defined in Section 2.1.3.
FX Reserve is defined in Section 2.1.3.
GAAP is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date of determination.
General Intangibles is all general intangibles as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims,
income and other tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of any kind.
Governmental Authority means the government of the United States or any other nation, or of
any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or the European Central
Bank).
Guarantor is Holdings.
Guaranty
is an unconditional guaranty of all the Obligations, in the form of
Exhibit
D
or
otherwise in form and substance reasonably satisfactory to the Bank.
Holdings is Ultra Clean Holdings, Inc., a Delaware corporation and the parent of Borrowers.
-32-
Holdings IP Security Agreement means an Intellectual Property Security Agreement executed
and delivered by Holdings to Bank dated as of the Effective Date.
Indebtedness is (a) indebtedness for borrowed money or the deferred price of property or
services (excluding trade accounts payable and other accrued obligations incurred in the ordinary
course of business), (b) obligations evidenced by notes, bonds, debentures or similar instruments,
(c) capital lease obligations, and (d) Contingent Obligations.
Insolvency Proceeding is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
Interest Expense means for any fiscal period, interest expense (whether cash or non-cash) of
Holdings and its Subsidiaries determined in accordance with GAAP.
Inventory is all inventory as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of any Borrowers
custody or possession or in transit and including any returned goods and any documents of title
representing any of the above.
Investment is any beneficial ownership interest in any Person (including stock, partnership
interest, members interests or other securities), and any loan, advance or capital contribution to
any Person.
Intellectual Property means all present and future (a) copyrights, copyright rights,
copyright applications, copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, (b) trade secret rights, including all
rights to unpatented inventions and know how, and confidential information; (c) mask work or
similar rights available for the protection of semiconductor chips; (d) patents, patent
applications and like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the same; (e)
trademarks, servicemarks, trade styles, and trade names, whether or not any of the foregoing are
registered, and all applications to register and registrations of the same and like protections,
and the entire goodwill of the business of any Borrower connected with and symbolized by any such
trademarks; (f) computer software and computer software products; (g) designs and design rights;
(h) technology; (i) all claims for damages by way of past, present and future infringement of any
of the rights included above; and (j) all licenses or other rights to use any property or rights of
a type described above.
IP Security Agreements the Holdings IP Security Agreement and the Ultra Clean IP Security
Agreement.
L/C Sublimit is defined in Section 2.1.2.(a).
Letter of Credit means any documentary or standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement on the part of
Bank as set forth in Section 2.1.2.
Letter of Credit Application is defined in Section 2.1.2(a).
Letter of Credit Reserve has the meaning set forth in Section 2.1.2(d).
-33-
Lien is a mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
Loan Amount in respect of each Equipment Advance is the original principal amount of such
Equipment Advance.
Loan Documents are, collectively, this Agreement, the Perfection Certificates, the IP
Security Agreements, the Securities Pledge Agreement, the Collateral Assignment of Merger
Documents, any note, or notes or guaranties or post-closing letter agreements executed by a
Borrower, Guarantor or any other guarantor, and any other present or future agreement between a
Borrower, Guarantor, any other guarantor and/or for the benefit of Bank in connection with this
Agreement, all as amended, restated, or otherwise modified.
Loan Party means Borrowers and Guarantor.
Material Adverse Change is a material adverse change in (i) the business, operations, or
condition of Holdings and its Subsidiaries, taken as a whole or (ii) the ability of Borrower to
repay the Obligations hereunder under the Loan Documents or (iii) the priority of Banks security
interest in the Collateral.
Merger Documents means, collectively the Agreement and Plan of Merger, dated as June 29,
2006, among Sieger Engineering, Inc., Leonid Mezhvinsky, Holdings, Bob Acquisition Inc., Pete
Acquisition LLC and the other Sellers specified therein, all related documents and certificates
executed and/or delivered in connection therewith, and all schedules, exhibits, annexes and
amendments thereto and all material side letters and agreements affecting the terms thereof or to
be entered into in connection therewith.
Net Borrowing Availability is defined in Section 2.1.1 (a).
Net Income means, for any date of determination, as calculated on a consolidated basis for
Holdings and its Subsidiaries for any period, the net profit (or loss), after provision for taxes,
of Guarantor, Borrower and its Subsidiaries for such period taken as a single accounting period.
Obligations are Borrowers obligation to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrowers owe Bank now or later, whether under this Agreement, the Loan
Documents, or otherwise, including, without limitation, all obligations relating to Letters of
Credit, Cash Management Services, and foreign exchange contracts, if any, and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrowers
assigned to Bank, and the performance of Borrowers duties under the Loan Documents.
Operating Documents are, for any Person, such Persons formation documents, as filed with
the Secretary of State of such Persons state of formation on a date that is no earlier than 30
days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current
form, (b) if such Person is a limited liability company, its limited liability company agreement
(or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or
similar agreement), each of the foregoing with all current amendments or modifications thereto.
Payment/Advance Form is that certain form attached hereto as
Exhibit B
.
Perfection Certificate is defined in Section 5.1.
-34-
Permitted Indebtedness is:
(a) Borrowers Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors and with respect to surety bonds and similar
obligations incurred in the ordinary course of business;
(e) Indebtedness in respect of the Equipment Financing not to exceed $5,000,000 in the
aggregate;
(f) Indebtedness (other than the Obligations, but including capitalized lease obligations) of
any Borrower or their Subsidiaries incurred at the time of, or within 90 days after, the
acquisition, construction, restoration or improvement of any assets for the purpose of financing
all or any part of the acquisition cost thereof in an aggregate principal amount outstanding at any
one time, together with any refinancings thereof, not in excess of $500,000 in the aggregate;
(g) Indebtedness comprising Permitted Investments;
(h) Indebtedness incurred by Holdings or any Borrower with respect to indemnities and purchase
price adjustment obligations under the Merger Documents;
(i) Indebtedness in connection with Contingent Obligations of the type described in clause (c)
of the definition thereof) entered into in the ordinary course of business and not for speculative
purposes;
(j) Indebtedness in an aggregate principal amount not to exceed $250,000 secured by Permitted
Liens;
(k) Indebtedness owing to any officers or directors of Borrowers, provided that the aggregate
principal amount of all such Indebtedness does not exceed $25,000 outstanding at any time and only
to the extent it is Subordinated Debt;
(l) other unsecured Indebtedness not otherwise permitted by Section 7.4 not exceeding $250,000
in the aggregate outstanding at any time
(m) Indebtedness in an aggregate principal amount not to exceed $250,000 secured by Permitted
Liens;
(n) Indebtedness owing to any officers or directors of Borrowers, provided that the aggregate
principal amount of all such Indebtedness does not exceed $25,000 and only to the extent it is
Subordinated Debt;
(o) other Indebtedness not otherwise permitted by Section 7.4 not exceeding $50,000 in the
aggregate outstanding at any time; and
- 35 -
(p) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (g) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
Permitted Investments are:
(a) Investments shown on the Perfection Certificate and existing on the Effective Date;
(b) (i) cash and Cash Equivalents, and (ii) any other Investments permitted by Borrowers
investment policy, as amended from time to time, provided that any material changes in such
investment policy after the Effective Date has been approved by Bank;
(c) Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrowers;
(d) Investments consisting of deposit accounts in which Bank has a perfected security interest
or that are permitted under Section 6.8(c);
(e) Investments accepted in connection with Transfers permitted by Section 7.1;
(f) Investments of Subsidiaries in or to other Domestic Subsidiaries or Borrower and
Investments by Borrower in Domestic Subsidiaries and Investments in Shanghai,
provided
that any
such Investments in Shanghai shall be upon fair and reasonable terms that are no less favorable to
Borrowers than would be obtained in an arms length transaction with a non-affiliated Person or
shall not exceed, in the aggregate, $1,000,000 in cash and Equipment during the term of this
Agreement;
(g) Investments consisting of travel advances and employee relocation loans and other employee
loans and advances in the ordinary course of business;
(h) Investments (including debt obligations) received (i) in connection with the bankruptcy or
reorganization of customers or suppliers, (ii) in settlement of delinquent obligations of, and
other disputes with, customers or suppliers effected in the ordinary course of business or (iii)
upon the foreclosure or enforcement of any Lien in favor of a Borrower or any Subsidiary of a
Borrower;
(i) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates (other than Permitted Portfolio
Companies), in the ordinary course of business; provided that this paragraph (i) shall not apply to
Investments of Borrower in any Subsidiary;
(j) Investments in connection with the Acquisition;
(k) Investments consisting of guarantees constituting of Indebtedness permitted under Section
7.1; and
(l) other Investments not otherwise permitted by clauses (a) through (k) not exceeding
$250,000 in the aggregate outstanding at any time.
- 36 -
Permitted Liens are:
(a) Liens existing on the Effective Date and described in the Perfection Certificate; and
Liens arising under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not
delinquent or (ii) being contested in good faith and for which the applicable Borrower or
Subsidiary maintains adequate reserves on its Books, if they have no priority over any of Banks
Liens;
(c) the Liens solely on Equipment financed by the Equipment Financing;
(d) purchase money Liens (i) on Equipment acquired or held by each Borrower incurred for
financing the acquisition of the Equipment securing no more than $500,000 in the aggregate amount
outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property
and improvements and the proceeds of the Equipment;
(e) Liens arising by operation of law in favor of materialmen, mechanics, carriers,
warehousemen, landlords, laborers, suppliers and other Persons imposed, provided that such Liens
either (i) were incurred in the ordinary course of either Borrowers any Subsidiarys business and
not in connection with the borrowing of money, and (A) are for sums not yet delinquent more than 60
days past due or (ii) are being contested in good faith and for which the applicable Borrower or
Subsidiary maintains adequate reserves on its Books or (ii) have no priority over any of Banks
Lien and the aggregate amount of obligations secured by such Liens does not at any time exceed
$100,000;
(f) Liens arising in connection with workers compensation, employment insurance, old-age
pensions, social security and other like obligations incurred in the ordinary course of business;
(g) Liens arising from pledges and deposits made as security for appeal bonds in connection
with obtaining such bonds in the ordinary course of business;
(h) inchoate and unperfected Liens for escheat or use taxes that are not the subject of any
judgment or other asserted claim for the payment of money;
(i) with respect to any real property, reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other title exceptions and zoning
restrictions and similar encumbrances that (i) do not materially interfere with or impair the use
or operation thereof and (ii) are not Environmental Liens;
(j) leases or subleases of real property granted in the ordinary course of business, and
leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or
Intellectual Property) granted in the ordinary course of Borrowers businesses, if the leases,
subleases, licenses and sublicenses do not prohibit granting Bank a security interest;
(k) non-exclusive license of Intellectual Property granted to third parties in the ordinary
course of business, and licenses of Intellectual Property that could not result in a legal transfer
of title of the licensed property that may be exclusive in respects other than territory and that
may be exclusive as to territory only as to discreet geographical areas outside of the United
States;
(l) Liens arising from judgments, decrees or attachments in circumstances not constituting an
Event of Default under Section 8.4 or 8.7; and
- 37 -
(m) Liens in favor of other financial institutions arising in connection with Borrowers
deposit and/or securities accounts held at such institutions, provided that Bank has a perfected
security interest in the amounts held in such deposit and/or securities accounts or the amounts on
deposit in such account comply with Section 6.8(d);
(n) Liens securing Indebtedness or other obligations in an aggregate amount not exceeding
$250,000 outstanding at any time; and
(o) Liens incurred in the extension, renewal or refinancing of the obligations secured by
Liens described in clauses (a), (c), (d), (m) and (n),
provided
any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing Lien and the principal
amount of the obligations secured thereby may not increase.
Permitted Portfolio Company means a portfolio company of the private equity fund of
Francisco Partners.
Person is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.
Prime Rate is Banks most recently announced prime rate, even if it is not Banks lowest
rate.
Registered Organization is any registered organization as defined in the Code with such
additions to such term as may hereafter be made
Reserves means reserves established by Bank from time to time against Eligible Accounts of
Borrowers that Bank may, in its reasonable credit judgment, establish from time to time. Without
limiting the generality of the foregoing, Reserves established to ensure the payment of accrued
Interest Expense or Indebtedness shall be deemed to be a reasonable exercise of Banks credit
judgment.
Responsible Officer is any of the Chief Executive Officer, President, and Chief Financial
Officer of each Borrower.
Revolving Line is an Advance or Advances in an aggregate amount of up to $25,000,000
outstanding at any time.
Revolving Line Maturity Date is June 29, 2009.
Securities Account is any securities account as defined in the Code with such additions to
such term as may hereafter be made.
Securities Pledge Agreement that certain Securities Pledge Agreement executed and delivered
by Holdings to Bank dated as of the Effective Date.
Senior Funded Debt means, on any day, the principal amount of Indebtedness (other than
Subordinated Debt) that would, under GAAP, be classified as indebtedness on a consolidated balance
sheet of Holdings and its Subsidiaries on such date.
Senior Leverage Ratio is defined in Section 6.9(a).
Settlement Date is defined in Section 2.1.3.
- 38 -
Shanghai means Ultra Clean Technology (Shanghai) Co., LTD.
Subordinated Debt is indebtedness incurred by Holdings and its Subsidiaries subordinated to
all of Holdings and its Subsidiaries now or hereafter indebtedness to Bank (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank
entered into between Bank and the other creditor), on terms acceptable to Bank.
Subsidiary means, with respect to any Person, any Person of which more than 50% of the
voting stock or other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
Term Loan is a loan made by Bank pursuant to the terms of Section 2.1.5 hereof.
Term Loan Amount is an aggregate amount equal to $7,500,000 outstanding at any time.
Term Loan Maturity Date is June 29, 2009.
Term Loan Payment is defined in Section 2.1.5(b).
Transaction Report is that certain report in form and substance satisfactory to Bank,
including, without limitation, sales journals, collection journals, and credit memorandum attached
thereto.
Transfer is defined in Section 7.1.
Trigger Availability means the sum of (i) Eligible Accounts multiplied by the advance rate
then in effect as set forth in the definition of
Borrowing
Base
minus (ii) the sum
of all outstanding Obligations to Bank in respect of the Revolving Line, the Term Loan and all
outstanding Letters of Credit, plus (iii) unrestricted cash and Cash Equivalents of Borrowers.
Ultra Clean IP Security Agreement means an Intellectual Property Security Agreement executed
and delivered by Ultra Clean to Bank dated as of the Effective Date.
Union Bank Control Agreement means the Three Party Lockbox and Deposit Account Control
Agreement, of even date herewith, among Union Bank of California, Bank and Borrowers.
[Signature Page Follows]
- 39 -
IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
BORROWERS:
BOB ACQUISITION INC. (and any successor by merger)
PETE ACQUISITION LLC (to be renamed UCT Sieger Engineering LLC)
ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
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Chief Financial Officer
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BANK:
SILICON VALLEY BANK
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By:
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/s/ Maria Fischer Leaf
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Name:
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Maria Fischer Leaf
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Title:
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Senior Relationship Manager
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EXHIBIT A
The Collateral consists of all of Borrowers right, title and interest in and to the following
personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles, commercial tort claims, documents, instruments (including any promissory notes),
chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing), securities, and all other
investment property, supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and
all Borrowers Books relating to the foregoing, and any and all claims, rights and interests
in any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
Notwithstanding the foregoing, the Collateral does not include more than 65% of the
presently existing and hereafter arising issued and outstanding shares of capital stock owned by
Borrower of any Foreign Subsidiary which shares entitle the holder thereof to vote for directors or
any other matter.
EXHIBIT B
Loan Payment/Advance Request Form
Deadline for same day processing is Noon P
.S.T.
*
LOAN PAYMENT:
[Insert Borrower name]
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From Account #
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To Account
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#
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(Deposit Account #)
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(Loan Account #)
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Principal $
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and/or Interest
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Authorized Signature:
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Phone Number:
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Loan Advance:
Complete
Outgoing Wire Request
section below if all or a portion of the funds from this loan
advance are for an outgoing wire.
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From Account #
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To Account
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#
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(Loan Account #)
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(Deposit Account #)
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All Borrowers representations and warranties in the Loan and Security Agreement are true, correct
and complete in all material respects on the date of the request for an advance; provided, however,
that such materiality qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date shall be true, accurate
and complete in all material respects as of such date:
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Authorized Signature:
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Phone Number:
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Outgoing Wire Request:
Complete only if all or a portion of funds from the loan advance above is to be wired.
Deadline for same day processing is noon, P.S.T.
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Beneficiary Name:
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Amount of Wire: $
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Beneficiary Bank:
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Account Number:
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Beneficiary Bank Transit (ABA) #:
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Beneficiary Bank Code (Swift, Sort, Chip, etc.):
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(For International Wire Only)
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*
Unless otherwise provided for an Advance
bearing interest at LIBOR.
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1
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Intermediary Bank:
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Transit (ABA) #:
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For Further Credit to:
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Special Instruction:
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By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be
processed in accordance with and subject to the terms and conditions set forth in the agreements(s)
covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).
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Authorized Signature:
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2
nd
Signature (if required):
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Print Name/Title:
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Print Name/Title:
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Telephone #:
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Telephone #:
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2
EXHIBIT C
Perfection Certificate Form
PERFECTION CERTIFICATE
1.
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The legal name of the [Borrower][Guarantor] is
. (the Company).
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2.
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The Company was formed on
in
as a
. Since its
formation, the Company has had the following legal names (other than its current legal name):
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Date Companys Name
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Prior Name
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Was Changed From Such Name
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3.
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The Company does business under the following trade names:
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Trade Name
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Is This Name Registered?
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4.
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The Company has the following places of business or has assets located at the following
locations:
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Address
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Owner of Location
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Brief Description of Assets
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5.
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The Company owns the following domestic and foreign registered patents and patent
applications:
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Title of Patent
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Registration/Application No.
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Registration/Filing Date
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6.
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The Company owns the following domestic and foreign registered and applied for trademarks,
tradenames and service marks:
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Trademarks, Tradenames or
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Service Marks
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Registration/Application No.
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Registration/Filing Date
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7.
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The Company owns the following domestic and foreign copyrights and copyright registrations:
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Description of Copyright
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Registration No.
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Registration Date
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8.
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The Company uses the following material unregistered copyrights in the ordinary course of its
business:
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Description of Copyright
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9.
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The following is a complete list of pending and threatened litigation or claims involving
amounts claimed against Company in an indefinite amount or in excess of $50,000 in each case:
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10.
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The Companys federal employer I.D. number is:
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11.
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The Companys organizational I.D. number is
.
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12.
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The Companys assets are subject to the following security interests:
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Assets
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Name and Address of Secured Party
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14.
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The Company has investments in excess of $50,000 (calculated at the
higher
of cost or market
value) in equity or debt securities of the following entities (other than subsidiaries):
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Name of Entity
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Nature and Amount of Investment
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15.
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The Company maintains the following deposit accounts (including demand, time, savings,
passbook or similar accounts):
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Name and Address of Depository
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Institution
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Type and Account No.
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Account Holder
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16.
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The Company beneficially owns investment property in the following securities accounts:
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Name and Address of Securities
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Intermediary
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Type and Account No.
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Account Holder
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2
17.
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The Company has the following subsidiaries:
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State of Formation or
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Percentage Owned by
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Name of Subsidiary
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Organization
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Entity
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18.
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True and correct copies of the Companys organizational/charter documents are attached.
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3
The undersigned hereby certifies that the foregoing information contained on this Perfection
Certificate is true and correct in all material respects as of June 29, 2006.
4
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of July 1, 2006 (this
Amendment), is by and among ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC., a California
company (Ultra Clean) and UCT SIEGER ENGINEERING LLC (f/k/a Pete Acquisition LLC), a Delaware
limited liability company (Sieger and Ultra Clean, each a Borrower and collectively, the
Borrowers) and SILICON VALLEY BANK, a California corporation (the Bank).
WHEREAS,
the Borrowers and the Bank are parties to a certain Loan and Security Agreement,
dated as of June 29, 2006, and as amended and in effect from time to time, the Loan Agreement);
WHEREAS,
the Borrowers and the Bank desire to amend the Loan Agreement as provided herein;
NOW THEREFORE
, in consideration of the mutual agreements contained in the Loan Agreement and
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
§1.
Defined
Terms
.
Terms not otherwise defined herein which are defined in the Loan Agreement
shall have the same respective meanings herein as therein.
§2.
Amendments
to
the
Loan
Agreement
. The Loan Agreement is hereby amended as follows:
(a) Section 6.8(a) of the Loan Agreement is amended by deleting the words Within fifteen (15)
Business Days of the Effective Date and replacing them with the words On or before October 1,
2006 or as soon as reasonably practical thereafter.
(b) Section 6.9(c) of the Loan Agreement is amended by adding the following new sentence at
the end thereof:
Notwithstanding the foregoing, if the amount equal to the Borrowing Base minus all
outstanding Credit Extensions is greater than the Committed Availability, such amount shall
be used in place of the Committed Availability solely for purposes of determining compliance
with the financial covenant set forth in this Section 6.9(c) at all times for the period
from and after July 1, 2006 through and until January 31, 2007.
(c) Section 8.2(a) of the Loan Agreement is amended by deleting the reference to Section 6.8
and replacing it with a reference to Sections 6.8(b)-(d).
§3.
Conditions
to
Effectiveness
. This Amendment shall be deemed to be
effective as of July 1, 2006, upon receipt by the Bank of a counterpart signature page to this
Amendment duly executed and delivered by the Borrowers and the Bank.
§4.
Representations
and
Warranties
. Each of the Borrowers hereby
represents and warrants to the Bank as follows:
(a)
Representation
and
Warranties
in
the
Loan
Agreement.
The representations and
warranties of each of the Borrowers contained in the Loan Agreement were true and correct in
all material respects as of the date when made and continue to be true and correct in all
material respects on the date hereof, except to the extent of changes resulting from
transactions or events contemplated or permitted by the Loan Agreement and the other Loan
Documents and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse to the Borrowers, or to the extent that such
representations and warranties relate expressly to an earlier date.
(b)
Ratification
,
Etc.
Except as expressly amended or waived hereby,
the Loan Agreement, the other Loan Documents and all documents, instruments and agreements
related thereto, are hereby ratified and confirmed in all respects and shall continue in
full force and effect. The Loan Agreement, together with this Amendment, shall be read and
construed as a single agreement. All references in the Loan Documents to the Loan Agreement
shall hereafter refer to the Loan Agreement or any other Loan Document as amended hereby.
(c)
Authority,
Etc.
The execution and delivery by the Borrowers of this Amendment and
the performance by the Borrowers of all of their respective agreements and obligations under
the Loan Agreement and the other Loan Documents as amended hereby are within the corporate
authority of each such Borrower and have been duly authorized by all necessary corporate
action on the part of such Borrower.
(d)
Enforceability
of
Obligations
. This Amendment and the Loan
Agreement and the other Loan Documents as amended hereby constitute the legal, valid and
binding obligations of the Borrowers enforceable against each of the Borrowers in accordance
with their terms, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the enforcement
of, creditors rights and except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
(e)
No
Default
. No Default or Event of Default has occurred and is
continuing.
§5.
No
Other
Amendments
. Except as expressly provided in this
Amendment, all of the terms and conditions of the Loan Agreement and the other Loan Documents
remain in full force and effect. Nothing contained in this Amendment shall in any way prejudice,
impair or effect any rights or remedies of the Bank or the Borrowers under the Loan Agreement or
the other Loan Documents.
§6.
Execution
in
Counterparts
. This Amendment may be executed in any
number of counterparts, each of which shall be deemed an original, but which together shall
constitute one instrument.
§7.
Bank Expenses
. Borrowers shall jointly and severally pay to Bank all Bank
Expenses (including reasonable attorneys fees and expenses, plus expenses, for documentation and
negotiation of this Amendment.
§8.
Miscellaneous
. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND SHALL FOR ALL
2
PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). The captions in this Amendment are
for convenience of reference only and shall not define or limit the provisions hereof.
[
Remainder of page intentionally left blank.
]
3
IN WITNESS WHEREOF
, the parties hereto have executed this Amendment as a document under seal
as of the date first above written.
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ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
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UCT SIEGER ENGINEERING LLC
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
|
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Chief Financial Officer
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SILICON VALLEY BANK
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By:
|
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/s/ Maria Fischer Leaf
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Name:
|
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Maria Fischer Leaf
|
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Title:
|
|
Senior Relationship Manager
|
|
|
RATIFICATION OF GUARANTY
The undersigned Guarantor hereby acknowledges and consents to the foregoing Amendment as of
July 1, 2006, and agrees that the Guaranty of such Guarantor in favor of the Bank and all other
Loan Documents to which the Guarantor is a party remains in full force and effect, and the
Guarantor confirms and ratifies all of its obligations thereunder.
|
|
|
|
|
|
|
ULTRA CLEAN HOLDINGS, INC.
,
|
a Delaware corporation
|
|
|
|
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|
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By:
|
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/s/ Jack Sexton
|
|
|
|
|
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|
|
Name:
|
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Jack Sexton
|
|
|
Title:
|
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Chief Financial Officer
|
|
|
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of May 11, 2007 (this
Amendment), is by and among ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC., a California
company (Ultra Clean) and UCT SIEGER ENGINEERING LLC (f/k/a Pete Acquisition LLC), a Delaware
limited liability company (Sieger and Ultra Clean, each a Borrower and collectively, the
Borrowers) and SILICON VALLEY BANK, a California corporation (the Bank).
WHEREAS,
the Borrowers and the Bank are parties to a certain Loan and Security Agreement,
dated as of June 29, 2006, and as amended and in effect from time to time, the Loan Agreement);
WHEREAS,
the Borrowers and the Bank desire to amend the Loan Agreement as provided herein;
NOW THEREFORE
, in consideration of the mutual agreements contained in the Loan Agreement and
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
§1.
Defined Terms
.
Terms not otherwise defined herein which are defined in the Loan
Agreement shall have the same respective meanings herein as therein.
§2.
Amendments to the Loan Agreement
. The Loan Agreement is hereby amended as
follows:
(a) Section 7.1 of the Loan Agreement is amended by deleting clause (f) of such Section
7.1 and substituting the following therefore:
(f) Transfers to another Borrower or their respective Subsidiaries, or to Shanghai
provided
that any such Transfers to Shanghai shall be upon fair and reasonable terms
that are no less favorable to Borrowers than would be obtained in an arms length
transaction with a non-affiliated Person and shall not exceed, in the aggregate,
$1,000,000 (in cash
plus
Equipment) during the term of this Agreement;
provided
,
however
, the one time Transfer during the Borrowers
second fiscal quarter of 2007 by Sieger of up to $850,000 of used Equipment to Ultra
Clean Micro-Electronics Equipment (Shanghai) Co., Ltd. shall not be subject to or
part of the foregoing $1,000,000 limitation.
(b) Section 7.7 of the Loan Agreement is amended by deleting clause (a) (vii) of such
Section 7.7 and substituting the following therefor.
(vii) So long as no Default or Event of Default shall have occurred and be
continuing or would result therefrom, make Restricted Payments to Holdings solely
for the purpose of making Investments by Holdings in Shanghai that do not exceed
$1,000,000 (in cash
plus
Equipment) per annum;
provided
,
however
, the one time Transfer during the Borrowers second fiscal quarter
of 2007 by Sieger of up to $850,000 of used Equipment to Ultra Clean
Micro-Electronics Equipment (Shanghai) Co., Ltd. shall not be subject to or part of
the foregoing $1,000,000 limitation.
(c) Section 13.1 of the Loan Agreement is amended as follows:
(i) the definition of Permitted Investments set forth in such Section 13.1 is
amended by deleting cause (f) of such definition and substituting the following
therefor:
(f)
provided
that any such Investments in Shanghai shall be upon fair and
reasonable terms that are no less favorable to Borrowers than would be obtained in
an arms length transaction with a non-affiliated Person or shall not exceed, in the
aggregate, $1,000,000 in cash and Equipment during the term of this Agreement;
provided
,
however
, the one time Transfer during the Borrowers
second fiscal quarter of 2007 by Sieger of up to $850,000 of used Equipment to Ultra
Clean Micro-Electronics Equipment (Shanghai) Co., Ltd. shall not be subject to or
part of the foregoing $1,000,000 limitation.
(ii) the definition of Shanghai set forth in such Section 13.1 is amended by
deleting such definition in its entirety and substituting the following therefor:
Shanghai means, collectively, Ultra Clean Technology (Shanghai) Co., Ltd. and
Ultra Clean Micro-Electronics Equipment (Shanghai) Co., Ltd.
§3.
Conditions to Effectiveness
. This Amendment shall be deemed to be effective as of
May 11, 2007, upon receipt by the Bank of a counterpart signature page to this Amendment duly
executed and delivered by the Borrowers and the Bank.
§4.
Representations and Warranties
. Each of the Borrowers hereby represents and
warrants to the Bank as follows:
(a)
Representation and Warranties in the Loan Agreement
. The representations
and warranties of each of the Borrowers contained in the Loan Agreement were true and
correct in all material respects as of the date when made and continue to be true and
correct in all material respects on the date hereof, except to the extent of changes
resulting from transactions or events contemplated or permitted by the Loan Agreement and
the other Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse to the Borrowers, or to the extent
that such representations and warranties relate expressly to an earlier date.
(b)
Ratification, Etc.
Except as expressly amended or waived hereby, the Loan
Agreement, the other Loan Documents and all documents, instruments and agreements related
thereto, are hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Loan Agreement, together with this Amendment, shall be read and construed
as a single agreement. All references in the Loan Documents to the Loan Agreement shall
hereafter refer to the Loan Agreement or any other Loan Document as amended hereby.
(c)
Authority, Etc.
The execution and delivery by the Borrowers of this
Amendment and the performance by the Borrowers of all of their respective agreements and
obligations under the Loan Agreement and the other Loan Documents as amended hereby are
within the corporate authority of each such Borrower and have been duly authorized by all
necessary corporate action on the part of such Borrower.
(d)
Enforceability of Obligations
. This Amendment and the Loan Agreement and
the other Loan Documents as amended hereby constitute the legal, valid and binding
obligations of the Borrowers enforceable against each of the Borrowers in accordance with
their terms, except as enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of, creditors
rights and except to the
- 2 -
extent that availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may be brought.
(e)
No Default
. No Default or Event of Default has occurred and is continuing.
§5.
No Other Amendments
. Except as expressly provided in this Amendment, all of the
terms and conditions of the Loan Agreement and the other Loan Documents remain in full force and
effect. Nothing contained in this Amendment shall in any way prejudice, impair or effect any
rights or remedies of the Bank or the Borrowers under the Loan Agreement or the other Loan
Documents.
§6.
Execution in Counterparts
. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but which together shall constitute one
instrument.
§7.
Bank Expenses
. Borrowers shall jointly and severally pay to Bank all Bank
Expenses (including reasonable attorneys fees and expenses, plus expenses, for documentation and
negotiation of this Amendment.
§8.
Miscellaneous
. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
The captions in this Amendment are for convenience of reference only and shall not define or limit
the provisions hereof.
[
Remainder of page intentionally left blank.
]
- 3 -
IN WITNESS WHEREOF
, the parties hereto have executed this Amendment as a document under seal
as of the date first above written.
|
|
|
|
|
|
|
ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
|
UCT SIEGER ENGINEERING LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Jack Sexton
|
|
|
|
|
|
|
|
Name:
|
|
Jack Sexton
|
|
|
Title:
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SILICON VALLEY BANK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Jean Lee
|
|
|
|
|
|
|
|
Name:
|
|
Jean Lee
|
|
|
Title:
|
|
Relationship Manager
|
|
|
RATIFICATION OF GUARANTY
The undersigned Guarantor hereby acknowledges and consents to the foregoing Amendment as of
May 11, 2007, and agrees that the Guaranty of such Guarantor in favor of the Bank and all other
Loan Documents to which the Guarantor is a party remains in full force and effect, and the
Guarantor confirms and ratifies all of its obligations thereunder.
|
|
|
|
|
|
|
ULTRA CLEAN HOLDINGS, INC.
,
|
a Delaware corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Jack Sexton
|
|
|
|
|
|
|
|
Name:
|
|
Jack Sexton
|
|
|
Title:
|
|
Chief Financial Officer
|
|
|
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of July 28, 2008 (this
Amendment), is by and among ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC., a California
company (Ultra Clean) and UCT SIEGER ENGINEERING LLC (f/k/a Pete Acquisition LLC), a Delaware
limited liability company (Sieger and Ultra Clean, each a Borrower and collectively, the
Borrowers) and SILICON VALLEY BANK, a California corporation (the Bank).
WHEREAS,
the Borrowers and the Bank are parties to a certain Loan and Security Agreement,
dated as of June 29, 2006 (as amended and in effect from time to time, the Loan Agreement);
WHEREAS,
the Borrowers and the Bank desire to amend the Loan Agreement as provided herein;
NOW THEREFORE
, in consideration of the mutual agreements contained in the Loan Agreement and
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
§1.
Defined Terms
.
Terms not otherwise defined herein which are defined in the Loan
Agreement shall have the same respective meanings herein as therein.
§2.
Amendment to the Loan Agreement
. Section 7.7(a) of the Loan Agreement is hereby
amended by deleting clause (v) thereof and substituting the following therefor:
(v) so long as no Default or Event of Default shall have occurred and be continuing or would
result therefrom, each Borrower or any of its Subsidiaries may make Restricted Payments to
Holdings to permit Holdings to (A) purchase or redeem its stock in connection with and
pursuant to the terms of employee benefit and stock option plans, in an amount not exceed,
in the aggregate, $500,000 during the term of this Agreement, (B) purchase or redeem its
stock in an amount not to exceed $10,000,000 in the aggregate prior to June 30, 2009, and (C) pay income taxes, franchise fees and other fees
required to maintain its existence and provide for other operating costs;
§3.
Conditions to Effectiveness
. This Amendment shall be deemed to be effective as of
July 28, 2008, upon receipt by the Bank of a counterpart signature page to this Amendment duly
executed and delivered by the Borrowers and the Bank.
§4.
Representations and Warranties
. Each of the Borrowers hereby represents and
warrants to the Bank as follows:
(a)
Representation and Warranties in the Loan Agreement
. The representations
and warranties of each of the Borrowers contained in the Loan Agreement were true and
correct in all material respects as of the date when made and continue to be true and
correct in all material respects on the date hereof, except to the extent of changes
resulting from transactions or events contemplated or permitted by the Loan Agreement and
the other Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse to the Borrowers, or to the extent
that such representations and warranties relate expressly to an earlier date.
(b)
Ratification, Etc.
Except as expressly amended or waived hereby, the Loan
Agreement, the other Loan Documents and all documents, instruments and agreements related
thereto, are hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Loan Agreement, together with this Amendment, shall be read and construed
as a single agreement. All references in the Loan Documents to the Loan Agreement shall
hereafter refer to the Loan Agreement or any other Loan Document as amended hereby.
(c)
Authority, Etc.
The execution and delivery by the Borrowers of this
Amendment and the performance by the Borrowers of all of their respective agreements and
obligations under the Loan Agreement and the other Loan Documents as amended hereby are
within the corporate authority of each such Borrower and have been duly authorized by all
necessary corporate action on the part of such Borrower.
(d)
Enforceability of Obligations
. This Amendment and the Loan Agreement and
the other Loan Documents as amended hereby constitute the legal, valid and binding
obligations of the Borrowers enforceable against each of the Borrowers in accordance with
their terms, except as enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of, creditors
rights and except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
(e)
No Default
. No Default or Event of Default has occurred and is continuing.
§5.
No Other Amendments
. Except as expressly provided in this Amendment, all of the
terms and conditions of the Loan Agreement and the other Loan Documents remain in full force and
effect. Nothing contained in this Amendment shall in any way prejudice, impair or effect any
rights or remedies of the Bank or the Borrowers under the Loan Agreement or the other Loan
Documents.
§6.
Execution in Counterparts
. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but which together shall constitute one
instrument.
§7.
Bank Expenses
. Borrowers shall jointly and severally pay to Bank all Bank
Expenses (including reasonable attorneys fees and expenses), plus expenses, for documentation and
negotiation of this Amendment.
§8.
Miscellaneous
. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
The captions in this Amendment are for convenience of reference only and shall not define or limit
the provisions hereof.
[
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]
- 2 -
IN WITNESS WHEREOF
, the parties hereto have executed this Amendment as a document under seal
as of the date first above written.
|
|
|
|
|
|
ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
UCT SIEGER ENGINEERING LLC
|
|
By:
|
/s/ Jack Sexton
|
|
|
|
Name:
|
Jack Sexton
|
|
|
|
Title:
|
Chief Financial Officer
|
|
|
|
SILICON VALLEY BANK
|
|
|
By:
|
/s/ Jean Lee
|
|
|
|
Name:
|
Jean Lee
|
|
|
|
Title:
|
Relationship Manager
|
|
RATIFICATION OF GUARANTY
The undersigned Guarantor hereby acknowledges and consents to the foregoing Amendment as of
July 28, 2008, and agrees that the Guaranty of such Guarantor in favor of the Bank and all other
Loan Documents to which the Guarantor is a party remains in full force and effect, and the
Guarantor confirms and ratifies all of its obligations thereunder.
|
|
|
|
|
|
ULTRA CLEAN HOLDINGS, INC.
,
a Delaware corporation
|
|
|
By:
|
/s/ Jack Sexton
|
|
|
|
Name:
|
Jack Sexton
|
|
|
|
Title:
|
Chief Financial Officer
|
|
|
FOURTH AMENDMENT AND WAIVER TO
LOAN AND SECURITY AGREEMENT
This
FOURTH AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT, dated as
of October 15,
2008 (this Amendment), is by and among ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC., a
California company (Ultra Clean) and UCT SIEGER ENGINEERING LLC (f/k/a Pete Acquisition LLC), a
Delaware limited liability company (Sieger and Ultra Clean, each a Borrower and collectively,
the Borrowers) and SILICON VALLEY BANK, a California corporation (the Bank).
WHEREAS,
the Borrowers and the Bank are parties to a certain Loan and Security Agreement,
dated as of June 29, 2006 (as amended and in effect from time to time, the Loan Agreement);
WHEREAS,
the Borrowers have advised the Bank that they anticipate that they will not be able
to comply with the covenants contained in Section 6.9 of the Loan Agreement for the fiscal quarter
ending September 30, 2008 and acknowledge that such non-compliance shall constitute Events of
Default under Section 8 of the Loan Agreement (all such anticipated Events of Default hereinafter
referred to as the Specified Defaults);
WHEREAS,
the Borrowers have requested that the Bank waive the Specified Defaults and amend
certain provisions of the Loan Agreement and the Bank has agreed to waive such Specified Defaults
and amend such provisions;
NOW THEREFORE
, in consideration of the mutual agreements contained in the Loan Agreement and
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
§1.
Defined Terms
.
Terms not otherwise defined herein which are defined in the Loan
Agreement shall have the same respective meanings herein as therein.
§2.
Waiver of Specified Defaults
. Subject to the satisfaction of the conditions to
effectiveness in Section 4 hereof, the Bank hereby waives the Specified Defaults.
§3.
Amendments to the Loan Agreement
. The Loan Agreement is hereby amended as
follows:
3.1
Section 6.9(a) of the Loan Agreement is hereby amended by adding the following new
sentence at the end of such Section 6.9(a):
Notwithstanding anything to the contrary contained in this Section 6.9(a), solely for the
fiscal quarters ending December 31, 2008, March 31, 2009 and June 31, 2009,the Borrower
shall not be required to comply with the ratio of Senior Funded Debt to EBITDA as set forth
herein.
3.2
Section 6.9(b) of the Loan Agreement is hereby amended by adding the following new
sentence at the end of such Section 6.9(b):
Notwithstanding anything to the contrary contained in this Section 6.9(b), solely for the
fiscal quarters ending December 31, 2008, March 31, 2009 and June 31, 2009,the Borrower
shall not be required to comply with the ratio of EBITDA to Fixed Charges as set forth
herein.
3.3
Section 6.9(c) of the Loan Agreement is hereby amended by deleting Section 6.9(c) in its
entirety and substituting the following in lieu thereof:
(c)
Liquidity
. Borrowers unrestricted cash and Cash Equivalents plus the
Committed Availability of at least $5,000,000;
provided
,
however
, that
solely for the fiscal quarters ending September 30, 2008, December 31, 2008, March 31, 2009
and June 31, 2009, the Borrowers unrestricted cash and Cash Equivalents plus the Committed
Availability shall be at least $15,000,000.
3.4
Section 6.9 of the Loan Agreement is hereby amended by adding the following new Section
6.9(d):
(d)
Minimum EBITDA
. Solely for the fiscal quarters ending September 30, 2008,
December 31, 2008, March 31, 2009 and June 31, 2009, EBITDA of not less than the following
levels:
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Fiscal Quarter ending:
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EBITDA
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September 30, 2008
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($1,450,000)
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December 31, 2008
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($2,400,000)
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March 31, 2009
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$1
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June 31, 2009
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$1
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§4.
Conditions to Effectiveness
. This Amendment shall be deemed to be effective as of
October 15, 2008, upon (i) receipt by the Bank of a counterpart signature page to this Amendment
duly executed and delivered by the Borrowers and the Bank and (ii) the Borrowers shall have paid
the Bank an amendment fee in the amount of $5,000.
§5.
Representations and Warranties
. Each of the Borrowers hereby represents and
warrants to the Bank as follows:
(a)
Representation and Warranties in the Loan Agreement
. The representations
and warranties of each of the Borrowers contained in the Loan Agreement were true and
correct in all material respects as of the date when made and continue to be true and
correct in all material respects on the date hereof, except to the extent of changes
resulting from transactions or events contemplated or permitted by the Loan Agreement and
the other Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse to the Borrowers, or to the extent
that such representations and warranties relate expressly to an earlier date.
(b)
Ratification, Etc.
Except as expressly amended or waived hereby, the Loan
Agreement, the other Loan Documents and all documents, instruments and agreements related
thereto, are hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Loan Agreement, together with this Amendment, shall be read and construed
as a single agreement. All references in the Loan Documents to the Loan Agreement shall
hereafter refer to the Loan Agreement or any other Loan Document as amended hereby.
- 2 -
(c)
Authority, Etc.
The execution and delivery by the Borrowers of this
Amendment and the performance by the Borrowers of all of their respective agreements and
obligations under the Loan Agreement and the other Loan Documents as amended hereby are
within the corporate authority of each such Borrower and have been duly authorized by all
necessary corporate action on the part of such Borrower.
(d)
Enforceability of Obligations
. This Amendment and the Loan Agreement and
the other Loan Documents as amended hereby constitute the legal, valid and binding
obligations of the Borrowers enforceable against each of the Borrowers in accordance with
their terms, except as enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of, creditors
rights and except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
(e)
No Default
. Other than with respect to the Specified Defaults, no Default
or Event of Default has occurred and is continuing.
§6.
No Other Amendments
. Except as expressly provided in this Amendment, all of the
terms and conditions of the Loan Agreement and the other Loan Documents remain in full force and
effect. Nothing contained in this Amendment shall in any way prejudice, impair or effect any
rights or remedies of the Bank or the Borrowers under the Loan Agreement or the other Loan
Documents.
§7.
Execution in Counterparts
. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but which together shall constitute one
instrument.
§8.
Bank Expenses
. Borrowers shall jointly and severally pay to Bank all Bank
Expenses (including reasonable attorneys fees and expenses), plus expenses, for documentation and
negotiation of this Amendment.
§9.
Miscellaneous
. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
The captions in this Amendment are for convenience of reference only and shall not define or limit
the provisions hereof.
[
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]
- 3 -
IN WITNESS WHEREOF
, the parties hereto have executed this Amendment as a document under seal
as of the date first above written.
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ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
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UCT SIEGER ENGINEERING LLC
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
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Chief Financial Officer
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SILICON VALLEY BANK
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By:
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/s/ Jean Lee
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Name:
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Jean Lee
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Title:
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Relationship Manager
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RATIFICATION OF GUARANTY
The undersigned Guarantor hereby acknowledges and consents to the foregoing Amendment as of
October 15, 2008, and agrees that the Guaranty of such Guarantor in favor of the Bank and all
other Loan Documents to which the Guarantor is a party remains in full force and effect, and the
Guarantor confirms and ratifies all of its obligations thereunder.
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ULTRA CLEAN HOLDINGS, INC.
,
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a Delaware corporation
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
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Chief Financial Officer
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FIFTH AMENDMENT AND WAIVER TO
LOAN AND SECURITY AGREEMENT
This FIFTH AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT, dated as of December 30, 2008
(this Amendment), is by and among ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC., a California
company (Ultra Clean) and UCT SIEGER ENGINEERING LLC (f/k/a Pete Acquisition LLC), a Delaware
limited liability company (Sieger and Ultra Clean, each a Borrower and collectively, the
Borrowers) and SILICON VALLEY BANK, a California corporation (the Bank).
WHEREAS,
the Borrowers and the Bank are parties to a certain Loan and Security Agreement,
dated as of June 29, 2006 (as amended and in effect from time to time, the Loan Agreement);
WHEREAS,
the Borrowers have advised the Bank that they were not be able to comply with the
covenant contained in Section 6.9(c) of the Loan Agreement for the month ending October 30, 2008
and acknowledge that such non-compliance shall constitute an Event of Default under Section 8 of
the Loan Agreement (such anticipated Event of Default hereinafter referred to as the Specified
Default);
WHEREAS,
the Borrowers have requested that the Bank waive the Specified Default and amend
certain provisions of the Loan Agreement and the Bank has agreed to waive such Specified Defaults
and amend such provisions;
NOW THEREFORE
, in consideration of the mutual agreements contained in the Loan Agreement and
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
§1.
Defined Terms
.
Terms not otherwise defined herein which are defined in the Loan
Agreement shall have the same respective meanings herein as therein.
§2.
Waiver of Specified Defaults
. Subject to the satisfaction of the conditions to
effectiveness in Section 4 hereof, the Bank hereby waives the Specified Default. Nothing contained
in this waiver shall be construed to imply a willingness on the part of the Bank to grant any
similar or other future waivers of any of the terms and conditions of the Loan Agreement or the
other Loan Documents.
§3.
Amendments to the Loan Agreement
. The Loan Agreement is hereby amended as
follows:
3.1
Section 13.1 of the Loan Agreement is hereby amended by deleting the definition of
Borrowing Base set forth Section 13.1 in its entirety and substituting the following in lieu
thereof:
Borrowing Base is 80% of Eligible Accounts
plus
Deposit Backed Accounts
less
Reserves as determined by Bank from Borrowers most recent Transaction Report;
provided, however, that Bank may decrease the foregoing percentage in its good faith
business judgment based on events, conditions, contingencies, or risks which, as determined
by Bank, may adversely affect Collateral.
3.2
Section 13.1 of the Loan Agreement is hereby further amended by adding the following new
definition of Deposit Backed Accounts to such Section 13.1 in the appropriate alphabetical order:
Deposit Backed Accounts are up to $5,000,000 of ineligible Accounts (for purposes of the
Borrowing Base),
provided
that at least an equal Dollar amount is deposited and
maintained by
the Borrowers or an Affiliate of the Borrowers acceptable to the Bank in a restricted
Deposit Account with the Bank. Any withdrawal from such restricted Deposit Account will
automatically result in an equal Dollar reduction in Deposit Backed Accounts.
§4.
Conditions to Effectiveness
. This Amendment shall be deemed to be effective as of
December 30, 2008, upon (i) receipt by the Bank of a counterpart signature page to this Amendment
duly executed and delivered by the Borrowers and the Bank and (ii) the Borrowers or an Affiliate of
the Borrowers acceptable to the Bank having established a restricted Deposit Account with the Bank.
§5.
Representations and Warranties
. Each of the Borrowers hereby represents and
warrants to the Bank as follows:
(a)
Representation and Warranties in the Loan Agreement
. The representations
and warranties of each of the Borrowers contained in the Loan Agreement were true and
correct in all material respects as of the date when made and continue to be true and
correct in all material respects on the date hereof, except to the extent of changes
resulting from transactions or events contemplated or permitted by the Loan Agreement and
the other Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse to the Borrowers, or to the extent
that such representations and warranties relate expressly to an earlier date.
(b)
Ratification, Etc.
Except as expressly amended or waived hereby, the Loan
Agreement, the other Loan Documents and all documents, instruments and agreements related
thereto, are hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Loan Agreement, together with this Amendment, shall be read and construed
as a single agreement. All references in the Loan Documents to the Loan Agreement shall
hereafter refer to the Loan Agreement or any other Loan Document as amended hereby.
(c)
Authority, Etc.
The execution and delivery by the Borrowers of this
Amendment and the performance by the Borrowers of all of their respective agreements and
obligations under the Loan Agreement and the other Loan Documents as amended hereby are
within the corporate authority of each such Borrower and have been duly authorized by all
necessary corporate action on the part of such Borrower.
(d)
Enforceability of Obligations
. This Amendment and the Loan Agreement and
the other Loan Documents as amended hereby constitute the legal, valid and binding
obligations of the Borrowers enforceable against each of the Borrowers in accordance with
their terms, except as enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of, creditors
rights and except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
(e)
No Default
. Other than with respect to the Specified Default, no Default
or Event of Default has occurred and is continuing.
§6.
No Other Amendments
. Except as expressly provided in this Amendment, all of the
terms and conditions of the Loan Agreement and the other Loan Documents remain in full force and
effect. Nothing contained in this Amendment shall in any way prejudice, impair or effect any
rights or remedies of the Bank or the Borrowers under the Loan Agreement or the other Loan
Documents.
-2-
§7.
Execution in Counterparts
. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but which together shall constitute one
instrument.
§8.
Bank Expenses
. Borrowers shall jointly and severally pay to Bank all Bank
Expenses (including reasonable attorneys fees and expenses), plus expenses, for documentation and
negotiation of this Amendment.
§9.
Miscellaneous
. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
The captions in this Amendment are for convenience of reference only and shall not define or limit
the provisions hereof.
[
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-3-
IN WITNESS WHEREOF
, the parties hereto have executed this Amendment as a document under seal
as of the date first above written.
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ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
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UCT SIEGER ENGINEERING LLC
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
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Chief Financial Officer
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SILICON VALLEY BANK
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By:
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/s/ Jean Lee
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Name:
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Jean Lee
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Title:
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Relationship Manager
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RATIFICATION OF GUARANTY
The undersigned Guarantor hereby acknowledges and consents to the foregoing Amendment as of
December 30, 2008, and agrees that the Guaranty of such Guarantor in favor of the Bank and all
other Loan Documents to which the Guarantor is a party remains in full force and effect, and the
Guarantor confirms and ratifies all of its obligations thereunder.
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ULTRA CLEAN HOLDINGS, INC.
,
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a Delaware corporation
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
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Chief Financial Officer
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SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND AMENDMENT TO GUARANTY
This SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of February 4, 2009 (this
Amendment), is by and among ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC., a California
company (Ultra Clean) and UCT SIEGER ENGINEERING LLC (f/k/a Pete Acquisition LLC), a Delaware
limited liability company (Sieger and Ultra Clean, each a Borrower and collectively, the
Borrowers) and SILICON VALLEY BANK, a California corporation (the Bank).
WHEREAS,
the Borrowers and the Bank are parties to a certain Loan and Security Agreement,
dated as of June 29, 2006 (as amended by the First Amendment, dated as of July 1, 2006, the Second
Amendment, dated as of May 11, 2007, the Third Amendment, dated as of July 28, 2008, the Fourth
Amendment and Waiver, dated as of October 15, 2008, and the Fifth Amendment and Waiver, dated as of
December 30, 2008, and as further amended, restated, amended and restated, supplemented, modified
and otherwise in effect from time to time, the Loan Agreement);
WHEREAS
, pursuant to the terms and conditions of the Loan Agreement, ULTRA CLEAN HOLDINGS,
INC., a Delaware corporation (Holdings), provided an unconditional guarantee of the Obligations
under and as defined in that certain Unconditional Guaranty (Guaranty), dated as of June 29,
2006, by Holdings, in favor of the Bank;
WHEREAS,
the Borrowers have requested that the Bank amend certain provisions of the Loan
Agreement and the Bank has agreed to amend such provisions subject to the terms of this Amendment;
NOW THEREFORE
, in consideration of the mutual agreements contained in the Loan Agreement and
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
§1.
Defined Terms
.
Terms not otherwise defined herein which are defined in the Loan
Agreement shall have the same respective meanings herein as therein.
§2.
Amendments to the Loan Agreement
. The Loan Agreement is hereby amended as
follows:
2.1
Section 2.1 of the Loan Agreement is amended by deleting Section 2.1.1(b) in its entirety
and substituting the following in lieu thereof:
(b)
Streamline Period
. Borrowers may, at their option, elect not to have any
Advances outstanding during specified periods of time (each, a Streamline Period). At
least 5 days prior to requesting that a Streamline Period be put into effect, Borrowers
shall give Bank written notice thereof, specifying the date the Streamline Period is to
begin. On or prior to the Business Day immediately preceding the commencement of the
Streamline Period, Borrowers will pay to Bank, by wire transfer, an amount sufficient to
repay in full all outstanding Advances, all accrued interest thereon, and all other
outstanding monetary Obligations then due hereunder. A Streamline Period may not be put
into effect if there are outstanding Obligations in connection with Cash Management Services
in excess of $500,000. Notwithstanding the foregoing, a Streamline Period may be permitted
to exist even if Advances are outstanding so long as the Borrowers maintain a Quick Ratio of
at least 1.10:1.00 at all times during such period. During a Streamline Period, Borrowers
will not be permitted to incur Obligations in connection with Cash Management Services in an
amount more than $500,000 and no additional Letters of Credit will
be issued. During a Streamline Period, Borrowers may not request any Advances, and
Bank shall have no obligation to make any Advances. To terminate a Streamline Period,
Borrowers shall provide Bank at least 15 days prior written notice thereof together with
such information relating to the Eligible Accounts, the Cash Management Services Sublimit
and other Collateral as Bank may reasonably request.
2.2
Section 2.1 of the Loan Agreement is amended by adding the following new Section 2.1.6
immediately following Section 2.1.5:
2.1.6. Term Loan B
.
(a)
Availability
. Bank shall make one (1) term loan available to Borrowers in an
amount up to the Term Loan B Amount on or within thirty (30) days from the Sixth Amendment
Effective Date subject to the satisfaction of the terms and conditions of this Agreement.
(b)
Repayment
. Borrowers shall repay the Term Loan B in (i) thirty-six (36) equal
installments of principal, plus (ii) monthly payments of accrued interest (the Term Loan B
Payment). Beginning on the first day of the month following the month in which the Funding Date
occurs, each Term Loan B Payment shall be payable on the last day of each month. Borrowers final
Term Loan B Payment, due on the Term Loan B Maturity Date, shall include all outstanding principal
and accrued and unpaid interest under the Term Loan B. Borrowers shall have the right at any time
to prepay the Term Loan B prior to the Term Loan B Maturity Date, as a whole or in part, without
premium or penalty. Any such prepayment of principal shall include accrued and unpaid interest to
the date of prepayment and shall be applied against the scheduled installments of principal in the
inverse order of maturity. No amount repaid hereunder may be reborrowed.
2.3
Section 2.2 of the Loan Agreement is amended by deleting the reference to Term Loan and
substituting Term Loans in lieu thereof.
2.4
Section 2.3(a) of the Loan Agreement is amended by deleting Section 2.3(a)(i), Section
2.3(a)(ii) and Section 2.3(a)(iii) in their entirety and substituting the following in lieu
thereof:
(i)
Advances
. Subject to Section 2.3(b), Advances shall accrue interest at a
per annum rate equal to 0.25 percentage points above the Prime Rate, which interest shall be
payable monthly.
(ii)
Term Loan
. Subject to Section 2.3(b), the principal amount outstanding
under the Term Loan shall accrue interest at a per annum rate equal to 0.25 percentage
points above the Prime Rate, which interest shall be payable monthly.
(iii)
Term Loan B
. Subject to Section 2.3(b), the principal amount outstanding
under the Term Loan B shall accrue interest at a per annum rate equal to 0.75 percentage
points above the Prime Rate, which interest shall be payable monthly.
2.5
Section 2.4 of the Loan Agreement is amended by deleting Section 2.4(a) in its entirety
and substituting the following in lieu thereof:
(a)
Commitment Fee
. A fully earned, non-refundable commitment fee of $80,000,
on each of the Sixth Amendment Effective Date and the first and second anniversaries of the
Sixth Amendment Effective Date.
- 2 -
2.6
Section 2.4 of the Loan Agreement is further amended by (i) deleting the and at the end
of Section 2.4(d) and (ii) adding the following new clause (f) and new clause (g) immediately
following existing clause (e):
(f)
Unused Line Fee
. An Unused Line Fee equal to 0.40 percentage points per
annum, payable monthly in arrears, times the actual daily amount during such month by which
the total Revolving Line exceeds the aggregate outstanding Advances; and
(g)
Term Loan B Fee
. Subject to the provisions of Section 2.1.6(a), a fully
earned, non-refundable fee of $15,000 with regard to the Term Loan B on the draw down date
of such Term Loan B.
2.7
Section 4.1 of the Loan Agreement is amended by deleting the reference to Term Loan and
substituting Term Loans in lieu thereof.
2.8
Section 4.1 of the Loan Agreement is further amended by deleting the proviso in the third
sentence of the second paragraph in its entirety and substituting the following in lieu thereof:
provided that no termination fee shall be charged if the credit facility hereunder is
replaced with a new facility from another division of Silicon Valley Bank; provided further
that, in addition to the payment of any other expenses and fees then owing under any Loan
Document, Borrowers shall jointly and severally pay to Bank a termination fee in an amount
equal to one-half percent (0.5%) of the Revolving Line plus the outstanding principal amount
of the Term Loans if the credit facility hereunder is replaced with a new facility after the
Bank shall not have agreed to, in connection with the acquisition of certain assets of
Celerity, Inc., (A) the Celerity Acquisition Amendments or (B) the Celerity Acquisition
Financial Covenant Amendments, in the case of Clauses (A) and (B), so long as no Default or
Event of Default shall have occurred and be continuing.
2.9
Section 5.5 of the Loan Agreement is amended by (a) deleting each reference to December
31, 2005 therein and substituting December 31, 2008 in lieu thereof and (b) deleting the text ,
the fiscal quarter ended March 31, 2006
2.10
Section 6.2 of the Loan Agreement is amended by deleting Section 6.2(a)(i) in its
entirety and substituting the following in lieu thereof:
(i) within fifteen (15) days after the end of each month, a Transaction Report so long
as Borrowers maintain a Quick Ratio of at least 1.10:1.00; otherwise, weekly.
Notwithstanding the foregoing, in the event Borrowers are providing a monthly Transaction
Report, but fail to maintain a Quick Ratio of at least 1.10:1.00, Borrowers will be required
to deliver eight (8) consecutive weekly Transaction Reports before the monthly reporting
option shall be available to Borrowers;
2.11
Section 6.6 of the Loan Agreement is amended by deleting Section 6.6 in its entirety and
substituting the following in lieu thereof:
6.6
Access to Collateral; Books and Records
. At reasonable times, on three (3)
Business Days notice not more than twice in any calendar year (provided, if an Event of
Default has occurred and is continuing, (a) no notice shall be required and (b) the Bank may
exercise its inspection rights herein as frequently as the Bank deems necessary or prudent),
Bank, or its agents, shall have the right to inspect the Collateral (including conducting
Inventory appraisals in
- 3 -
respect of Eligible Finished Goods Inventory and Eligible Raw Materials) and the right
to audit and copy each Borrowers Books. The foregoing inspections and audits shall be at
Borrowers expense, and the charge therefor shall be $750 per person per day (or such higher
amount as shall represent either (x) Banks then-current standard charge for the same or (y)
the standard charges for such inspections or audits charged by an independent appraiser
selected by the Bank, as applicable), plus reasonable out-of-pocket expenses incurred by
Bank, or any independent appraiser selected by Bank, as applicable. In the event Borrowers
and Bank schedule an audit more than ten (10) days in advance, and Borrowers cancel or seek
to reschedule the audit with less than ten (10) days written notice to Bank, then (without
limiting any of Banks rights or remedies), Borrowers shall pay Bank a fee of $1,000 (or
such higher amount as shall be necessary with regard to any independent appraiser selected
by the Bank) plus any out-of-pocket expenses incurred by Bank, or any independent appraiser
selected by Bank, to compensate Bank or such independent appraiser for the anticipated costs
and expenses of the cancellation or rescheduling.
2.12
Section 6.8 of the Loan Agreement is amended by deleting Section 6.8(b) in its entirety
and substituting the following in lieu thereof:
(b) (i) Maintain its and its Subsidiaries depository and operating accounts and lock
boxes with Bank, (ii) establish with Bank on or before May 31, 2009 and, thereafter,
maintain any new domestic depository and operating accounts and lockboxes of the Borrowers
or their Subsidiaries with Bank or (iii) so long as no Default or Event of Default shall
have occurred and be continuing and, until such time as all such primary deposit accounts
and lock boxes are established and maintained with Bank, jointly and severally pay to Bank
on the last day of each month a fee of $1,500.
2.13
Section 6.9 of the Loan Agreement is amended by deleting Section 6.9(a) and Section
6.9(d) in their entirety and substituting the following in lieu thereof:
(a)
Tangible Net Worth
. A minimum Tangible Net Worth, calculated on a monthly
basis, equal to or greater than the sum of, on a cumulative basis, (i) $60,000,000
plus
(ii) an amount equal to 50% of the net cash proceeds of equity issuances
received by Holdings in each fiscal quarter plus an amount equal to 50% of the net cash
proceeds of Subordinated Debt issued by Holdings or any of its Subsidiaries in each fiscal
quarter
plus
(iii) commencing with fiscal year 2010, an amount equal to 50% of the
Net Income earned in each fiscal quarter (with no deduction for a net loss in any such
fiscal quarter).
(b)
Liquidity Coverage
. The ratio, calculated on a monthly basis, of (A) (i)
unrestricted cash and Cash Equivalents
plus
(ii) the Committed Availability
plus
(iii) Investments in third-party Securities (as such term is defined in Article
8 of the Code) that are otherwise Permitted Investments
to
(B) the aggregate
outstanding principal amount of Advances
plus
the aggregate outstanding principal
amount of the Term Loan B of not less than 1.30 : 1.00.
2.14
Section 7.1 is amended by deleting clause (f) in its entirety and substituting the
following in lieu thereof:
(f) Transfers to another Borrower or their respective Subsidiaries, or to wholly-owned
Foreign Subsidiaries of Holdings or to Foreign Subsidiaries all of the shares of capital
stock of which are held directly or indirectly by Holdings except for a nominal number of
shares of capital stock required to be held by a director of such Foreign Subsidiary or by a
national or citizen of the jurisdiction in which such Foreign Subsidiary is organized
provided
that any such Transfers to such Foreign Subsidiaries shall be upon fair and
reasonable terms that are no less favorable to
- 4 -
Borrowers than would be obtained in an arms length transaction with a non-affiliated
Person and shall not exceed, in the aggregate, $5,000,000 (in cash
plus
Equipment)
inclusive of the amount permitted under clause (f) of the definition of Permitted
Investments during the period beginning on the Sixth Amendment Effective Date and ending on
the Revolving Line Maturity Date;
2.15
Section 7.7 of the Loan Agreement is amended by deleting Section 7.7 in its entirety and
substituting the following in lieu thereof:
7.7
Investments; Distributions
. (a) Directly or indirectly make any Investment
other than Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any
dividends or make any distribution or payment or redeem, retire or purchase any capital
stock (Restricted Payments), provided that (i) each Borrower or any Subsidiary may pay
dividends solely in common stock; (ii) any Subsidiary of Borrowers may pay dividends to its
direct parent, (iii) Sieger may make advances to each of its members (collectively, the
Member Advances) in an amount sufficient to cover that members actual tax liability due
and payable as a result of income of Sieger attributed to the member during any period that
Sieger is eligible for taxation as a limited liability company under the Internal Revenue
Code; provided, however, that no Member Advances may be made if, at the time thereof, an
Event of Default has occurred and is continuing or would result therefrom; (iv) so long as
no Default or Event of Default shall have occurred and be continuing or would result
therefrom, each Borrower or any of its Subsidiaries may make Restricted Payments to Holdings
to permit Holdings to (A) purchase or redeem its stock in connection with and pursuant to
the terms of employee benefit and stock option plans, in an amount not exceed, in the
aggregate, $500,000 during the period beginning on the Sixth Amendment Effective Date and
ending on the Revolving Line Maturity Date, or (B) pay income taxes, franchise fees and
other fees required to maintain its existence and provide for other operating costs
;
(vi) so
long as no Default or Event of Default shall have occurred and be continuing or would result
therefrom, any Loan Party may make Restricted Payments that constitute fees permitted by
Section 7.8 (or permit Holdings or any of its Subsidiaries to pay fees permitted by Section
7.8(ii)) ; and (vii) so long as no Default or Event of Default shall have occurred and be
continuing or would result therefrom, each Borrower or any Subsidiary may make Restricted
Payments to Holdings solely for the purpose of making Investments by Holdings in Foreign
Subsidiaries as set forth in clause (f) of the definition of Permitted Investments.
2.16
Section 13.1 of the Loan Agreement is amended by deleting the definition of Borrowing
Base set forth in Section 13.1 in its entirety and substituting the following in lieu thereof:
Borrowing Base is the sum of (a) 80% of Eligible Accounts
plus
(b) Deposit Backed
Accounts
plus
(c) 30% of Eligible Finished Goods Inventory (valued at the lower of
cost or wholesale fair market value)
plus
(d) 15% of Eligible Raw Materials (valued
at the lower of cost or wholesale fair market value)
less
(e) Reserves as determined
by Bank from Borrowers most recent Transaction Report; provided, however, that Bank may
decrease the foregoing percentage in its good faith business judgment based on events,
conditions, contingencies, or risks which, as determined by Bank, may adversely affect
Collateral;
provided
,
further
, that in no event shall the Total Inventory
exceed (i) $2,500,000 or (ii) 30% of Eligible Accounts, in each case, for any calculation of
the Borrowing Base under this Agreement. Prior to any Advances with regard to Eligible
Finished Goods Inventory and Eligible Raw Materials on or after the Sixth Amendment
Effective Date, the Bank shall have received an Inventory appraisal in form and substance
satisfactory to the Bank.
2.17
Section 13.1 of the Loan Agreement is amended by adding the clause Term Loan B,
immediately after the clause Term Loan, in the definition of Credit Extension.
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2.18
Section 13.1 of the Loan Agreement is amended by deleting clause (i) of the definition
of Material Adverse Change in its entirety and substituting the following in lieu thereof:
(i) the business, operations or condition of Holdings and its Subsidiaries, taken as a
whole, and, specifically with respect to the financial condition and operations of Holdings
and its Subsidiaries, taken as a whole, other than any change reflected in the financial
information, including projections, provided to Bank on or prior to the Sixth Amendment
Effective Date, or
2.19
Section 13.1 of the Loan Agreement is amended by deleting clause (e) of the definition
of Permitted Indebtedness in its entirety and substituting the following in lieu thereof:
(e) Indebtedness in respect of the Equipment Financing, or, on or after the date the
Equipment Financing is replaced in its entirety, equipment financing to be provided by Tetra
Financial Group or its Affiliates not to exceed $7,500,000 in the aggregate;
2.20
Section 13.1 of the Loan Agreement is amended by deleting clause (f) of the definition
of Permitted Investment in its entirety and substituting the following in lieu thereof:
(f) Investments of Subsidiaries in or to other Domestic Subsidiaries or Borrowers and
Investments by Borrowers in or to Domestic Subsidiaries and Investments in or to
wholly-owned Foreign Subsidiaries or in or to Foreign Subsidiaries all of the shares of
capital stock of which are held directly or indirectly by Holdings except for a nominal
number of shares of capital stock required to be held by a director of such Foreign
Subsidiary or by a national or citizen of the jurisdiction in which such Foreign Subsidiary
is organized,
provided
that any such Investments in such Foreign Subsidiaries shall be upon
fair and reasonable terms that are no less favorable to Borrowers than would be obtained in
an arms length transaction with a non-affiliated Person and shall not exceed, in the
aggregate, $5,000,000 in cash and Equipment during the period beginning on the Sixth
Amendment Effective Date and ending on the Revolving Line Maturity Date.
2.21
Section 13.1 of the Loan Agreement is amended by deleting clause (c) of the definition
of Permitted Liens in its entirety and substituting the following in lieu thereof:
(c) the Liens solely on the Equipment financed by the Equipment Financing, or, on or
after the date the Equipment Financing is replaced in its entirety and such Liens in respect
of the Equipment Financing are released, Liens in favor of Tetra Financial Group or its
Affiliates for equipment financing not to exceed $7,500,000 in the aggregate;
2.22
Section 13.1 of the Loan Agreement is amended by deleting the definition of Prime Rate
in its entirety and substituting the following in lieu thereof:
Prime Rate is the greater of (i) the Banks most recently announced prime rate,
even if it is not Banks lowest rate and (ii) four percent (4.00 %).
2.23
Section 13.1 of the Loan Agreement is amended by deleting the reference to June 29,
2009 in the definition of Revolving Line Maturity Date and substituting January 29, 2012 in
lieu thereof.
2.24
Section 13.1 of the Loan Agreement is amended by deleting the reference to $25,000,000
in the definition of Revolving Line and substituting $20,000,000 in lieu thereof.
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2.25
Section 13.1 of the Loan Agreement is amended by adding the clause , the Term Loan B
immediately following the clause Term Loan in the definition of Trigger Availability.
2.26
Section 13.1 of the Loan Agreement is further amended by adding the following new
definitions to such Section 13.1 in the appropriate alphabetical order:
Celerity Acquisition Amendments means (a) an amendment to the Loan Agreement
permitting a Streamline Period so long as the Borrowers maintain a minimum Quick Ratio of
0.85:1.00 and (b) the receipt by Holdings and the simultaneous contribution to Ultra Clean
of not less than $40,000,000 in cash upon the issuance of Series A preferred stock of
Holdings to Francisco Partners II, L.P. and its Affiliates.
Celerity Acquisition Financial Covenant Amendments means (a) amendments to the
minimum Tangible Net Worth covenant to (i) increase the starting level to $65,000,000 and
(ii) exclude the equity or subordinated debt issued to or contributed by Francisco Partners
II, L.P. and its Affiliates from the calculation of net cash proceeds of equity issuances
received by Holdings in each fiscal quarter and the calculation of net cash proceeds of
Subordinated Debt issued by Holdings or any of its Subsidiaries in each fiscal quarter and
(b) an amendment to reduce the minimum Liquidity Coverage ratio to 1.20:1.00.
Current Liabilities means, as of any date and in accordance with GAAP, amounts that
should be included on that date as current liabilities on Borrowers consolidated balance
sheet.
Eligible Finished Goods Inventory means, for any item of Inventory consisting of
Eligible Finished Goods Inventory in any Transaction Report, such Inventory (i) consists of
finished goods, in good, new, and salable condition, which is not perishable, returned,
consigned, obsolete, not sellable, damaged, or defective, and is not comprised of
demonstrative or custom inventory, works in progress, packaging or shipping materials, or
supplies; (ii) meets all applicable governmental standards; (iii) has been manufactured in
compliance with the Fair Labor Standards Act; (iv) is not subject to any Liens, except the
first priority Liens granted or in favor of Bank under this Agreement or any of the other
Loan Documents and Permitted Liens under clauses (b), (e), (f) and (h) of the definition of
Permitted Liens; (v) is located at the locations within the United States identified by the
applicable Borrower in the Perfection Certificate where it maintains such Inventory (or any
location permitted under Section 7.2) and (vi) is otherwise acceptable to Bank in all
respects.
Eligible Raw Materials means for any item of Inventory consisting of Eligible Raw
Materials in any Transaction Report, such Inventory (i) consists of raw materials to be
incorporated into or used in the manufacture of Eligible Finished Goods Inventory which is
not perishable, consigned, obsolete, not sellable, damaged, or defective, and is not
comprised of works in progress, packaging or shipping materials, or supplies; (ii) meets all
applicable governmental standards; (iii) is not subject to any Liens, except the first
priority Liens granted or in favor of Bank under this Agreement or any of the other Loan
Documents; (iv) is located at the locations within the United States identified by
applicable Borrower in the Perfection Certificate where it maintains such Inventory (or any
location permitted under Section 7.2) and (v) is otherwise acceptable to Bank in all
respects. Raw materials immediately loses the status of Eligible Raw Materials if and when
converted into Eligible Finished Goods Inventory, the applicable Borrower sells it,
otherwise passes title thereto, consumes it, or materially changes it in the course of
processing the same.
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Inventory is all inventory as defined in the Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without limitation all
merchandise, raw materials, parts, supplies, packing and shipping materials, work in process
and finished products, including without limitation such inventory as is temporarily out of
Borrowers custody or possession or in transit and including any returned goods and any
documents of title representing any of the above.
Sixth Amendment Effective Date is February 4, 2009.
Quick Assets is, on any date, Borrowers consolidated, unrestricted cash and Cash
Equivalents plus net billed accounts receivable
.
Quick Ratio is a ratio of Quick Assets to Current Liabilities.
Tangible Net Worth is, on any date, the consolidated total assets of the Borrowers
and its Subsidiaries
minus
(a) any amounts attributable to (i) goodwill, (ii)
intangible items including unamortized debt discount and expense, patents, trade and service
marks and names, copyrights and research and development expenses except prepaid expenses,
(iii) notes, accounts receivable and other obligations owing to the Borrowers from its
officers or other Affiliates, and (iv) reserves not already deducted from assets,
minus
(b) Total Liabilities,
plus
(c) Subordinated Debt
.
Term Loan B is a loan made by Bank pursuant to the terms of Section 2.1.6 hereof.
Term Loan B Amount is an aggregate amount equal to $3,000,000 outstanding at any
time.
Term Loan B Maturity Date is February 4, 2012.
Term Loan B Payment is defined in Section 2.1.6(b).
Term Loans means the Term Loan and the Term Loan B.
Total Inventory is the aggregate of 30% of Eligible Finished Goods Inventory (valued
at the lower of cost or wholesale fair market value)
plus
15% of Eligible Raw
Materials (valued at the lower of cost or wholesale fair market value).
Total Liabilities is on any day, obligations that should, under GAAP, be classified
as liabilities on the Borrowers consolidated balance sheet, including all Indebtedness, and
current portions of Subordinated Debt (other than interest) permitted by Bank to be paid by
the Borrowers on or prior to the Revolving Line Maturity Date, but excluding all other
Subordinated Debt.
§3.
Amendment to Guaranty
. The Guaranty is hereby amended as follows:
3.1
Section 3 of the Guaranty is amended by deleting clause (a) in its entirety and
substituting the following in lieu thereof:
(a) Create, incur, assume, or be liable for any Indebtedness, other than Indebtedness
consisting of (i) its Guaranty of the Equipment Financing, or a Guaranty in connection with
any replacement of the Equipment Financing and (ii) its Guaranty of Internationals
obligations under the line of credit provided by Bank of China.
- 8 -
3.2
Section 3 of the Guaranty is further amended by adding the following new clause (e)
immediately following existing clause (d):
(e) Make any Restricted Payments other than Restricted Payments contemplated by Section
7.7(b)(iv) of the Loan Agreement.
§4.
Conditions to Effectiveness
. This Amendment shall be deemed to be effective as of
February 4, 2009
(except with respect to Section 6.9 of the Loan Agreement (as amended
by §2.13 of this Amendment), which shall be effective as the
monthly reporting period ended December 31, 2008), upon receipt of the following, in form and substance satisfactory to Bank, and
completion of such other matters, as Bank may reasonably deem necessary or appropriate, including
without limitation:
(a) receipt by the Bank of a counterpart signature page to this Amendment duly executed
and delivered by the Borrowers and the Bank;
(b) receipt by the Bank of a signature page to this Amendment duly executed and
delivered by Holdings with regard to its ratification of its Guaranty under the Loan
Agreement;
(c) Each Loan Party shall have delivered (x) its Operating Documents and a good
standing certificate of such Loan Party certified (in original form) by the Secretary of
State of its jurisdiction of incorporation or formation as of a date no earlier than fifteen
(15) days prior to the Sixth Amendment Effective Date (or certification by an officer that
there has been no change to the Operating Documents of such Loan Party since the Effective
Date to the extent such Operating Documents were delivered to the Bank on the Effective
Date); (y) copies of the Borrowing Resolutions for such Loan Party and (z) an original
incumbency certificate giving the name and bearing a specimen signature of each individual
who shall be authorized: (1) to sign, in the name and on behalf of such Person, this
Amendment and (2) to give notices and to take other action on its behalf under this
Amendment the Loan Documents, in each case, accompanied by duly executed original officers
certificates certifying thereto;
(d) Each Loan Party shall have delivered originals of the updated Perfection
Certificate(s) executed by each Borrower and Guarantor;
(e) Borrowers shall have paid the fees and Bank Expenses then due as specified in
Section 2.4 of the Loan Agreement and hereunder; and
(f) Borrowers shall have delivered evidence of any necessary credit, government or
regulatory approvals from any applicable Governmental Authority;
§5.
Representations and Warranties
. Each of the Borrowers hereby represents and
warrants to the Bank as follows:
(a)
Representation and Warranties in the Loan Agreement
. The representations
and warranties of each of the Borrowers contained in the Loan Agreement were true and
correct in all material respects as of the date when made and continue to be true and
correct in all material respects on the date hereof, except to the extent of changes
resulting from transactions or events contemplated or permitted by the Loan Agreement and
the other Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse to the Borrowers, or to the extent
that such representations and warranties relate expressly to an earlier date.
- 9 -
(b)
Ratification, Etc.
Except as expressly amended or waived hereby, the Loan
Agreement, the other Loan Documents and all documents, instruments and agreements related
thereto, are hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Loan Agreement, together with this Amendment, shall be read and construed
as a single agreement. All references in the Loan Documents to the Loan Agreement shall
hereafter refer to the Loan Agreement or any other Loan Document as amended hereby.
(c)
Authority, Etc.
The execution and delivery by the Borrowers of this
Amendment and the performance by the Borrowers of all of their respective agreements and
obligations under the Loan Agreement and the other Loan Documents as amended hereby are
within the corporate authority of each such Borrower and have been duly authorized by all
necessary corporate action on the part of such Borrower.
(d)
Enforceability of Obligations
. This Amendment and the Loan Agreement and
the other Loan Documents as amended hereby constitute the legal, valid and binding
obligations of the Borrowers enforceable against each of the Borrowers in accordance with
their terms, except as enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of, creditors
rights and except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
(e)
No Default
. No Default or Event of Default has occurred and is continuing.
§6.
No Other Amendments
. Except as expressly provided in this Amendment, all of the
terms and conditions of the Loan Agreement and the other Loan Documents remain in full force and
effect. Nothing contained in this Amendment shall in any way prejudice, impair or effect any
rights or remedies of the Bank or the Borrowers under the Loan Agreement or the other Loan
Documents.
§7.
Execution in Counterparts
. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but which together shall constitute one
instrument.
§8.
Bank Expenses
. Borrowers shall jointly and severally pay to Bank all Bank
Expenses (including reasonable attorneys fees and expenses), plus expenses, for documentation and
negotiation of this Amendment.
§9.
Miscellaneous
. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
The captions in this Amendment are for convenience of reference only and shall not define or limit
the provisions hereof.
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Remainder of page intentionally left blank.
]
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IN WITNESS WHEREOF
, the parties hereto have executed this Amendment as a document under seal
as of the date first above written.
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ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
UCT SIEGER ENGINEERING LLC
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
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Chief Financial Officer
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SILICON VALLEY BANK
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By:
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/s/ Jean Lee
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Name:
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Jean Lee
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Title:
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Relationship Manager
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RATIFICATION OF GUARANTY
The undersigned Guarantor hereby acknowledges and consents to the foregoing Amendment as of
February 4, 2009, and agrees that the Guaranty, as hereby amended, of such Guarantor in favor of
the Bank and all other Loan Documents to which the Guarantor is a party remains in full force and
effect, and the Guarantor confirms and ratifies all of its obligations thereunder.
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ULTRA CLEAN HOLDINGS, INC.
,
a Delaware corporation
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By:
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/s/ Jack Sexton
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Name:
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Jack Sexton
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Title:
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Chief Financial Officer
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