As filed with the Securities and Exchange Commission on November 29, 2016
Registration No. 333-214588
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ICHOR HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Cayman Islands | 3674 | Not Applicable | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
3185 Laurelview Ct.
Fremont, California 94538
(510) 897-5200
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Thomas M. Rohrs
Chairman and Chief Executive Officer
Ichor Systems, Inc.
3185 Laurelview Ct.
Fremont, California 94538
(510) 897-5200
(Name, address, including zip code and telephone number, including area code, of agent for service)
Copies of all communications, including communications sent to agent for service, should be sent to:
Robert M. Hayward, P.C. Kirkland & Ellis LLP 300 North LaSalle Chicago, Illinois 60654 (312) 862-2000 |
Tad J. Freese Latham & Watkins LLP 140 Scott Drive Menlo Park, California 94025 (650) 328-4600 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ☐
If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated file and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☐ | |||
(Do not check if a smaller reporting company) |
CALCULATION OF REGISTRATION FEE
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||||||||
Title of Each Class of Securities Offered |
Amount
to be
|
Estimated
maximum offering price per share(2) |
Estimated
maximum aggregate offering price(2) |
Amount of
registration fees(3) |
||||
Ordinary shares, par value $0.0001 per share |
6,612,500 | $14.00 | $92,575,000 | $10,730 | ||||
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(1) | Includes 862,500 ordinary shares that may be issuable upon exercise of an option to purchase additional shares granted to the underwriters. |
(2) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) promulgated under the Securities Act of 1933, as amended. |
(3) | $9,997 of this amount was previously paid in connection with the filing of this Registration Statement. |
The registrant hereby amends this Registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. Neither we nor the selling shareholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated November 29, 2016
PROSPECTUS
5,750,000 Shares
ICHOR HOLDINGS, LTD.
Ordinary Shares
This is the initial public offering of ordinary shares of Ichor Holdings, Ltd. We are selling 5,750,000 ordinary shares.
Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price of our ordinary shares is expected to be between $12.00 and $14.00 per share. We have applied to list our ordinary shares on the NASDAQ Global Select Market under the symbol ICHR.
Investing in our ordinary shares involves risks that are described in the Risk Factors section beginning on page 13 of this prospectus.
We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act, and, as such, are allowed to provide in this prospectus more limited disclosures than an issuer that would not so qualify. In addition, for so long as we remain an emerging growth company, we will qualify for certain limited exceptions from investor protection laws such as the Sarbanes-Oxley Act of 2002. Please read Risk FactorsRisks Related to this Offering and Ownership of Our Ordinary SharesWe are an emerging growth company and may elect to comply with reduced public company reporting requirements, which could make our ordinary shares less attractive to investors.
Per Share | Total | |||||||
Public offering price |
$ | $ | ||||||
Underwriting discounts(1) |
$ | $ | ||||||
Proceeds, before expenses, to us |
$ | $ | ||||||
Proceeds to selling shareholders(2) |
$ | $ |
(1) | We refer you to Underwriting beginning on page 137 of this prospectus for additional information regarding underwriting compensation. |
(2) | Assumes full exercise of the underwriters option to purchase additional shares. |
The underwriters may also exercise their option to purchase up to 862,500 additional ordinary shares from the selling shareholders named in this prospectus at the initial public offering price, less the underwriting discount, for a period of 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission, or SEC, nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The ordinary shares will be ready for delivery on or about , 2016.
Deutsche Bank Securities | Stifel |
RBC Capital Markets | Cowen and Company | Needham & Company |
The date of the prospectus is , 2016.
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ENFORCEMENT OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS |
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38 | ||||
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44 | ||||
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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71 | ||||
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91 | ||||
103 | ||||
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108 | ||||
110 | ||||
128 | ||||
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137 | ||||
144 | ||||
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144 |
Neither we, the selling shareholders nor the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the selling shareholders are offering to sell, and seeking offers to buy, our ordinary shares only in jurisdictions where such offers and sales are permitted. The information in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or the time of any sale of our ordinary shares. Our business, financial condition, results of operations and prospects may have changed since that date.
INDUSTRY AND MARKET DATA
We obtained the market and industry data and other statistical information used throughout this prospectus from our own research, surveys or studies conducted by third parties, independent industry or general publications and other published independent sources. In particular, we have based much of our discussion concerning the industry and market in which we operate on independent data, research opinions and viewpoints published by Gartner, Inc., or Gartner. While we believe that each of these sources is reliable, neither we nor the underwriters have independently verified the accuracy or completeness of such data. Similarly, we believe our internal research is reliable, but it has not been verified by any independent sources.
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The reports by Gartner, or Gartner Reports, described herein represent research opinion or viewpoints published as part of a syndicated subscription service by Gartner, and are not representations of fact. Each of the following Gartner Reports speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice:
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Gartner, Forecast: Semiconductor Wafer-Level Manufacturing Equipment, Worldwide, 3Q16 Update, Authors: Bob Johnson, Klaus Rinnen, David Christensen, Takashi Ogawa, Jim Walker and Barbara Van, October 6, 2016. |
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Gartner, Forecast: Semiconductor Wafer-Level Manufacturing Equipment, Worldwide, 4Q14 Update, Authors: Dean Freeman, Bob Johnson, Klaus Rinnen, Mark Stromberg, David Christensen, Takashi Ogawa and Barbara Van, December 18, 2014. |
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Gartner, Market Share Analysis: Semiconductor Wafer-Level Manufacturing Equipment, Worldwide, 2015, Authors: Bob Johnson, Takashi Ogawa, Barbara Van, David Christensen, April 19, 2016. |
TRADEMARKS AND TRADE NAMES
This prospectus includes our trademarks and service marks which are protected under applicable intellectual property laws and are the property of Ichor Holdings, Ltd. or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights, of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other parties trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
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The following is a summary of material information discussed in this prospectus. This summary may not contain all the details concerning our business, our ordinary shares or other information that may be important to you. You should carefully review this entire prospectus, including the Risk Factors section and our financial statements and the notes thereto included elsewhere in this prospectus, before making an investment decision. As used in this prospectus, unless the context otherwise indicates, the references to Ichor, our business, we, our, or us or similar terms refer to Ichor Holdings, Ltd. and its consolidated subsidiaries. Unless otherwise indicated or the context otherwise requires, financial and operating data in this prospectus reflects the consolidated business and operations of Ichor Holdings, Ltd. and its wholly-owned subsidiaries and excludes discontinued operations, as described in Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Factors Affecting Our Business.
Company Overview
We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems for semiconductor capital equipment. Our primary offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as electroplating and cleaning. We also manufacture certain components for internal use in fluid delivery systems and for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.
Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing process. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Historically, semiconductor original equipment manufacturers, or OEMs, internally designed and manufactured the fluid delivery subsystems used in their process tools. Currently, most OEMs outsource the design, engineering and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are also increasingly outsourcing the design, engineering and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers highly specialized engineering, design and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their fixed costs and development time, as well as provided significant growth opportunities for specialized subsystems suppliers like us.
Our goal is to be the premier supplier of outsourced fluid delivery subsystems to OEMs engaged in manufacturing capital equipment to produce semiconductors and to leverage our technology into new markets. To achieve this goal, we engage with our customers early in their design and development processes and utilize our deep engineering resources and operating expertise to jointly create innovative and advanced solutions that meet the current and future
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needs of our customers. These collaborations frequently involve our engineers working at our customers sites and serving as an extension of our customers product design teams. We employ this approach with two of the largest manufacturers of semiconductor capital equipment in the world. We believe this approach enables us to design subsystems that meet the precise specifications our customers demand, allows us to often be the sole supplier of these subsystems during the initial production ramp and positions us to be the preferred supplier for the full five to ten-year lifespan of the process tool.
The broad technical expertise of our engineering team, coupled with our early customer engagement approach, enables us to offer innovative and reliable solutions to complex fluid delivery challenges. With two decades of experience developing complex fluid delivery subsystems and meeting the constantly-changing production requirements of leading semiconductor OEMs, we have developed expertise in fluid delivery that we offer to our OEM customers. In addition, our capital efficient model and the integration of our business systems with those of our customers provides us the flexibility to fulfill increased demand and meet changing customer requirements with minimum additional capital outlay. With an aim to superior customer service, we have a global footprint with many facilities strategically located in close proximity to our customers. We have established long standing relationships with top tier OEM customers, including Lam Research Corporation and Applied Materials, Inc., which were our two largest customers by sales in fiscal 2015.
We grew our sales by 16.7% from $249.1 million in fiscal 2014 to $290.6 million in fiscal 2015, and by 21.2% from $226.3 million in the nine months ended September 25, 2015 to $274.3 million in the nine months ended September 23, 2016. We generated net income from continuing operations of $5.8 million in fiscal 2014, $12.8 million in fiscal 2015, $12.8 million in the nine months ended September 25, 2015 and $12.8 million in the nine months ended September 23, 2016. We generated adjusted net income from continuing operations of $11.7 million in fiscal 2014, $20.2 million in fiscal 2015, $17.9 million in the nine months ended September 25, 2015 and $19.8 million in the nine months ended September 23, 2016. Adjusted net income is a financial measure that is not calculated in accordance with generally accepted accounting principles in the United States, or GAAP. See note 3 to Prospectus SummarySummary Consolidated Financial Data for a discussion of adjusted net income, an accompanying presentation of the most directly comparable GAAP financial measure, net income, and a reconciliation of the differences between adjusted net income and net income.
Our Industry
We design, engineer and manufacture critical fluid delivery subsystems for semiconductor capital equipment.
The Semiconductor Device Industry is Large and Growing
Semiconductors are essential building blocks in all electronic systems. In recent years, semiconductor growth has been driven largely by increasing global demand for mobile devices and computer network systems. As consumers increasingly become accustomed to end products with higher functionality, better power management and smaller form factors, the demand for advanced semiconductor devices is expected to grow. Gartner estimates the semiconductor device market is expected to grow to $350.1 billion in 2017 from $315.0 billion in 2013.
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Semiconductor Manufacturing Process is Complex and Constantly Evolving
Semiconductor manufacturing is complex and capital-intensive, requiring hundreds of process steps utilizing specialized manufacturing equipment. Technological advancements in semiconductor manufacturing have traditionally led to a continual increase in the number of transistors in a given area of silicon, enabling smaller and more feature-rich devices. As a result, semiconductor device manufacturers must continuously refine their manufacturing processes and invest in next-generation manufacturing equipment that can produce semiconductors with a smaller chip size or an increasing number of features. Gartner estimates that the global spend on wafer fabrication equipment will grow to $35.7 billion in 2017 from $27.3 billion in 2013.
Changing Semiconductor Manufacturing Processes are Increasing the Need for Fluid Delivery Systems
A number of innovations in the design and manufacturing of semiconductors are being adopted in order to meet the continuing miniaturization and functionality demands, including multiple patterning, tri-gate, or FinFET, transistors and three-dimensional, or 3D, semiconductors, as well as advanced packaging. Each of these innovations increases the number of process steps that a wafer must pass through during the manufacturing process, in particular, the number of etch, deposition and CMP steps. For example, according to Gartner, changes in the market for process requirements will drive an average annual growth in etch spending of 15% and chemical vapor deposition, or CVD, spending of 15% from 2013 to 2017. This growth benefits us directly as the majority of our gas delivery subsystems are used in etch and CVD processes. Also according to Gartner, spending on chemical-mechanical planarization, or CMP, will grow at an average annual rate of 13% over the same period. This is the primary step where chemical delivery systems are used.
Semiconductor Capital Equipment Industry is Concentrated
The semiconductor capital equipment industry is dominated by a few large OEMs which focus on developing specialized process tools for the many complex manufacturing process steps. As semiconductor manufacturing has become more technically advanced and capital intensive in recent years, the semiconductor equipment industry has experienced significant consolidation in order for the remaining OEMs to leverage economies of scale for delivering larger and more complex tools. As a result, most major semiconductor equipment markets are now typically supplied by a limited number of major global suppliers. According to Gartner, the top five semiconductor equipment OEMs by sales in 2015 represented 67% of the total market for wafer fabrication equipment.
Semiconductor Capital Equipment OEMs Outsource Critical Subsystems including Fluid Delivery Subsystems
OEMs are increasingly outsourcing the development, design, prototyping, engineering, manufacturing, assembly and testing of various critical subsystems to specialized independent suppliers. We believe that subsystem outsourcing has allowed OEMs to benefit from the highly specialized engineering, design and manufacturing skills of the subsystem suppliers while focusing internal resources on their own most critical value-added subsystems and processes. This outsourcing trend has been particularly applicable to the fluid delivery subsystem market. Over the past decade, as gas delivery subsystems have become more complex, most OEMs have increasingly outsourced the design, engineering and manufacturing of these subsystems to third party suppliers. OEMs are now also beginning to outsource chemical delivery subsystems, creating an additional opportunity for suppliers with fluid delivery capabilities.
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Our Competitive Strengths
As a leader in the fluid delivery industry, we believe that our key competitive strengths include the following:
Deep Fluids Engineering Expertise
We believe that our engineering team, comprised of chemical engineers, mechanical engineers and software and systems engineers, has positioned us to expand the scope of our solutions, provide innovative subsystems and strengthen our incumbent position at our OEM customers. Our engineering team acts as an extension of our customers product development teams, providing our customers with technical expertise that is outside of their core competencies.
Early Engagement with Customers on Product Development
We seek to engage with our customers and potential customers very early in their process for new product development. We believe this approach enables us to collaborate on product design, qualification, manufacturing and testing in order to provide a comprehensive, customized solution. Through early engagement during the complex design stages, our engineering team gains early insight into our customers technology roadmaps which enables us to pioneer innovative and advanced solutions.
Long History and Strong Relationships with Top Tier Customers
We have established deep relationships with top tier OEMs such as Lam Research and Applied Materials, which were our largest customers by sales in fiscal 2015. Our customers are global leaders by sales and are considered consolidators in the increasingly concentrated semiconductor capital equipment industry. Our existing relationships with our customers have enabled us to effectively compete for new fluid delivery subsystems for our customers next generation products in development.
Operational Excellence with Scale to Support the Largest Customers
Over our 17 year history of designing and building gas delivery systems, we have developed deep capabilities in operations. We have strategically located our Austin, Texas and Tualatin, Oregon manufacturing facilities near our customers locations in order to provide fast and efficient responses to new product introductions, and accommodate configuration or design changes late in the manufacturing process. We have also built significant capacity in Singapore to support high volume products. In addition to providing high quality and reliable fluid delivery subsystems, one of our principal focuses is delivering short lead times to allow our customers the maximum flexibility in their production processes.
Capital Efficient and Scalable Business Model
In general, our business is not capital intensive and we are able to grow sales with a low investment in property, plant and equipment and low levels of working capital. In 2014 and 2015, our total capital expenditures were $3.5 million and $1.4 million, respectively. In particular, our close supplier relationships also enable us to scale production quickly without maintaining significant inventory on hand. The semiconductor capital equipment market has
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historically been cyclical. We have structured our business to minimize fixed manufacturing overhead and operating expenses to enable us to grow net income at a higher rate than sales during periods of growth. Conversely, our low fixed cost approach allows us to minimize the impact of cyclical downturns on our net income, but results in a smaller increase in gross margin as a percentage of sales in times of increased demand.
The semiconductor capital equipment market has historically been cyclical. We have structured our business to minimize fixed manufacturing overhead and operating expenses to enable us to grow net income at a higher rate than sales during periods of growth. For example, from 2013 to 2015, sales grew at a compound annual growth rate, or CAGR, of 15.2% while adjusted net income grew at a CAGR of 57.9%. Conversely, our low fixed cost approach allows us to minimize the impact of cyclical downturns on our net income, but results in a smaller increase in gross margin as a percentage of sales in times of increased demand.
Our Growth Strategy
Our objective is to enhance our position as a leader in providing fluid delivery solutions, including subsystem and tool refurbishment, to our customers by leveraging our core strengths. The key elements of our growth strategy are:
Grow Our Market Share within Existing Customer Base
We intend to grow our position with existing customers by continuing to leverage our specialized engineering talent and early collaboration approach with OEMs to foster long-term relationships. Each of our customers produces many different process tools for various process steps. At each customer, we are the outsourced supplier of fluid delivery subsystems for a subset of their entire process tool offerings. We are constantly looking to expand our relationships and to capture additional share at our existing customers. We believe that our early collaborative approach with customers positions us to deliver innovative and dynamic solutions, offer timely deployment and meet competitive cost targets, further enhancing our brand reputation.
Grow Our Total Available Market at Existing Customers with Expanded Product Offerings
We continue to work with our existing core customers on additional opportunities, including chemical delivery, one of our important potential growth areas. We believe that wet processes, such as CMP and clean and electro chemical deposition, or ECD, that require precise chemical delivery are currently an underpenetrated market opportunity for us. By leveraging our existing customer relationships and strong reputation in fluid mechanics, we intend to increase our chemical delivery module market share as well as to introduce additional related products. In April, 2016, we acquired Ajax-United Patterns & Molds, Inc., or Ajax, and its subsidiaries, or the Ajax Acquisition, to add chemical delivery subsystem capabilities with our existing customers. The Ajax Acquisition allows us to manufacture and assemble the complex plastic and metal products required by the medical, biomedical, semiconductor and data communication equipment industries.
Expand Our Total Customer Base Within Fluid Delivery Market
We are actively in discussions with new customers that are considering outsourcing their gas and chemical delivery needs. As an example, we were recently selected as the
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manufacturing partner for a provider of etch process equipment that was previously not a customer of ours.
Expand Into Emerging Opportunities
We plan to leverage our existing manufacturing platform and engineering expertise to develop or acquire new products and solutions for attractive, high growth applications within new markets such as medical, research, oil and gas and energy. We believe these efforts will diversify our sales exposure while capitalizing on our current capabilities.
Continue to Improve Our Manufacturing Process Efficiency
We continually strive to improve our processes to reduce our manufacturing process cycle time, improve our ability to respond to last minute design or configuration changes, reduce our manufacturing costs and reduce our inventory requirements in order to improve profitability and make our product offerings more attractive to new and existing customers.
Risk Factors
There are a number of risks that you should understand before making an investment decision regarding this offering. These risks are discussed more fully in the section entitled Risk Factors following this prospectus summary. These risks include, but are not limited to:
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Our business depends significantly on expenditures by manufacturers in the semiconductor capital equipment industry, which, in turn, is dependent upon the semiconductor device industry. When that industry experiences cyclical downturns, demand for our products and services is likely to decrease, which would likely result in decreased sales. We may also be forced to reduce our prices during cyclical downturns without being able to proportionally reduce costs. |
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We rely on a very small number of OEM customers for a significant portion of our sales. Any adverse change in our relationships with these customers could materially adversely affect our business, financial condition and results of operations. |
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Our customers exert a significant amount of negotiating leverage over us, which may require us to accept lower prices and gross margins or increased liability risk in order to retain or expand our market share with them. |
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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 business, financial condition and results of operations could be materially adversely affected. |
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An active trading market for our ordinary shares may not develop, and you may not be able to sell your ordinary shares at or above the initial public offering price. |
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The price of our ordinary shares may fluctuate substantially. |
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We are a controlled company and, as a result, we are exempt from obligations to comply with certain corporate governance requirements. |
Corporate Information
Our principal executive offices are located at 3185 Laurelview Ct., Fremont, California, 94538, and our telephone number at that address is (510) 897-5200. Our website address is
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www.ichorsystems.com . The reference to our website is a textual reference only. We do not incorporate the information on our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.
JOBS Act
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of the last day of the fiscal year following the fifth anniversary of the completion of this offering, the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion, the date on which we are deemed to be a large accelerated filer (this means the market value of our ordinary shares that are held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year), or the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
An emerging growth company may also take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act; |
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reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and |
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements and executive compensation in this prospectus and may elect to take advantage of other reduced burdens in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.
In addition, Section 107(b) of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to take advantage of such extended transition period under Section 107(b).
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THE OFFERING
Ordinary shares offered by us |
5,750,000 shares |
Ordinary shares to be outstanding immediately after this offering |
23,600,009 shares |
Option to purchase additional shares |
The underwriters have the option to purchase up to an additional 862,500 ordinary shares from the selling shareholders, at the public offering price, less the underwriting discount, within 30 days of the date of this prospectus. |
Use of proceeds |
We estimate that the net proceeds from this offering to us will be approximately $67.0 million, assuming an initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The principal purposes of this offering are to obtain additional capital to fund our operations and growth, to create a public market for our ordinary shares and to facilitate our future access to the public equity markets. We expect to use approximately $40.0 million of the net proceeds of this offering to repay outstanding borrowings under our Credit Facilities (as defined herein) and the remainder for general corporate purposes, which we expect to include funding working capital, operating expenses and the selective pursuit of business development opportunities. At this time, we have not specifically identified a large single use for which we intend to use the net proceeds, and, accordingly, we are not able to allocate the net proceeds among any of these potential uses in light of the variety of factors that will impact how such net proceeds are ultimately utilized by us. |
If the underwriters exercise their option to purchase additional shares, we will not receive any proceeds from the sale of ordinary shares by the selling shareholders. |
Dividend policy |
We do not anticipate declaring or paying any cash dividends on our ordinary shares for the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions (including in the credit agreements governing our Credit Facilities), capital requirements, |
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business prospects, legal restrictions and other factors our board of directors may deem relevant. See Dividend Policy. |
Proposed symbol |
We have applied to list our ordinary shares on the NASDAQ Global Select Market, or NASDAQ, under the symbol ICHR. |
Unless otherwise indicated, all information in this prospectus relating to the number of ordinary shares to be outstanding immediately after this offering:
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assumes the effectiveness of our amended and restated memorandum and articles of association, the conversion of all outstanding Series A preferred shares into 142,728,221 ordinary shares and the subsequent 1 for 8.053363 reverse split of our ordinary shares, each of which will occur upon or prior to the completion of this offering; |
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excludes (i) an aggregate of 2,313,284 ordinary shares issuable upon the exercise of options that were issued to our employees under the Ichor Holdings, Ltd. 2012 Equity Incentive Plan (the 2012 Incentive Plan) and (ii) an aggregate of 232,649 unvested restricted shares that were issued under the 2012 Incentive Plan, 120,253 of which will vest upon completion of this offering, in each case as of September 23, 2016; |
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excludes an aggregate of 1,888,000 ordinary shares reserved for issuance under the equity compensation plan we intend to adopt in connection with this offering; |
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assumes an initial public offering price of $13.00 per share, which is the midpoint of the initial public offering price range indicated on the cover of this prospectus; and |
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assumes no exercise of the underwriters option to purchase additional shares from the selling shareholders. |
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our historical consolidated financial data and should be read together with the sections in this prospectus entitled Selected financial data and Managements discussion and analysis of financial condition and results of operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
We have derived the consolidated statements of operations data for the years ended December 26, 2014 and December 25, 2015 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated statements of operations data for the nine months ended September 25, 2015 and September 23, 2016 and the consolidated balance sheet data as of September 23, 2016 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for the fair statement of our unaudited interim consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future.
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
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(Unaudited) | ||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||
Consolidated Statement of Operations Data: |
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Net sales |
$ | 249,087 | $ | 290,641 | $ | 226,282 | $ | 274,339 | ||||||||
Cost of sales(1) |
212,747 | 242,087 | 188,197 | 230,349 | ||||||||||||
|
|
|
|
|
|
|
|
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Gross profit |
36,340 | 48,554 | 38,085 | 43,990 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development(1) |
3,915 | 4,813 | 3,469 | 4,229 | ||||||||||||
Selling, general and administrative(1) |
22,465 | 24,729 | 18,084 | 20,329 | ||||||||||||
Amortization of intangible assets |
6,411 | 6,411 | 4,808 | 5,210 | ||||||||||||
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|
|
|
|
|
|
|
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Total operating expenses |
32,791 | 35,953 | 26,361 | 29,768 | ||||||||||||
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|
|
|
|
|
|
|
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Operating income |
3,549 | 12,601 | 11,724 | 14,222 | ||||||||||||
Interest expense |
3,118 | 3,831 | 2,898 | 3,245 | ||||||||||||
Other expense (income), net |
253 | (46 | ) | (42 | ) | (384 | ) | |||||||||
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|
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|
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|
|
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Income from continuing operations before income taxes |
178 | 8,816 | 8,868 | 11,361 | ||||||||||||
Income tax benefit from continuing
|
(5,604 | ) | (3,991 | ) | (3,924 | ) | (1,427 | ) | ||||||||
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|
|
|
|
|
|
|
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Net income from continuing operations |
5,782 | 12,807 | 12,792 | 12,788 | ||||||||||||
Income (loss) from discontinued operations before taxes |
132 | (7,406 | ) | (718 | ) | (4,013 | ) | |||||||||
Income tax expense (benefit) from discontinued operations |
(254 | ) | (225 | ) | (326 | ) | 26 | |||||||||
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|
|
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|
|
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Net income (loss) from discontinued operations |
386 | (7,181 | ) | (392 | ) | (4,039 | ) | |||||||||
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|
|
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Net income |
$ | 6,168 | $ | 5,626 | $ | 12,400 | $ | 8,749 | ||||||||
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Other Financial Data: |
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Adjusted net income from continuing operations(3) |
$ | 11,688 | $ | 20,249 | $ | 17,909 | $ | 19,758 |
10
As of September 23, 2016 | ||||||||||||||||
As of
December 25, 2015 |
Actual | Pro Forma(5) |
Pro Forma As
Adjusted(6)(7) |
|||||||||||||
(Unaudited) |
(Unaudited) | (Unaudited) | ||||||||||||||
(In thousands) | ||||||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||||||
Cash and restricted cash |
$ | 24,188 | $ | 25,304 | $ | 25,304 | $ | 52,297 | ||||||||
Working capital |
24,860 | 35,626 | 35,626 | 62,619 | ||||||||||||
Total assets |
198,023 | 244,101 | 244,101 | 271,094 | ||||||||||||
Total long-term debt(4) |
65,000 | 81,260 | 81,260 | 41,260 | ||||||||||||
Preferred stock |
142,728 | 142,728 | | | ||||||||||||
Total shareholders equity |
74,678 | 84,772 | 84,772 | 151,765 |
(1) | Share-based compensation is included in the consolidated statement of operations data above was as follows: |
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
|||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Share-Based Compensation Expense: |
||||||||||||||||
Cost of sales |
$ | 33 | $ | 105 | $ | 22 | $ | 12 | ||||||||
Research and development |
51 | 46 | 35 | 27 | ||||||||||||
Selling general and administrative |
927 | 967 | 750 | 1,306 | ||||||||||||
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Total share-based compensation expense |
$ | 1,011 | $ | 1,118 | $ | 807 | $ | 1,345 | ||||||||
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|
(2) | Income tax expense (benefit) consists primarily of federal and state income tax benefits in the United States offset in part by income tax expense in certain foreign jurisdictions. Our historical income tax benefit resulted from losses recorded in the United States, where we incur the majority of our corporate expenses and which was being fully benefited through the third quarter of 2015 as a result of acquired deferred tax liabilities, offset by income in Singapore, which has no tax expense as a result of a tax holiday through 2019. Starting in the fourth quarter of 2015, the Companys tax provision consisted primarily of foreign based tax provisions primarily in Malaysia and Scotland. We are no longer benefiting from losses generated in the United States, with the exception of the third quarter of 2016 during which we recorded a one-time tax benefit of $2.2 million related to the Ajax acquisition. |
(3) | Adjusted net income is a financial measure that is not calculated in accordance with GAAP. We define adjusted net income as net income adjusted to exclude amortization of intangible assets, share-based compensation expense, non-recurring tax benefits associated with the acquisition of Ajax and other non-recurring expenses, net of the tax impact of such adjustments. Other non-recurring expenses include (i) expenses incurred in connection with preparation for an initial public offering contemplated in 2014 and 2015, (ii) consulting fees paid to Francisco Partners Consulting, LLC, an entity which is owned and controlled by individual operations executives who are associated with our principal shareholders but in which such shareholders hold no interest, (iii) the bonuses paid to members of our management in connection with the cash dividend paid by us in August 2015 and (iv) acquisition- related charges. We have provided below a reconciliation of adjusted net income to net income, the most directly comparable GAAP financial measure. Adjusted net income should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. In addition, our adjusted net income measure may not be comparable to similarly titled measures of other organizations as they may not calculate adjusted net income in the same manner as we calculate the measure. |
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The following table presents our adjusted net income from continuing operations and a reconciliation from net income from continuing operations, the most comparable GAAP measure, for the periods indicated: |
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
|||||||||||||
(Unaudited) |
||||||||||||||||
(In thousands) | ||||||||||||||||
Net income from continuing operations |
$ | 5,782 | $ | 12,807 | $ | 12,792 | $ | 12,788 | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Amortization of intangible assets |
6,411 | 6,411 | 4,808 | 5,210 | ||||||||||||
Share-based compensation |
1,011 | 1,118 | 807 | 1,345 | ||||||||||||
Other non recurring expenses |
1,905 | 4,154 | 2,402 | 2,753 | ||||||||||||
Tax benefit related to Ajax acquisition |
| | | (2,271 | ) | |||||||||||
Tax adjustment related to non-GAAP adjustments(a) |
(3,421 | ) | (4,241 | ) | (2,900 | ) | (67 | ) | ||||||||
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Adjusted net income for continuing operations |
$ | 11,688 | $ | 20,249 | $ | 17,909 | $ | 19,758 | ||||||||
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(a) | The difference between (i) the adjustments to our tax provision (benefit) made in connection with the other non-GAAP adjustments made to determine adjusted net income and (ii) the GAAP tax provision (benefit) for the years ended December 26, 2014 and December 25, 2015 and for the nine months ended September 25, 2015 and September 23, 2016 is ($2,183), $250, ($1,024) and ($1,360), respectively. |
Adjusted net income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income or any of our other operating results reported under GAAP. Adjusted net income excludes some costs, namely, non-cash share-based compensation, amortization of intangible assets and other non-recurring expenses, and therefore it does not reflect the non-cash impact of such expenses. Other companies may calculate adjusted net income differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our adjusted net income as a tool for comparison. |
Because of these limitations, you should consider adjusted net income alongside other financial performance measures, including net income and other financial results presented in accordance with GAAP. In addition, in evaluating adjusted net income, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving adjusted net income and you should not infer from our presentation of adjusted net income that our future results will not be affected by these expenses or any unusual or non-recurring items. |
(4) | Includes on an actual basis, $66.3 million outstanding under our term loan facility and $15.0 million outstanding under our revolving credit facility. The outstanding amount under our term loan facility reflected in our consolidated financial statements included elsewhere in this prospectus is net of $2.0 million of debt discount. |
(5) | Reflects the conversion of all outstanding shares of our preferred stock into 142,728,221 ordinary shares and the subsequent 1 for 8.053363 reverse split of our ordinary shares to be effective upon or prior to the completion of this offering. |
(6) | Reflects (i) all adjustments included in the pro forma column, and (ii) the sale by us of 5,750,000 ordinary shares in this offering at an assumed initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds as described in Use of Proceeds. |
(7) | Each $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted amount of each of cash and restricted cash, working capital, total assets and total shareholders equity by approximately $5.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
12
This offering and an investment in our ordinary shares involves a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase our ordinary shares. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially adversely affected. As a result, the trading price of our ordinary shares could decline, and you could lose all or part of your investment in our ordinary shares.
Risks Related to Our Business
Our business depends significantly on expenditures by manufacturers in the semiconductor capital equipment industry, which, in turn, is dependent upon the semiconductor device industry. When that industry experiences cyclical downturns, demand for our products and services is likely to decrease, which would likely result in decreased sales. We may also be forced to reduce our prices during cyclical downturns without being able to proportionally reduce costs.
Our business, financial condition and results of operations depend significantly on expenditures by manufacturers in the semiconductor capital equipment industry. In turn, the semiconductor capital equipment industry depends upon the current and anticipated market demand for semiconductor devices. The semiconductor device industry is subject to cyclical and volatile fluctuations in supply and demand and in the past has periodically experienced significant downturns, which often occur in connection with declines in general economic conditions, and which have resulted in significant volatility in the semiconductor capital equipment industry. The semiconductor device industry has also experienced 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 and services as a result of such fluctuations and cycles. Any downturns in the semiconductor device industry could have a material adverse effect on our business, financial condition and results of operations.
In addition, we must be able to appropriately align our cost structure with prevailing market conditions, effectively manage our supply chain and motivate and retain employees, particularly during periods of decreasing demand for our products. We may be forced to reduce our prices during periods of decreasing demand. While we operate under a low fixed cost model, we may not be able to proportionally reduce all of our costs if we are required to reduce our prices. If we are not able to timely and appropriately adapt to the changes in our business environment, our business, financial condition and results of operations will be materially adversely affected. The cyclical and volatile nature of the semiconductor device industry and the absence of long-term fixed or minimum volume contracts make any effort to project a material reduction in future sales volume difficult.
We rely on a very small number of OEM customers for a significant portion of our sales. Any adverse change in our relationships with these customers could materially adversely affect our business, financial condition and results of operations.
The semiconductor capital equipment industry is highly concentrated and has experienced significant consolidation in recent years. As a result, a relatively small number of OEM customers have historically accounted for a significant portion of our sales, and we expect this trend to continue for the foreseeable future. For fiscal 2015, our top two customers accounted
13
for approximately 57% and 38%, respectively, of our total sales, and we expect that our sales will continue to be concentrated among a very small number of customers. We do not have any long-term contracts that require customers to place orders with us in fixed or minimum volumes. Accordingly, the success of our business depends on the success of our customers and those customers and other OEMs continuing to outsource the manufacturing of critical subsystems and process solutions to us. Because of the small number of OEMs in the markets we serve, a number of which are already our customers, it would be difficult to replace lost sales resulting from the loss of, or the reduction, cancellation or delay in purchase orders by, any one of these customers, whether due to a reduction in the amount of outsourcing they do, their giving orders to our competitors, their acquisition by an OEM who is not a customer or with whom we do less business, or otherwise. We have in the past lost business from customers for a number of these reasons. If we are unable to replace sales from customers who reduce the volume of products and services they purchase from us or terminate their relationship with us entirely, such events could have a material adverse impact on our business, financial condition and results of operations.
Additionally, if one or more of the largest OEMs were to decide to single- or sole-source all or a significant portion of manufacturing and assembly work to a single equipment manufacturer, such a development would heighten the risks discussed above.
Our customers exert a significant amount of negotiating leverage over us, which may require us to accept lower prices and gross margins or increased liability risk in order to retain or expand our market share with them.
By virtue of our largest customers size and the significant portion of our sales that is derived from them, as well as the competitive landscape, our customers are able to exert significant influence and pricing pressure in the negotiation of our commercial arrangements and the conduct of our business with them. Our customers often require reduced prices or other pricing, quality or delivery commitments as a condition to their purchasing from us in any given period or increasing their purchase volume, which can, among other things, result in reduced gross margins in order to maintain or expand our market share. Our customers negotiating leverage also can result in customer arrangements that may contain significant liability risk to us. For example, some of our customers require that we provide them indemnification against certain liabilities in our arrangements with them, including claims of losses by their customers caused by our products. Any increase in our customers negotiating leverage may expose us to increased liability risk in our arrangements with them, which, if realized, may have a material adverse effect on our business, financial condition and results of operations. In addition, new products often carry lower gross margins than existing products for several quarters following their introduction. If we are unable to retain and expand our business with our customers on favorable terms, or if we are unable to achieve gross margins on new products that are similar to or more favorable than the gross margins we have historically achieved, our business, financial condition and results of operations may be materially adversely affected.
The industries in which we participate are highly competitive and rapidly evolving, and if we are unable to compete effectively, our business, financial condition and results of operations could be materially adversely affected.
We face intense competition from other suppliers of gas or chemical delivery subsystems, as well as the internal manufacturing groups of OEMs. 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 materially adversely affect our business, financial condition and results of operations. We are subject to significant pricing pressure as we attempt to
14
maintain and increase market share with our existing customers. Our competitors may offer reduced prices or introduce new products or services for the markets currently served by our products and services. These products may have better performance, lower prices and achieve broader market acceptance than our products. OEMs also typically own the design rights to their products. Further, 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 results of operations could be materially adversely affected.
Certain of our competitors may have or may develop 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 services, and reduce prices to increase market share. In addition to organic growth by our competitors, there may be merger and acquisition activity among our competitors and potential competitors that may provide our competitors and potential competitors with an advantage over us by enabling them to expand their product offerings and service capabilities to meet a broader range of customer needs. The introduction of new technologies and new market entrants may also increase competitive pressures.
We are exposed to risks associated with weakness in the global economy and geopolitical instability.
Our business is dependent upon manufacturers of semiconductor capital equipment, whose businesses in turn ultimately depend largely on consumer spending on semiconductor devices. Continuing uncertainty regarding the global economy continues to pose challenges to our business. Economic uncertainty and related factors, including current unemployment levels, uncertainty in European debt markets, geopolitical instability in various parts of the world, fiscal uncertainty in the U.S. economy, market volatility and the slow rate of recovery of many countries from recent recessions, exacerbate negative trends in business and consumer spending and may cause certain of our customers to push out, cancel or refrain from placing orders for products or services, which may reduce sales and materially adversely affect our business, financial condition and results of operations. Difficulties in obtaining capital, uncertain market conditions or reduced profitability may also cause some customers to scale back operations, exit businesses, merge with other manufacturers, or file for bankruptcy protection and potentially cease operations, leading to customers reduced research and development funding and/or capital expenditures and, in turn, lower orders from our customers and/or additional slow moving or obsolete inventory or bad debt expense for us. These conditions may also similarly affect our key suppliers, which could impair their ability to deliver parts and result in delays for our products or require us to either procure products from higher-cost suppliers, or if no additional suppliers exist, to reconfigure the design and manufacture of our products, and we may be unable to fulfill some customer orders. Any of these conditions or events could have a material adverse effect on our business, financial condition and results of operations.
If we do not keep pace with developments in the industries we serve and with technological innovation generally, our products and services may not be competitive.
Rapid technological innovation in the markets we serve requires us to anticipate and respond quickly to evolving customer requirements and could render our current product offerings, services and technologies obsolete. In particular, the design and manufacturing of semiconductors is constantly evolving and becoming more complex in order to achieve greater power, performance and efficiency with smaller devices. Capital equipment manufacturers need to keep pace with these changes by refining their existing products and developing new products.
15
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, financial condition and results of operations could be materially adversely affected.
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; |
|
identify emerging technological trends in the industries we serve, including new standards for our products; |
|
accurately identify and design new products to meet market needs; |
|
collaborate with OEMs to design and develop products on a timely and cost-effective basis; |
|
ramp-up production of new products, especially new subsystems, in a timely manner and with acceptable yields; |
|
manage our costs of product development and the costs of producing the products that we sell; |
|
successfully manage development production cycles; and |
|
respond quickly and effectively to technological changes or product announcements by others. |
If we are unsuccessful in keeping pace with technological developments for the reasons above or other reasons, our business, financial condition and results of operations could be materially adversely affected.
We must design, develop and introduce new products that are accepted by OEMs in order to retain our existing customers and obtain new customers.
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 attempt to mitigate this risk by collaborating with our customers during their design and development processes. We cannot, however, assure you that we will be able to successfully introduce, market and cost-effectively manufacture new products, or that we will be able to develop new or enhanced products and processes that satisfy customer needs. In addition, new capital equipment typically has a lifespan of five to ten 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 often continue to be purchased for that piece of equipment on an exclusive basis for 18-24 months before the OEM generates enough sales volume to consider adding alternative suppliers. Accordingly, it is important that our products are designed into the new systems introduced by the OEMs. If any of the new products we develop are not launched or successful in the market, our business, financial condition and results of operations could be materially adversely affected.
16
The manufacturing of our products is highly complex, and if we are not able to manage our manufacturing and procurement process effectively, our business, financial condition and results of operations may be materially adversely affected.
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. We may also be subject to liability under our agreements with our customers if we or our suppliers fail to re-configure manufacturing processes or components in response to these modifications. 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. We have from time to time experienced bottlenecks and production difficulties that have caused delivery delays and quality control problems. These risks are even greater as we seek to expand our business into new subsystems. In addition, certain of our suppliers have been, and may in the future be, forced out of business as a result of the economic environment. In such cases, we may be required to procure products from higher-cost suppliers or, if no additional suppliers exist, reconfigure the design and manufacture of our products. This could materially limit our growth, adversely impact our ability to win future business and have a material adverse effect on our business, financial condition and results of operations.
Defects in our products could damage our reputation, decrease market acceptance of our products 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. Errors, defects or other 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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result in liability for the unintended release of hazardous materials; |
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create claims for rework, replacement and/or damages under our contracts with customers, as well as indemnification claims from customers; |
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decrease market acceptance of, or customer satisfaction with, our products, which could result in decreased sales and increased product returns; or |
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result in lower yields for semiconductor manufacturers. |
If any of our products contain defects or have reliability, quality or compatibility problems, our reputation may be damaged and customers may be reluctant to buy our products. We may also face a higher rate of product defects as we increase our production levels in periods of significant growth. Product defects could result in warranty and indemnification liability or the
17
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. In addition, hazardous materials flow through and are controlled by certain of 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 may incur unexpected warranty and performance guarantee claims that could materially adversely affect our business, financial condition and results of operations.
In connection with our products and services, we provide various product warranties, performance guarantees and indemnification rights. Warranty or other performance guarantee or indemnification claims against us could cause us to incur significant expense to repair or replace defective products or indemnify the affected customer for losses. In addition, quality issues can have various other ramifications, including delays in the recognition of sales, loss of sales, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our reputation, all of which could materially adversely affect our business, financial condition and results of operations.
Our dependence on a limited number of suppliers may harm our production output and increase our costs, and may prevent us from delivering acceptable products on a timely basis.
Our ability to meet our customers demand for our products depends upon obtaining adequate supplies of quality components and other raw materials on a timely basis. In addition, our customers often specify components from particular suppliers that we must incorporate into our products. We also use consignment and just-in-time stocking programs, which means we carry very little inventory of components or other raw materials, and we rely on our suppliers to deliver necessary components and raw materials in a timely manner. However, our suppliers are under no obligation to provide us with components or other raw materials. As a result, the loss of or failure to perform by any of our key suppliers could materially adversely affect our ability to deliver products on a timely basis. In addition, if a supplier were unable to provide the volume of components we require on a timely basis and at acceptable prices and quality, we would have to identify and qualify replacements from alternative sources of supply. However, the process of qualifying new suppliers for complex components is also lengthy and could delay our production. We may also experience difficulty in obtaining sufficient supplies of components and raw materials in times of significant growth in our business. If we are unable to procure sufficient quantities of components or raw materials from suppliers, our customers may elect to delay or cancel existing orders or not place future orders, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to order and shipment uncertainties, and any significant reductions, cancellations or delays in customer orders could have a material adverse effect on our business, financial condition and results of operations.
Our sales are 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 manufacture and deliver products to our customers. Most of our sales for a particular quarter depend on customer orders placed during that quarter or shortly before it commences. Our contracts generally do not require our customers to commit to minimum purchase volumes. While most of our customers provide periodic rolling forecasts for product orders, those
18
forecasts do not become binding until a formal purchase order is submitted, which generally occurs only a short time prior to shipment. As a result of the foregoing and the cyclicality and volatility of the industries we serve, it is difficult to predict future orders with precision. Occasionally, we order component inventory and build products 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 result in unanticipated reductions or delays in sales. If we do not obtain orders as we anticipate, we could have excess components for a specific product and/or finished goods inventory 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 results of operations.
Because our customers generally require that they qualify our engineering, documentation, manufacturing and quality control procedures, our ability to add new customers quickly is limited.
We are generally required to qualify and maintain our status as a supplier for each of our customers. This is a time-consuming process that involves the inspection and approval by a customer of our engineering, documentation, manufacturing and quality control procedures before that customer will place orders with us. 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 limited in part because of these qualification requirements. Consequently, the risk that our business, financial condition and results of operations would be materially adversely affected by the loss of, or any reduction in orders by, any of our significant customers is increased. Moreover, if we lost our existing status as a qualified supplier to any of our customers, such customer could cancel its orders from us or otherwise terminate its relationship with us, which could have a material adverse effect on our business, financial condition and results of operations.
Restrictive covenants under our Credit Facilities may limit our current and future operations. If we fail to comply with those covenants, the lenders could cause outstanding amounts, which are currently substantial, to become immediately due and payable, and we might not have sufficient funds and assets to pay such loans.
As of September 23, 2016, we had $66.3 million of indebtedness outstanding under our term loan facility, or our Term Loan Facility, and $15.0 million of indebtedness outstanding under our $20.0 million revolving credit facility, or our Revolving Credit Facility, and together with our Term Loan Facility, our Credit Facilities. The outstanding amount of our Term Loan Facility reflected in our consolidated financial statements included elsewhere in this prospectus is net of $2.0 million of debt discount. We may incur additional indebtedness in the future. Our Credit Facilities contain certain restrictive covenants and conditions, including limitations on our ability to, among other things:
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incur additional indebtedness or contingent obligations; |
|
create or incur liens, negative pledges or guarantees; |
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make investments; |
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make loans; |
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sell or otherwise dispose of assets; |
19
|
merge, consolidate or sell substantially all of our assets; |
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make certain payments on indebtedness; |
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pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; |
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enter into certain agreements that restrict distributions from restricted subsidiaries; |
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enter into transactions with affiliates; |
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change the nature of our business; and |
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amend the terms of our organizational documents. |
As a result of these covenants, we may be restricted in our ability to pursue new business opportunities or strategies or to respond quickly to changes in the industries that we serve. A violation of any of these covenants would be deemed an event of default under our Credit Facilities. In such event, upon the election of the lenders, the loan commitments under our Credit Facilities would terminate and the principal amount of the loans and accrued interest then outstanding would be due and payable immediately. A default may also result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event our lenders accelerate the repayment of our borrowings, we cannot assure you that we and our subsidiaries would have sufficient funds to repay such indebtedness or be able to obtain replacement financing on a timely basis or at all. These events could force us into bankruptcy or liquidation, which could have a material adverse effect on our business, financial condition and results of operations.
We also may need to negotiate changes to the covenants in the agreements governing our Credit Facilities in the future if there are material changes in our business, financial condition or results of operations, but we cannot assure you that we will be able to do so on terms favorable to us or at all.
Certain of our customers require that we consult with them in connection with specified fundamental changes in our business, and address any concerns or requests such customer may have in connection with a fundamental change. While those customers do not have contractual approval or veto rights with respect to fundamental changes, our failure to consult with such customers or to satisfactorily respond to their requests in connection with any such fundamental change could constitute a breach of contract or otherwise be detrimental to our relationships with such customers.
Certain of our key customers require that we consult with them in connection with specified fundamental changes in our business, including, among other things:
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entering into any new line of business; |
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amending or modifying our organizational documents; |
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selling all or substantially all of our assets, or merging or amalgamating with a third party; |
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incur borrowings in excess of a specific amount; |
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making senior management changes; |
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entering into any joint venture arrangement; and |
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effecting an initial public offering. |
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These customers do not have contractual approval or veto rights with respect to any fundamental changes in our business. However, our failure to consult with such customers or to satisfactorily respond to their requests in connection with any such fundamental change could constitute a breach of contract or otherwise be detrimental to our relationships with such customers, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to generate sufficient cash to service all of our indebtedness, including under our Credit Facilities, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our indebtedness, including under our Credit Facilities, depends on our financial condition and results of operations, which are subject to prevailing economic and competitive conditions and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness. If we cannot make scheduled payments on our debt, we will be in default and, as a result, the lenders under our Credit Facilities could terminate their commitments to loan money, or foreclose against the assets securing such borrowings, and we could be forced into bankruptcy or liquidation, in each case, which would have a material adverse effect on our business, financial condition and results of operations.
Our business is largely dependent on the know-how of our employees, and we generally do not have an intellectual property position that is protected by patents.
We believe that the success of our business depends in part on our proprietary technology, information, processes and know-how and on our ability to operate without infringing on the proprietary rights of third parties. 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 primarily by patents. We cannot assure you that we have adequately protected or will be able to adequately protect our technology, that our competitors will not be able to utilize our existing technology or develop similar technology independently, that the claims allowed with respect to any patents held by us will be broad enough to protect our technology or that foreign intellectual property laws will adequately protect our intellectual property rights. If we fail to protect our proprietary rights successfully, our competitive position could suffer. Any future litigation to enforce patents issued to us, to protect trade secrets or know-how possessed by us or to defend ourselves or to indemnify others against claimed infringement of the rights of others could have a material adverse effect on our business, financial condition and results of operations.
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 may in the future receive claims that our products, processes or technologies infringe the patents or other proprietary rights of third parties. In addition, we may be unaware of intellectual property rights of others that may be applicable to our products. Any litigation
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regarding our 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, financial condition 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 also rely on design specifications and other intellectual property of our customers in the manufacture of products for such customers. While our customer agreements generally provide for indemnification of us by a customer if we are subjected to litigation for third-party claims of infringement of such customers intellectual property, such indemnification provisions may not be sufficient to fully protect us from such claims, or our customers may breach such indemnification obligations to us, which could result in costly litigation to defend against such claims or enforce our contractual rights to such indemnification.
From time to time, we may become involved in other litigation and regulatory proceedings, which could require significant attention from our management and result in significant expense to us and disruptions in our business.
In addition to any litigation related to our intellectual property rights, we may in the future be named as a defendant from time to time in other lawsuits and regulatory actions relating to our business, such as commercial contract claims, employment claims and tax examinations, some of which may claim significant damages or cause us reputational harm. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot predict the ultimate outcome of any such proceeding. An unfavorable outcome could have a material adverse effect on our business, financial condition and results of operations or limit our ability to engage in certain of our business activities. In addition, regardless of the outcome of any litigation or regulatory proceeding, such proceedings are often expensive, time-consuming and disruptive to normal business operations and require significant attention from our management. As a result, any such lawsuits or proceedings could materially adversely affect our business, financial condition and results of operations.
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 and manufacturing personnel, most of whom are not subject to employment or non-competition agreements. Competition for qualified personnel in the technology industry is particularly intense, and we operate in geographic locations in which labor markets are competitive. Our management team has significant industry experience and deep customer relationships, and therefore would be difficult to replace. In addition, our business is dependent to a significant degree on the expertise and relationships which only a limited number of engineers possess. Many of these engineers often work at our customers sites and serve as an extension of our customers product design teams. The loss of any of our key executive officers or key engineers and other personnel, including our engineers working at our customers sites, or the failure to attract additional personnel as needed, could have a material adverse effect on our business, financial condition and results of operations and could lead to higher labor costs, the use of less-qualified personnel and the loss of customers. In addition, if any of our key executive officers or other key employees were to join a competitor or form a competing company, we could lose customers, suppliers, know-how and key personnel.
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We do not maintain key-man life insurance with respect to any of our employees. Our business will suffer if we are unable to attract, employ and retain highly skilled personnel.
Future acquisitions may present integration challenges, and if the goodwill, indefinite-lived intangible assets and other long-term assets recorded in connection with such acquisitions become impaired, we would be required to record impairment charges, which may be significant.
If we find appropriate opportunities in the future, we may acquire businesses, products or technologies that we believe are strategic. If we acquire a business, product or technology, the process of integration may produce unforeseen operating difficulties and expenditures, fail to result in expected synergies or other benefits and absorb significant attention of our management that would otherwise be available for the ongoing development of our business. In addition, in the event of any future acquisitions, we may record a portion of the assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived intangible assets. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The recoverability of goodwill and indefinite-lived intangible assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination, which could then have a material adverse effect on our business, financial condition and results of operations.
Our quarterly sales and operating results fluctuate significantly from period to period, and this may cause volatility in our stock price.
Our quarterly sales and operating results have fluctuated significantly in the past, and we expect them to continue to fluctuate in the future for a variety of reasons, including the following:
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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 or growth; |
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overall economic conditions; |
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changes in the timing and size of orders by our customers; |
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strategic decisions by our customers to terminate their outsourcing relationship with us or give market share to our competitors; |
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consolidation 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 or loss of market share; |
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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 or other products or services; |
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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; and |
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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. |
As a result of the foregoing, we believe that quarter-to-quarter comparisons of our sales and results of operations 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 results of operations in any particular quarter. Moreover, our results of operations in one or more future quarters may fail to meet our guidance or 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 ordinary shares.
Labor disruptions could materially adversely affect our business, financial condition and results of operations.
As of September 23, 2016, we had approximately 530 full time employees and approximately 141 contract or temporary workers worldwide. None of our employees are unionized, but in various countries, local law requires our participation in works councils. While we have not experienced any material work stoppages at any of our facilities, any stoppage or slowdown could cause material interruptions in manufacturing, and we cannot assure you that alternate qualified capacity would be available on a timely basis, or at all. As a result, labor disruptions at any of our facilities could materially adversely affect our business, financial condition and results of operations.
As a global company, we are subject to the risks of doing business internationally, including periodic foreign economic downturns and political instability, which may adversely affect our sales and cost of doing business in those regions of the world.
Foreign economic downturns have adversely affected our business and results of operations in the past and could adversely affect our business and results of operations in the future. In addition, other factors relating to the operation of our business outside of the United States may have a material adverse effect on our business, financial condition and results of operations in the future, including:
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the imposition of governmental controls or changes in government regulations, including tax regulations; |
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difficulties in enforcing our intellectual property rights; |
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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 complying with foreign and international laws and treaties; |
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restrictions on the export of technology; |
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compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act, export control laws and export license requirements; |
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difficulties in achieving headcount reductions due to unionized labor and works councils; |
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restrictions on transfers of funds and assets between jurisdictions; |
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geo-political instability; and |
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trade restrictions and changes in taxes and tariffs. |
In the future, we may seek to expand our presence in certain foreign markets or enter emerging markets. Evaluating or entering into an emerging market may require considerable management time, as well as start-up expenses for market development before any significant sales and earnings are generated. Operations in new foreign markets may achieve low margins or may be unprofitable, and expansion in existing markets may be affected by local political, economic and market conditions. As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and the other risks noted above. The impact of any one or more of these factors could materially adversely affect our business, financial condition and results of operations.
We are subject to fluctuations in foreign currency exchange rates which could cause operating results and reported financial results to vary significantly from period to period.
The vast majority of our sales are denominated in U.S. Dollars. Many of the costs and expenses associated with our Singapore, Malaysian and U.K. operations are paid in Singapore Dollars, Malaysian Ringgit or British Pounds (or Euros), respectively, and we expect our exposure to these currencies to increase as we increase our operations in those countries. As a result, our risk exposure from transactions denominated in non-U.S. currencies is primarily related to the Singapore Dollar, Malaysian Ringgit, British Pound and Euro. In addition, because the majority of our sales are denominated in the U.S. Dollar, if one or more of our competitors sells to our customers in a different currency than the U.S. Dollar, we are subject to the risk that the competitors products will be relatively less expensive than our products due to exchange rate effects. We have not historically established transaction-based hedging programs. Foreign currency exchange risks inherent in doing business in foreign countries could have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous environmental laws and regulations, which could require us to incur environmental liabilities, increase our manufacturing and related compliance costs or otherwise adversely affect our business.
We are subject to a variety of federal, state, local and foreign laws and regulations governing the protection of the environment. These environmental laws and regulations include those relating to the use, storage, handling, discharge, emission, disposal and reporting of toxic, volatile or otherwise hazardous materials used in our manufacturing processes. These materials may have been or could be released into the environment at properties currently or previously owned or operated by us, at other locations during the transport of materials or at properties to which we send substances for treatment or disposal. In addition, we may not be aware of all environmental laws or regulations that could subject us to liability in the United States or internationally. If we were to violate or become liable under environmental laws and regulations or become non-compliant with permits required at some of our facilities, we could be held financially responsible and incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims.
As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the
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Sarbanes-Oxley Act. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our ordinary shares.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our ordinary shares to decline, and we may be subject to investigation or sanctions by the SEC.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of the end of the fiscal year that coincides with the filing of our second annual report to shareholders. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We will also be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an emerging growth company as defined in the JOBS Act if we take advantage of the exemptions contained in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.
Additionally, to comply with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our business, financial condition and results of operations.
In early 2015, we identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our share price.
In early 2015, we identified a material weakness in our internal control over financial reporting. Specifically, we had overstated our liabilities for the goods received but not invoiced account and cost of goods sold relating to certain aged transactions, whereby accounts payable was not reduced on a timely basis. To remediate this weakness, we have initiated compensating
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controls regarding the reconciliation of these accounts at the end of each period, including implementing a new account reconciliation tool and a more detailed account review. Despite our efforts, we may identify additional related or unrelated material weaknesses or significant deficiencies in the future. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
There are limitations on the effectiveness of controls, and the failure of our control systems may materially and adversely impact us.
We do not expect that disclosure controls or internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could have a material adverse effect on our business, financial condition and results of operations.
Compliance with recently adopted rules of the SEC relating to conflict minerals may require us and our suppliers to incur substantial expense and may result in disclosure by us that certain minerals used in products we manufacture are not DRC conflict free.
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, required the SEC to promulgate rules requiring disclosure by a public company of any conflict minerals (tin, tungsten, tantalum and gold) necessary to the functionality or production of a product manufactured or contracted to be manufactured by such company. The SEC adopted final rules in 2012 which took effect at the end of January 2013. Because we manufacture products which may contain tin, tungsten, tantalum or gold, we will be required under these rules to determine whether those minerals are necessary to the functionality or production of our products and, if so, conduct a country of origin inquiry with respect to all such minerals. If any such minerals may have originated in the Democratic Republic of the Congo, or the DRC, or any of its adjoining countries, or the covered countries, then we and our suppliers must conduct diligence on the source and chain of custody of the conflict minerals to determine if they did originate in one of the covered countries and, if so, whether they financed or benefited armed groups in the covered countries. Disclosures relating to the products which may contain conflict minerals, the country of origin of those minerals and whether they are DRC conflict free must be provided in a Form SD (and accompanying conflict minerals report if one is required to disclose the diligence undertaken by us in sourcing the minerals and our conclusions relating to such diligence). If we are required to submit a conflict minerals report, that report must be audited by an independent auditor pursuant to existing government auditing standards, unless (for the first two years) we are unable to determine whether the minerals are DRC conflict free. Compliance with this new disclosure rule may be very time consuming for management and our supply chain personnel (as well as time consuming for our suppliers) and could involve the expenditure of significant amounts of money and resources by us and them. Disclosures by us mandated by the new rules which are perceived by the market to be negative may cause customers to refuse to purchase our products. We are currently unable to assess the cost of compliance with this rule, and we cannot assure you that such cost will not have a material adverse effect on our business, financial condition and results of operations.
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Our business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made disruptions, such as terrorism.
Our facilities could be subject to a catastrophic loss caused by natural disasters, including fires and earthquakes. If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, reduce sales and result in large expenses to repair or replace the facility. In addition, we may experience extended power outages at our facilities. Disruption in supply resulting from natural disasters or other causalities or catastrophic events may result in certain of our suppliers being unable to deliver sufficient quantities of components or raw materials at all or in a timely manner, disruptions in our operations or disruptions in our customers operations. To the extent that natural disasters or other calamities or causalities should result in delays or cancellations of customer orders, or the delay in the manufacture or shipment of our products, our business, financial condition and results of operations would be adversely affected.
Changes in tax laws, tax rates or tax assets and liabilities could materially adversely affect our financial condition and results of operations.
As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by numerous factors, including changes in applicable tax laws, the amount and composition of pre-tax income in countries with differing tax rates or valuation of our deferred tax assets and liabilities. We have significant operations in the United States and our holding company structure includes entities organized in the Cayman Islands, Netherlands, Singapore and Scotland. As a result, changes in applicable tax laws in these jurisdictions could have a material adverse effect on our financial condition and results of operations.
We are also subject to regular examination by the Internal Revenue Service and other tax authorities, and from time to time we initiate amendments to previously filed tax returns. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations and amendments to determine the adequacy of our provision for income taxes, which requires estimates and judgments. Although we believe our tax estimates are reasonable, we cannot assure you that the tax authorities will agree with such estimates. We may have to engage in litigation to achieve the results reflected in the estimates, which may be time-consuming and expensive. We cannot assure you that we will be successful or that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.
Risks Related to this Offering and Ownership of Our Ordinary Shares
An active trading market for our ordinary shares may not develop, and you may not be able to sell your ordinary shares at or above the initial public offering price.
Prior to the completion of this offering, there has been no public market for our ordinary shares. An active trading market for our ordinary shares may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your ordinary shares at an attractive price, or at all. The price for our ordinary shares in this offering will be determined by negotiations with the underwriters and it may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell your ordinary shares at or above the initial public offering price or at
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any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our ordinary shares in the future, and it may impair our ability to attract and motivate our employees through equity incentive awards.
You should consider an investment in our ordinary shares to be risky, and you should invest in our ordinary shares only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our ordinary shares to fluctuate, in addition to the other risks mentioned in this section of the prospectus, are:
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our announcements or our competitors announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments; |
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changes in earnings estimates or recommendations by securities analysts, if any, who cover our ordinary shares; |
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speculation about our business in the press or investment community; |
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failures to meet external expectations or management guidance; |
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fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; |
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changes in our capital structure or dividend policy, future issuances of securities, sales of large blocks of ordinary shares by our shareholders, including Francisco Partners, our incurrence of additional debt or our failure to comply with the agreements governing our Credit Facilities; |
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our decision to enter new markets; |
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reputational issues; |
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additions or departures of key members of our management team or significant changes in our board of directors; |
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changes in general economic and market conditions in any of the regions in which we conduct our business; |
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material litigation or government investigations; |
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the expiration of lock-up agreements; |
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changes in industry conditions or perceptions; and |
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changes in applicable laws, rules or regulations. |
In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our ordinary shares could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our share price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
Future sales of our ordinary shares, or the perception in the public markets that these sales may occur, may depress our share price.
Sales of substantial amounts of our ordinary shares in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of our ordinary shares and could impair our ability to raise capital through the sale of additional shares. Upon completion of this offering, we will have 23,600,009 ordinary shares outstanding. The ordinary
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shares offered in this offering will be freely tradable without restriction under the Securities Act, except that any ordinary shares that may be acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, may be sold only in compliance with the limitations described in Shares Eligible for Future Sale.
The remaining ordinary shares, representing approximately 76.0% of our total outstanding ordinary shares following this offering (assuming the underwriters do not exercise their option to purchase additional shares), will be restricted securities within the meaning of Rule 144 and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144 or Rule 701, as described in Shares Eligible for Future Sale.
We, each of our executive officers and directors and the holders of substantially all of our ordinary shares (including Francisco Partners) have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of the ordinary shares or securities convertible into or exchangeable for ordinary shares during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus (subject to extension in certain circumstances). The representatives of the underwriters may, in their sole discretion, release any of these shares from these restrictions at any time without notice. See Underwriting.
After the lock-up agreements pertaining to this offering expire, all shares subject to such agreements will be eligible for sale in the public market subject to the provisions of Rule 144 or Rule 701. After this offering, subject to any lock-up restrictions, holders of approximately 17.8 million ordinary shares (or approximately 17.0 million ordinary shares if the underwriters exercise in full their option to purchase additional shares from the selling shareholders) will also have the right to require us to register the sales of their shares under the Securities Act, under the terms of an agreement between us and the holders of these securities. See Shares Eligible for Future SaleRegistration Rights for a more detailed description of these rights.
In addition, we intend to file a registration statement to register all shares subject to equity awards outstanding or reserved for future issuance under our equity compensation plans. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our ordinary shares could decline. See Shares Eligible for Future Sale for a more detailed description of these rights and the restrictions on selling our ordinary shares after this offering.
In the future, we may also issue our securities in connection with investments or acquisitions. The number of our ordinary shares issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding ordinary shares.
We are a controlled company and, as a result, we are exempt from obligations to comply with certain corporate governance requirements.
Upon the completion of this offering, Francisco Partners will own approximately 17.7 million ordinary shares (or approximately 16.9 million ordinary shares if the underwriters exercise in full their option to purchase additional shares from the selling shareholders), or approximately 75.1% of our outstanding ordinary shares (or approximately 71.4% of our outstanding ordinary shares if the underwriters exercise in full their option to purchase additional shares from the selling shareholders). Accordingly, we will be a controlled company for purposes of NASDAQ listing requirements. As such, we will be exempt from the obligation to comply with certain corporate
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governance requirements, including the requirements that a majority of our board of directors consists of independent directors, and that we have nominating and compensation committees that are each composed entirely of independent directors. These exemptions do not modify the requirement for a fully independent audit committee, which is permitted to be phased-in as follows: (1) one independent committee member at the time of our initial public offering; (2) a majority of independent committee members within 90 days of our initial public offering; and (3) all independent committee members within one year of our initial public offering. Similarly, once we are no longer a controlled company, we must comply with the independent board committee requirements as they relate to the nominating and compensation committees, on the same phase-in schedule as set forth above, with the trigger date being the date we are no longer a controlled company as opposed to our initial public offering date. Additionally, we will have 12 months from the date we cease to be a controlled company to have a majority of independent directors on our board of directors.
In addition, our amended and restated memorandum and articles of association that will become effective upon or prior to the completion of this offering will contain a provision that provides Francisco Partners the right to designate: (i) all of the nominees for election to our board of directors for so long as Francisco Partners beneficially owns 40% or more of the total number of ordinary shares then outstanding; (ii) a number of directors (rounded up to the nearest whole number) equal to 40% of the total directors for so long as Francisco Partners beneficially owns at least 30% and less than 40% of the total number of ordinary shares then outstanding; (iii) a number of directors (rounded up to the nearest whole number) equal to 30% of the total directors for so long as Francisco Partners beneficially owns at least 20% and less than 30% of the total number of ordinary shares then outstanding; (iv) two directors for so long as Francisco Partners beneficially owns at least 10% and less than 20% of the total number of ordinary shares then outstanding; and (v) one director for so long as Francisco Partners beneficially owns at least 5% and less than 10% of the total number of ordinary shares then outstanding. This provision will also provide that Francisco Partners may assign such right to an affiliate of Francisco Partners. Our amended and restated memorandum and articles of association will prohibit us from increasing or decreasing the size of our board of directors without the prior written consent of Francisco Partners for so long as it has nomination rights.
We are controlled by Francisco Partners, whose interests may conflict with yours. The concentrated ownership of our ordinary shares will prevent you and other shareholders from influencing significant decisions.
As a result of its ownership of our ordinary shares, Francisco Partners, so long as it holds a majority of our outstanding ordinary shares, will have the ability to control the outcome of matters submitted to a vote of shareholders and, through our board of directors, the ability to control decision-making with respect to our business direction and policies. Matters over which Francisco Partners will, directly or indirectly, exercise control following this offering include:
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the election of our board of directors and the appointment and removal of our officers; |
|
mergers and other business combination transactions, including proposed transactions that would result in our shareholders receiving a premium price for their shares; |
|
other acquisitions or dispositions of businesses or assets; |
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incurrence of indebtedness and the issuance of equity securities; |
|
the repurchase of shares and payment of dividends; and |
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the issuance of shares to management under our equity compensation plans. |
31
Even if Francisco Partners ownership of our ordinary shares falls below a majority, it may continue to be able to strongly influence or effectively control our decisions. Under Cayman Islands Law, Francisco Partners and its affiliates do not have any obligation to present to us, and Francisco Partners and its affiliates may separately pursue, corporate opportunities of which they become aware, even if those opportunities are ones that we would have pursued if granted the opportunity. For additional information about our relationship with Francisco Partners, see Certain Relationships and Related Party Transactions.
You will incur immediate dilution as a result of this offering.
If you purchase ordinary shares in this offering, you will pay more for your shares than the pro forma net tangible book value of your shares. As a result, you will incur immediate dilution of $11.27 per share, representing the difference between the assumed initial public offering price of $13.00 per share and our pro forma net tangible book value per share as of September 23, 2016 after giving effect to this offering of $1.73. Accordingly, should we be liquidated at our book value, you would not receive the full amount of your investment. In addition, you may also experience additional dilution upon future equity issuances or the exercise of stock options to purchase ordinary shares granted to our employees, consultants and directors under our equity compensation plans. See Dilution.
We are an emerging growth company and may elect to comply with reduced public company reporting requirements, which could make our ordinary shares less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years after the first sale of our ordinary shares pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2021. However, if certain events occur prior to the end of such five-year period, including if we become a large accelerated filer, our annual gross revenue exceeds $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We have taken advantage of certain of the reduced disclosure obligations regarding executive compensation in this prospectus and may elect to take advantage of other reduced disclosure obligations in future filings. As a result, the information that we provide to holders of our ordinary shares may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on these exemptions. If some investors find our ordinary shares less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our ordinary shares and the price for our ordinary shares may be more volatile.
Under the JOBS Act, emerging growth companies may also elect to delay adoption of new or revised accounting standards until such time as those standards apply to private companies. We have elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies.
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We do not expect to pay any cash dividends for the foreseeable future.
On August 11, 2015, our board of directors approved and we declared a one-time approximately $22.1 million cash dividend on our outstanding preferred shares using proceeds from borrowings under our Credit Facilities and cash on hand. However, we do not anticipate that we will pay any cash dividends on our ordinary shares for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, contractual restrictions (including those under our Credit Facilities and any potential indebtedness we may incur in the future), restrictions imposed by applicable law, tax considerations and other factors our board of directors deems relevant. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our ordinary shares, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our ordinary shares.
Our articles of association contain anti-takeover provisions that could adversely affect the rights of our shareholders.
Our articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of control transactions, including, among other things:
|
provisions that authorize our board of directors, without action by our shareholders, to issue additional ordinary shares and preferred shares with preferential rights determined by our board of directors; |
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provisions that permit only a majority of our board of directors or the chairman of our board of directors to call shareholder meetings and therefore do not permit shareholders to call shareholder meetings; |
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provisions that impose advance notice requirements, minimum shareholding periods and ownership thresholds, and other requirements and limitations on the ability of shareholders to propose matters for consideration at shareholder meetings; provided, however, at any time when Francisco Partners beneficially owns, in the aggregate, at least 5% of our ordinary shares, such advance notice procedure will not apply to it; and |
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a staggered board whereby our directors are divided into three classes, with each class subject to re-election once every three years on a rotating basis. |
These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. With our staggered board of directors, at least two annual meetings of shareholders are generally required in order to effect a change in a majority of our directors. Our staggered board of directors can discourage proxy contests for the election of our directors and purchases of substantial blocks of our shares by making it more difficult for a potential acquirer to gain control of our board of directors in a relatively short period of time. For a further discussion of these and other such anti-takeover provisions, see Description of Share Capital.
The issuance of preferred shares could adversely affect holders of ordinary shares.
Our board of directors is authorized to issue preferred shares without any action on the part of holders of our ordinary shares. Our board of directors also has the power, without
33
shareholder approval, to set the terms of any such preferred shares that may be issued, including voting rights, dividend rights, preferences over our ordinary shares with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue preferred shares in the future that have preference over our ordinary shares with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred shares with voting rights that dilute the voting power of our ordinary shares, the rights of holders of our ordinary shares or the price of our ordinary shares could be adversely affected.
Our management will have significant flexibility in using the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately.
We intend to use approximately $40.0 million of the net proceeds from this offering to repay outstanding borrowings under our Credit Facilities and the remainder for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that we believe will complement our business. However, depending on future developments and circumstances, we may use some of the proceeds for other purposes. We do not have more specific plans for the net proceeds from this offering. Therefore, our management will have significant flexibility in applying most of the net proceeds we receive from this offering. The net proceeds could be applied in ways that do not improve our operating results. The actual amounts and timing of these expenditures will vary significantly depending on a number of factors, including the amount of cash used in or generated by our operations.
You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the United States.
Our corporate affairs are governed by our amended and restated memorandum and articles of association and by the Companies Law (2013 Revision) and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands have a less exhaustive body of securities laws as compared to the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the United States federal courts.
As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and a portion our assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us in the United States in the event that you believe that your rights have been infringed under U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this
34
kind, the laws of the Cayman Islands may render you unable to enforce a judgment against our assets. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. For more information regarding the relevant laws of the Cayman Islands, see Enforcement of Civil Liabilities Under U.S. Federal Securities Laws.
There can be no assurance that we will not be a passive foreign investment company for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ordinary shares.
A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. Our PFIC status for any taxable year can be determined only after the close of that year.
Based on the current and anticipated value of our assets and the composition of our income and assets, we do not expect to be treated as a PFIC for U.S. federal income purposes for our current taxable year ending December 30, 2016. However, the determination of PFIC status is based on an annual determination that cannot be made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. Accordingly, we cannot assure you that we will not be treated as a PFIC for our current taxable year ending December 30, 2016, or for any future taxable year or that the IRS will not take a contrary position.
If we are a PFIC for any taxable year during which a U.S. person holds ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. person. See Material Tax ConsiderationsMaterial U.S. Federal Income Tax ConsequencesPassive Foreign Investment Company. You are strongly urged to consult your tax advisors as to whether or not we will be a PFIC.
35
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact included in this prospectus are forward-looking statements. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by the use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this prospectus, including those entitled Prospectus Summary, Business and Managements Discussion and Analysis of Financial Condition and Results of Operations. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected.
Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in this prospectus under the heading Risk Factors, as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
36
ENFORCEMENT OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS
We are organized under the laws of the Cayman Islands. As a result, although we have appointed our subsidiary, Ichor Systems, Inc., as our agent for service of process in the United States, it may be difficult for a shareholder to effect service of process within the United States upon us, or to enforce against us judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
The Company has been advised by its Cayman Islands legal counsel that the courts of the Cayman Islands are unlikely (1) to recognize or enforce against the Company judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any State, and (2) in original actions brought in the Cayman Islands, to impose liabilities against the Company predicated upon the civil liability provisions of the securities laws of the United States or any State, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
37
We estimate that the net proceeds from our issuance and sale of 5,750,000 ordinary shares in this offering will be approximately $67.0 million, based upon an initial public offering price of $13.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares, we will not receive any proceeds from the sale of ordinary shares by the selling shareholders.
A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share would increase (decrease) our net proceeds from this offering by approximately $5.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to obtain additional capital to fund our operations and growth, to create a public market for our ordinary shares and to facilitate our future access to the public equity markets. We expect to use approximately $40.0 million of the net proceeds of this offering to repay outstanding borrowings under our Credit Facilities, of which approximately $25.0 million is expected be used to repay borrowings under our Term Loan Facility and approximately $15.0 million is expected be used to repay borrowings under our Revolving Credit Facility. The remainder of the net proceeds will be used for general corporate purposes, which we expect to include funding working capital, operating expenses and the selective pursuit of business development opportunities in our focus segment areas. At this time, other than the repayment of indebtedness under our Credit Facilities, we have not specifically identified a large single use for which we intend to use the net proceeds, and, accordingly, we are not able to allocate the net proceeds among any of these potential uses in light of the variety of factors that will impact how such net proceeds are ultimately utilized by us. Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade and interest-bearing instruments.
In April 2016, we increased our Term Loan Facility by an additional principal amount of $15.0 million to finance, along with $4.0 million under our Revolving Credit Facility, the Ajax Acquisition.
As of September 23, 2016, we had $66.3 million of indebtedness outstanding under our Term Loan Facility and $15.0 million of indebtedness outstanding under our Revolving Credit Facility, which Credit Facilities mature on August 11, 2020. The outstanding amount of our Term Loan Facility reflected in our consolidated financial statements included elsewhere in this prospectus is net of $2.0 million of debt discount. Borrowings under our Credit Facilities bear interest (x) for base rate loans, at the base rate (as defined below) plus 3.00% or (y) for eurodollar loans, at the eurodollar rate (as defined below) plus 4.00%. The base rate equals the highest of (i) the prime rate, (ii) the federal funds effective rate plus 0.50% and (iii) the eurodollar rate plus 1.00%. The eurodollar rate equals LIBOR, provided that with respect to our Term Loan Facility only, LIBOR shall not be less than 1.00%. As of September 23, 2016, the applicable interest rate under our Credit Facilities was 4.89% per annum. No prepayment penalty is owed with respect to the prepayment we intend to make using proceeds of this offering.
38
In August 2015, our board of directors approved and we declared a one-time approximately $22.1 million cash dividend, or the 2015 Dividend, on our outstanding preferred shares using proceeds from our Credit Facilities and cash on hand. However, we do not anticipate that we will pay any cash dividends on our ordinary shares for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, contractual restrictions (including those under our Credit Facilities and any potential indebtedness we may incur in the future), restrictions imposed by applicable law, tax considerations and other factors our board of directors deems relevant. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our ordinary shares, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our ordinary shares.
Because we are a holding company, our ability to pay cash dividends on our ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries. In particular, the agreements governing our and our subsidiaries indebtedness, including our Credit Facilities, contain restrictions on the ability of our subsidiaries to make cash dividends to us.
39
The following table sets forth our cash and restricted cash and consolidated capitalization as of September 23, 2016 on:
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a historical basis; |
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a pro forma basis to give effect to the conversion of all outstanding Series A preferred shares into 142,728,221 ordinary shares and the subsequent 1 for 8.053363 reverse split of our ordinary shares; and |
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a pro forma as adjusted basis to also give effect to the issuance and sale of 5,750,000 ordinary shares in this offering at an assumed initial public offering price of $13.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds as described in Use of Proceeds. |
You should read the following table in conjunction with the sections entitled Prospectus Summary-Recent Developments, Use of Proceeds, Unaudited Pro Forma Consolidated Financial Statements, Selected Historical Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.
September 23, 2016 | ||||||||||||
Actual |
Pro
Forma |
Pro Forma
As Adjusted |
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(in thousands except share data) | ||||||||||||
Cash and restricted cash |
$ | 25,304 | $ | 25,304 | $ | 52,297 | ||||||
Long-term debt: |
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Senior credit facilities: |
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Revolving credit facility |
15,000 | 15,000 | | |||||||||
Term loan |
66,260 | 66,260 | 41,260 | |||||||||
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Total long-term debt(1) |
81,260 | 81,260 | 41,260 | |||||||||
Equity: |
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Preferred shares, par value $0.0001 per share, 150,000,000 shares authorized, 142,728,221 shares issued and outstanding, actual; 20,000,000 shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted |
142,728 | | | |||||||||
Ordinary shares, par value $0.0001 per share, 250,000,000 shares authorized and 1,024,405 shares issued and outstanding, actual; 200,000,000 shares authorized and 17,850,009 shares issued and outstanding, pro forma; 200,000,000 shares authorized and 23,600,009 issued and outstanding, pro forma as adjusted |
| 2 | 2 | |||||||||
Additional paid-in-capital |
4,349 | 147,075 | 214,068 | |||||||||
Retained earnings |
(62,305 | ) | (62,305 | ) | (62,305 | ) | ||||||
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Total equity |
84,772 | 84,772 | 151,765 | |||||||||
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Total capitalization |
$ | 166,032 | $ | 166,032 | $ | 193,025 | ||||||
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(1) | Includes $66.3 million outstanding under our Term Loan Facility and $15.0 million outstanding under our Revolving Credit Facility, as of September 23, 2016. The outstanding amount under our term loan facility reflected in our consolidated financial statements included elsewhere in this prospectus is net of $2.0 million of debt discount. |
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A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount for each of cash and restricted cash, additional paid-in capital, total equity and total capitalization by approximately $5.3 million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per ordinary share and the pro forma net tangible book deficit per ordinary share immediately after this offering. Net tangible book deficit per share represents:
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total assets less intangible assets; |
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reduced by our total liabilities; and |
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divided by the number of ordinary shares outstanding. |
Dilution per share represents the difference between the amount per share paid by purchasers of our ordinary shares in this offering and the pro forma net tangible book deficit per share immediately after this offering. As of September 23, 2016, our net tangible book deficit was approximately $26.3 million, or $25.65 per share. As of September 23, 2016, our pro forma net tangible book deficit was approximately $26.3 million, or $1.47 per share based on 17,850,009 ordinary shares outstanding prior to this offering, which includes the assumed conversion of preferred shares into ordinary shares immediately prior to the completion of this offering and the subsequent 1 for 8.053363 reverse split of our ordinary shares. After giving effect to our sale in this offering of 5,750,000 ordinary shares at the assumed initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated expenses payable by us, our pro forma net tangible book value per share as of September 23, 2016 would have been $1.73 per share. This represents an immediate dilution of $11.27 per share to investors purchasing our ordinary shares in this offering. The following table illustrates this dilution per share:
Assumed initial public offering price per share |
$ | 13.00 | ||||||
Pro forma net tangible book deficit per share as of September 23, 2016 |
$ | (1.47 | ) | |||||
Increase per share attributable to new investors |
3.20 | |||||||
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Pro forma net tangible book value per share as of September 23, 2016 after giving effect to this offering |
1.73 | |||||||
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Dilution per share to new investors |
$ | 11.27 | ||||||
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A $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease net tangible book value by $5.3 million, or $0.93 per share, and would increase or decrease the dilution per share to purchasers in this offering by $0.78, based on the assumptions set forth above.
The following table summarizes as of September 23, 2016, on an as adjusted basis, the number of ordinary shares purchased, the total consideration paid and the average price per share paid by our existing shareholders and by purchasers in this offering, based upon the initial public offering price of $13.00 per share and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:
Shares Purchased | Total Consideration |
Average
Price per Share |
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Number | Percentage | Amount | Percentage | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Existing shareholders |
17,850,009 | 76 | % | $ | 142,728,000 | 66 | % | $ | 8.00 | |||||||||||
New investors |
5,750,000 | 24 | 74,750,000 | 34 | 13.00 | |||||||||||||||
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Total |
23,600,009 | 100 | % | $ | 217,478,000 | 100 | % | |||||||||||||
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Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters option to purchase additional shares. If the underwriters option to purchase additional shares from the selling shareholders is exercised in full, our existing shareholders would own approximately 73% and our new investors would own approximately 27% of the total number of our ordinary shares outstanding after this offering.
To the extent that any options or other equity incentive grants are issued in the future (including pursuant to the equity incentive plan we expect to adopt in connection with the completion of this offering) with an exercise price or purchase price below the initial public offering price, new investors will experience further dilution.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present our historical selected consolidated financial data. The selected consolidated statement of operations data for the years ended December 26, 2014 and December 25, 2015 and the selected balance sheet data as of December 26, 2014 and December 25, 2015 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated statement of operations data for the nine months ended September 25, 2015 and September 23, 2016 and the selected balance sheet data as of September 23, 2016 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial information has been prepared on the same basis as the annual consolidated financial information and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of September 23, 2016 and the results of operations for the nine months ended September 25, 2015 and September 23, 2016.
Our historical results are not necessarily indicative of the results that may be expected in the future and interim results are not necessarily indicative of results to be expected for the full year. You should read the selected historical financial data below in conjunction with the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related notes included elsewhere in this prospectus.
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Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
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(Unaudited) | ||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||
Consolidated Statement of Operations Data: |
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Net sales |
$ | 249,087 | $ | 290,641 | $ | 226,282 | $ | 274,339 | ||||||||
Cost of sales(1) |
212,747 | 242,087 | 188,197 | 230,349 | ||||||||||||
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|||||||||
Gross profit |
36,340 | 48,554 | 38,085 | 43,990 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development(1) |
3,915 | 4,813 | 3,469 | 4,229 | ||||||||||||
Selling, general and administrative(1) |
22,465 | 24,729 | 18,084 | 20,329 | ||||||||||||
Amortization of intangible assets |
6,411 | 6,411 | 4,808 | 5,210 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
32,791 | 35,953 | 26,361 | 29,768 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
3,549 | 12,601 | 11,724 | 14,222 | ||||||||||||
Interest expense |
3,118 | 3,831 | 2,898 | 3,245 | ||||||||||||
Other expense (income), net |
253 | (46 | ) | (42 | ) | (384 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from continuing operations before income taxes |
178 | 8,816 | 8,868 | 11,361 | ||||||||||||
Income tax benefit from continuing operations(2) |
(5,604 | ) | (3,991 | ) | (3,924 | ) | (1,427 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income from continuing operations |
5,782 | 12,807 | 12,792 | 12,788 | ||||||||||||
Income (loss) from discontinued operations before taxes |
132 | (7,406 | ) | (718 | ) | (4,013 | ) | |||||||||
Income tax expense (benefit) from discontinued operations |
(254 | ) | (225 | ) | (326 | ) | 26 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) from discontinued operations |
386 | (7,181 | ) | (392 | ) | (4,039 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
6,168 | 5,626 | 12,400 | 8,749 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Less: Preferred stock dividend |
| (22,127 | ) | | | |||||||||||
Less: Undistributed earnings attributable to preferred shareholders |
(6,165 | ) | | (12,773 | ) | (12,663 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to common shareholders |
$ | 3 | $ | (16,501 | ) | $ | (373 | ) | $ | (3,914 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) per share from continuing operations attributable to common shareholders:(3) |
||||||||||||||||
Basic |
$ | 0.04 | $ | (36.31 | ) | $ | 0.09 | $ | 0.16 | |||||||
Diluted |
$ | 0.02 | $ | (36.31 | ) | $ | 0.05 | $ | 0.05 | |||||||
Net income (loss) per share attributable to common stockholders:(3) |
||||||||||||||||
Basic |
$ | 0.04 | $ | (64.28 | ) | $ | (1.74 | ) | $ | (4.95 | ) | |||||
Diluted |
$ | 0.02 | $ | (64.28 | ) | $ | (1.78 | ) | $ | (5.06 | ) | |||||
Shares used to compute net income (loss) from continuing operations per share attributable to common stockholders:(3) |
||||||||||||||||
Basic |
67,663 | 256,701 | 213,935 | 790,678 | ||||||||||||
Diluted |
148,357 | 256,701 | 414,028 | 2,392,154 | ||||||||||||
Shares used to compute net income per share attributable to common stockholders:(3) |
||||||||||||||||
Basic |
67,663 | 256,705 | 214,368 | 790,707 | ||||||||||||
Diluted |
148,357 | 256,705 | 209,551 | 773,518 |
45
Year Ended | Nine Months Ended | |||||||||||
December 26,
2014 |
December 25,
2015 |
September 23,
2016 |
||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash and restricted cash |
$ | 14,373 | $ | 24,188 | $ | 25,304 | ||||||
Working capital |
28,117 | 24,860 | 35,626 | |||||||||
Total assets |
215,563 | 198,023 | 244,101 | |||||||||
Total long-term debt(4) |
55,750 | 65,000 | 81,260 | |||||||||
Preferred stock |
142,728 | 142,728 | 142,728 | |||||||||
Total shareholders equity |
90,061 | 74,678 | 84,772 |
(1) | Share-based compensation included in the consolidated statement of operations data above was as follows: |
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 30,
2016 |
|||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Share-Based Compensation Expense: |
||||||||||||||||
Cost of sales |
$ | 33 | $ | 105 | $ | 22 | $ | 12 | ||||||||
Research and development |
51 | 46 | 35 | 27 | ||||||||||||
Selling general and administrative |
927 | 967 | 750 | 1,306 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total share-based compensation expense |
$ | 1,011 | $ | 1,118 | $ | 807 | $ | 1,345 | ||||||||
|
|
|
|
|
|
|
|
(2) | Income tax expense (benefit) consists primarily of federal and state income tax benefits in the United States offset in part by income tax expense in certain foreign jurisdictions. Our historical income tax benefit resulted from losses recorded in the United States, where we incur the majority of our corporate expenses and which was being fully benefited through the third quarter of 2015 as a result of acquired deferred tax liabilities, offset by income in Singapore, which has no tax expense as a result of a tax holiday through 2019. Starting in the fourth quarter of 2015, the Companys tax provision consisted primarily of foreign based tax provisions primarily in Malaysia and Scotland. We are no longer benefiting from losses generated in the United States, with the exception of the third quarter of 2016 during which we recorded a one-time tax benefit of $2.2 million related to the Ajax acquisition. |
(3) | Please see Note 14 of our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our actual basic and diluted net income per share and our pro forma unaudited basic and diluted net income per share. |
(4) | Does not include debt discount of $615, $2,412 and $2,017 as of December 26, 2014, December 25, 2015 and September 23, 2016, respectively. |
46
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in Risk Factors.
Our fiscal year ends on the last Friday of December and our fiscal quarters end on the last Friday of the 13th week of the year, the last Friday of June and the last Friday of September, respectively. The fiscal years ended December 26, 2014 and December 25, 2015, referred to herein as fiscal 2014 and fiscal 2015, respectively, had 52 weeks each, and the fiscal year ended December 30, 2016 will have 53 weeks. The third fiscal quarters ended September 25, 2015 and September 23, 2016 each had 13 weeks.
Overview
We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems for semiconductor capital equipment. Our primary offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as electroplating and cleaning. We also manufacture certain components for internal use in fluid delivery systems and for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.
Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing process. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Historically, semiconductor OEMs internally designed and manufactured the fluid delivery subsystems used in their process tools. Currently, most OEMs outsource the design, engineering and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are also increasingly outsourcing the design, engineering and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers highly specialized engineering, design and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their fixed costs and development time, as well as provided significant growth opportunities for specialized subsystems suppliers like us.
We have a global footprint with volume production facilities in Malaysia, Singapore and Union City, California. In fiscal 2014 and 2015, our two largest customers by sales were Lam Research and Applied Materials. During fiscal 2014 and fiscal 2015, respectively, we generated sales of $249.1 million and $290.6 million, gross profit of $36.3 million and $48.6 million, net
47
income from continuing operations of $5.8 million and $12.8 million and adjusted net income from continuing operations of $11.7 million and $20.2 million. During the nine months ended September 25, 2015 and September 23, 2016, respectively, we generated sales of $226.3 million and $274.3 million, gross profit of $38.1 million and $43.9 million, net income from continuing operations of $12.8 million and $12.8 million and adjusted net income from continuing operations of $17.9 million and $19.8 million. Adjusted net income is a financial measure that is not calculated in accordance with GAAP. See note 3 to Prospectus SummarySummary Consolidated Financial Data for a discussion of adjusted net income, an accompanying presentation of the most directly comparable GAAP financial measure, net income (loss), and a reconciliation of the differences between adjusted net income and net income.
Key Factors Affecting Our Business
Investment in Semiconductor Manufacturing Equipment
The design and manufacturing of semiconductor devices is constantly evolving and becoming more complex in order to achieve greater performance and efficiency. To keep pace with these changes, OEMs need to refine their existing products and invest in developing new products. In addition, semiconductor device manufacturers will continue to invest in new wafer fabrication equipment to expand their production capacity and to support new manufacturing processes.
Outsourcing of Subsystems by Semiconductor OEMs
Faced with increasing manufacturing complexities, more complex subsystems, shorter product lead times, shorter industry spend cycles, and significant capital requirements, outsourcing of subsystems and components by OEMs has continued to grow. In the past two decades, OEMs have outsourced most of their gas delivery systems to suppliers such as us. OEMs have also started to outsource their chemical delivery systems in recent years. Our results will be affected by the degree to which outsourcing of these fluid delivery systems by OEMs continues to grow.
Cyclicality of Semiconductor Device Industry
Our business is indirectly subject to the cyclicality of the semiconductor device industry. In fiscal 2015, we derived approximately 97% of our sales from the semiconductor device industry. Demand for semiconductor devices can fluctuate significantly based on changes in general economic conditions, including consumer spending, demand for the products that include these devices and other factors. These fluctuations have in the past resulted in significant variations in our results of operations. The cyclicality of the semiconductor device industries will continue to impact our results of operations in the future.
Customer Concentration
The number of capital equipment manufacturers for the semiconductor device industry has undergone significant consolidation in recent years, resulting in a small number of large manufacturers. Our customers have led much of this consolidation, resulting in our sales being concentrated in a few customers. In fiscal 2015, our two largest customers were Lam Research and Applied Materials, which accounted for approximately 57% and 38% of our sales, respectively. The sales we generated from these customers in fiscal 2015 were spread across 14 different product lines utilized in 10 unique manufacturing process steps. We believe the diversity of products that we provide to these customers, combined with the fact that our
48
customers use our products on numerous types of process equipment, lessens the impact of the inherent concentration in the industry. Our customers often require reduced prices or other pricing, quality or delivery commitments as a condition to their purchasing from us in any given period or increasing their purchase volume, which can, among other things, result in reduced gross margins in order to maintain or expand our market share. Although we do not have any long-term contracts that require customers to place orders with us, Lam Research and Applied Materials have been our customers for over 10 years.
Discontinued Operations
Discontinued operations consist of the results of operations for our systems integration business. The primary purpose of this business was to build modules and tools (metal organic chemical vapor deposition or ion implant) for Veeco Instruments, Inc. In January 2016, our management and the board of directors decided to discontinue this business because it consumed a significant amount of resources while generating low gross margins and contributing only a small amount to our net income. We completed our final builds of these products at the end of May 2016.
Components of Our Results of Operations
The following discussion sets forth certain components of our statements of operations as well as significant factors that impact those items.
Sales
We generate sales primarily from the design, manufacture and sale of subsystems for semiconductor capital equipment and the sale of refurbished tools. Sales are recognized when persuasive evidence of an arrangement exists, transfer of title has occurred, the fee is fixed or determinable, and collectability is reasonably assured. Our shipping terms are FOB shipping point or FOB destination, or equivalent terms, and accordingly, sales are recognized when legal title has passed to the customer upon shipment or delivery.
Cost of Sales and Gross Profit
Cost of sales consists primarily of purchased materials, direct labor, indirect labor, plant overhead cost and depreciation expense for our manufacturing facilities and equipment, as well as certain engineering costs that are related to non-recurring engineering services that we provide to, and for which we invoice, our customers in connection with their product development activities. Our business has a highly variable cost structure with a low fixed overhead structure as a percentage of cost of sales. In addition, our existing global manufacturing plant capacity is scalable and we are able to adjust to increased customer demand for our products without significant additional capital investment. We operate our business in this manner in order to avoid having excessive fixed costs during a cyclical downturn while retaining flexibility to expand our production volumes during periods of growth. However, this approach results in a smaller increase in gross margin as a percentage of sales in times of increased demand.
Since the gross margin on each of our products differs, our overall gross margin as a percentage of our sales changes based on the mix of products we sell in any period.
Operating Expenses
Our operating expenses primarily include research and development and sales, general and administrative expenses. Personnel costs are the most significant component of operating
49
expenses and consist of salaries, benefits, bonuses, share-based compensation and, with regard to sales and marketing expense, sales commissions. Operating expenses also include overhead costs for facilities, IT and depreciation. In addition, our operating expenses include costs related to the impairment of goodwill and intangible assets, amortization of intangible assets and restructuring costs.
Research and development. Research and development expense consists primarily of activities related to product design and other development activities, new component testing and evaluation, and test equipment and fixture development. Research and development expense does not include engineering costs that are related to non-recurring engineering services that we provide to and for which we invoice our customers as part of sales, which are reflected as cost of sales. We expect research and development expense will increase in absolute dollars as our customers continue to increase their demand for new product designs and as we invest in our research and product development efforts to enhance our product capabilities and access new customer markets.
Selling, general and administrative . Selling expense consists primarily of salaries and commissions paid to our sales and sales support employees and other costs related to the sales of our products. General and administrative expense consists primarily of salaries and overhead associated with our administrative staff, professional fees and depreciation and other allocated facility related costs. We expect selling expenses to increase in absolute dollars as we continue to invest in expanding our markets and as we expand our international operations. After this offering, we expect general and administrative expenses to also increase in absolute dollars due to an increase in costs related to being a public company, including higher legal, corporate insurance and accounting expenses.
Amortization of intangibles . Amortization of intangible assets is related to our finite-lived intangible assets and is computed using the straight-line method over the estimated economic life of the asset.
Interest Expense, net
Interest expense, net consists of interest on our outstanding debt under our Credit Facilities and any other indebtedness we may incur in the future.
Other Expense (Income), Net
The functional currency of our international subsidiaries located in the United Kingdom, Singapore and Malaysia is the U.S. dollar. Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense, net on the accompanying consolidated statements of operations. Substantially all of our sales and agreements with third party suppliers provide for pricing and payments in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations.
Income Tax Expense (Benefit)
Income tax expense (benefit) consists primarily of federal and state income tax benefits in the United States offset in part by income tax expense in certain foreign jurisdictions. Our historical income tax benefit resulted from losses recorded in the United States, where we incur the majority of our corporate expenses and which was being fully benefited through the third quarter of 2015 as a result of acquired deferred tax liabilities, offset by income in Singapore, which has no tax expense as a result of a tax holiday through 2019. Starting in the fourth
50
quarter of 2015, the Companys tax provision consisted primarily of foreign based tax provisions primarily in Malaysia and Scotland. We are no longer benefiting from losses generated in the United States, with the exception of the third quarter of 2016 during which we recorded a one-time tax benefit of $2.2 million related to the Ajax acquisition.
Results of Operations
The following table sets forth our results of operations for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
|||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||||||
Sales |
$ | 249,087 | $ | 290,641 | $ | 226,282 | $ | 274,339 | ||||||||
Cost of sales |
212,747 | 242,087 | 188,197 | 230,349 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
36,340 | 48,554 | 38,085 | 43,990 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
3,915 | 4,813 | 3,469 | 4,229 | ||||||||||||
Selling, general and administrative |
22,465 | 24,729 | 18,084 | 20,329 | ||||||||||||
Amortization of intangible assets |
6,411 | 6,411 | 4,808 | 5,210 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
32,791 | 35,953 | 26,361 | 29,768 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
3,549 | 12,601 | 11,724 | 14,222 | ||||||||||||
Interest expense |
3,118 | 3,831 | 2,898 | 3,245 | ||||||||||||
Other expense (income), net |
253 | (46 | ) | (42 | ) | (384 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
178 | 8,816 | 8,868 | 11,361 | ||||||||||||
Income tax expense (benefit) from continuing operations |
(5,604 | ) | (3,991 | ) | (3,924 | ) | (1,427 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income from continuing operations |
5,782 | 12,807 | 12,792 | 12,788 | ||||||||||||
Income (loss) from discontinued operations before taxes |
132 | (7,406 | ) | (718 | ) | (4,013 | ) | |||||||||
Income tax expense (benefit) from discontinued operations |
(254 | ) | (225 | ) | (326 | ) | 26 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) from discontinued operations |
386 | (7,181 | ) | (392 | ) | (4,039 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 6,168 | $ | 5,626 | $ | 12,400 | $ | 8,749 | ||||||||
|
|
|
|
|
|
|
|
51
The following table sets forth our results of operations as a percentage of our total sales for the periods presented.
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
|||||||||||||
(Unaudited) | ||||||||||||||||
(As a percentage of sales) | ||||||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||||||
Sales |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of sales |
85.4 | 83.3 | 83.2 | 84.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
14.6 | 16.7 | 16.8 | 16.0 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
1.6 | 1.7 | 1.5 | 1.5 | ||||||||||||
Selling, general and administrative |
9.0 | 8.5 | 8.0 | 7.4 | ||||||||||||
Amortization of intangible assets |
2.6 | 2.2 | 2.1 | 1.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
13.2 | 12.4 | 11.6 | 10.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
1.4 | 4.3 | 5.2 | 5.2 | ||||||||||||
Interest expense |
1.3 | 1.3 | 1.3 | 1.2 | ||||||||||||
Other expense (income), net |
0.1 | | | (0.1 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
0.1 | 3.0 | 3.9 | 4.1 | ||||||||||||
Income tax expense (benefit) from continuing operations |
(2.2 | ) | (1.4 | ) | (1.7 | ) | (0.5 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income from continuing operations |
2.3 | 4.4 | 5.6 | 4.6 | ||||||||||||
Income (loss) from discontinued operations before taxes |
0.1 | (2.5 | ) | (0.3 | ) | (1.5 | ) | |||||||||
Income tax expense (benefit) from discontinued operations |
(0.1 | ) | (0.1 | ) | (0.1 | ) | | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) from discontinued operations |
0.2 | (2.4 | ) | (0.2 | ) | (1.5 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
2.5 | 2.0 | 5.4 | 3.1 | ||||||||||||
|
|
|
|
|
|
|
|
Comparison of the Nine Months Ended September 25, 2015 and September 23, 2016 (Unaudited)
Nine Months Ended | Change | |||||||||||||||
September 25, 2015 | September 23, 2016 | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Sales |
$ | 226,282 | $ | 274,339 | $ | 48,057 | 21.2 | % |
Sales
The increase in sales from the nine months ended September 25, 2015 to the nine months ended September 23, 2016 was primarily related to an increase in sales volume, partially offset by a decrease in sales from our refurbishment business due to a shortage of equipment available for purchase by us. The sales volume increase was due to an approximately 5%, or approximately $23.9 million, increase in our market share at our two largest customers, and an approximately $16.9 million increase in the volume of purchases by one of our two largest customers driven by overall industry growth. We refer to the volume of purchases from us by a
52
customer of ours relative to its other suppliers as our market share at that customer. Ajax contributed $13.4 million to our sales for the nine months ended September 23, 2016. On a geographic basis, sales in the United States increased by $26.0 million to $151.7 million for the nine months ended September 23, 2016 compared to $125.7 million for the nine months ended September 25, 2015. Foreign sales increased by $22.4 million to $123.0 million for the nine months ended September 23, 2016 compared to $100.6 million for the nine months ended September 25, 2015.
Cost of Sales and Gross Margin
Nine Months Ended | Change | |||||||||||||||
September 25, 2015 | September 23, 2016 | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cost of sales |
$ | 188,197 | $ | 230,349 | $ | 42,152 | 22.4 | % | ||||||||
Gross profit |
$ | 38,085 | $ | 43,990 | $ | 5,905 | 15.5 | % | ||||||||
Gross margin |
16.8 | % | 16.0 | % |
The increase in cost of sales from the nine months ended September 25, 2015 to the nine months ended September 23, 2016 was primarily due to the increase in sales.
Gross profit increased by $5.9 million driven primarily by an increase in volume of $8.1 million, which included approximately $2.2 million from the acquisition of Ajax, partially offset by a decline in our refurbishment business of $1.3 million due to reduced volumes and very low factory utilization, a decline in margin at individual customers of $0.7 million and a shift in customer mix at our two largest customers of $0.2 million.
Gross margin decreased by 0.8 percentage points from 16.8% to 16.0%. The cause of this decline was primarily the decline in margins in our refurbishment business. In the nine months ended September 25, 2015, our refurbishment business was among our more profitable operations, while in the nine months ended September 23, 2016, revenue from our refurbishment business decreased significantly as compared to the prior year period. A decline in margin at individual customers and a shift in customer mix also negatively impacted our gross margin in the 2016 period.
Research and Development
Nine Months Ended | Change | |||||||||||||||
September 25, 2015 | September 23, 2016 | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Research and development |
$ | 3,469 | $ | 4,229 | $ | 760 | 21.9 | % |
The increase in research and development expenses from the nine months ended September 25, 2015 to the nine months ended September 23, 2016 was due to the increase in headcount to support additional projects.
Selling, General and Administrative
Nine Months Ended | Change | |||||||||||||||
September 25, 2015 | September 23, 2016 | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Selling, general and administrative |
$ | 18,084 | $ | 20,329 | $ | 2,245 | 12.4 | % |
53
The increase in selling, general and administrative expenses from the nine months ended September 25, 2015 to the nine months ended September 23, 2016 was due to $1.2 million in increased acquisition-related costs, $1.0 million in increased expenses from Ajax, $0.6 million in increased share-based compensation expenses, $0.4 million in increased initial public offering expenses, and $0.2 million in increased incentive compensation expenses related to improved operating results, offset in part by a $1.2 million decrease in cash bonuses awarded to holders of employee equity awards in connection with the 2015 Dividend.
Interest Expense, Net
Nine Months Ended | Change | |||||||||||||||
September 25, 2015 | September 23, 2016 | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Interest expense, net |
$ | 2,898 | $ | 3,245 | $ | 347 | 12.0 | % |
Interest expense, net increased in the nine months ended September 23, 2016 compared to the nine months ended September 25, 2015 due to a $17.3 million increase in the average amount borrowed in the 2016 period compared to the 2015 period as a result of additional borrowings in connection with the Ajax acquisition. Prevailing interest rates were comparable during those periods.
Other Expense (Income), Net
Nine Months Ended | Change | |||||||||||||||
September 25, 2015 | September 23, 2016 | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Other expense (income), net |
$ | (42 | ) | $ | (384 | ) | $ | (342 | ) | 814.3 | % |
The change in other expense (income), net from the nine months ended September 25, 2015 to the nine months ended September 23, 2016 was due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations, principally the Singapore Dollar, Malaysian Ringgit and British Pound.
Income Tax Expense (Benefit) from Continuing Operations
Nine Months Ended | Change | |||||||||||||||
September 25, 2015 | September 23, 2016 | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Income tax benefit from continuing operations |
$ | (3,924 | ) | $ | (1,427 | ) | $ | 2,497 | (63.6) | % |
The decrease in the income tax benefit from continuing operations from the nine months ended September 25, 2015 to the nine months ended September 23, 2016 was primarily due to the recognition of the valuation allowance against substantially all U.S. federal and state net deferred tax assets in the fourth quarter of 2015. Income tax benefit recorded for the nine months ended September 25, 2015 consisted primarily of U.S. federal and state income tax benefits in the United States offset in part by income tax expense in certain foreign jurisdictions in which we conduct business. During the fourth quarter of 2015, we determined that it is more likely than not that our U.S. entities will not generate sufficient taxable income to offset reversing deductible temporary differences and to fully utilize tax attribute carryforwards. As a result, we recorded a valuation allowance to reduce our U.S. federal and state deferred tax
54
assets to the amount that is more likely than not to be realized. During the third quarter of 2016, we recorded a one-time tax benefit of $2.2 million as a result of the deferred tax liability created from purchase accounting in connection with the Ajax acquisition allowing for the release of an equal amount of valuation allowance on a U.S. consolidated basis. Therefore, income tax benefit recorded for the nine months ended September 23, 2016 consisted primarily of this benefit offset in part by income tax expense in certain foreign jurisdictions in which we conduct business.
Comparison of the Years Ended December 26, 2014 and December 25, 2015
Sales
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Sales |
$ | 249,087 | $ | 290,641 | $ | 41,554 | 16.7 | % |
The increase in sales from fiscal 2014 to fiscal 2015 was primarily related to an increase in sales volume due to an approximately 7%, or approximately $30 million, increase in our market share at our two largest customers, and an approximately $8.0 million increase in the volume of purchases by our two largest customers driven by overall industry growth. We refer to the volume of purchases from us by a customer of ours relative to its other suppliers as our market share at that customer. The balance of the sales increase was driven by our refurbishment business, where we added additional services. On a geographic basis, sales in the United States decreased by $3.1 million to $157.7 million for fiscal 2015 compared to $160.8 million for fiscal 2014. Foreign sales increased by $44.7 million to $133.0 million for fiscal 2015 compared to $88.3 million for fiscal 2014.
Cost of Sales and Gross Margin
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cost of sales |
$ | 212,747 | $ | 242,087 | $ | 29,340 | 13.8 | % | ||||||||
Gross profit |
$ | 36,340 | $ | 48,554 | $ | 12,214 | 33.6 | % | ||||||||
Gross margin |
14.6 | % | 16.7 | % |
The increase in cost of sales from fiscal 2014 to fiscal 2015 was primarily due to the increase in sales.
Gross profit increased by $12.2 million driven primarily by an increase in sales volume, which accounted for $6.1 million, improved margins at our two largest customers, which accounted for $4.6 million, and a shift in customer mix, which accounted for $1.5 million.
Gross margin increased by 2.1 percentage points from 14.6% to 16.7%. The cause of this increase was an improvement with respect to the margin at individual customers and customer mix which represented 1.6% and 0.5%, respectively, of the increase.
55
Research and Development
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Research and development |
$ | 3,915 | $ | 4,813 | $ | 898 | 22.9 | % |
The increase in research and development expense from fiscal 2014 to fiscal 2015 was due to an increase in headcount costs of $0.4 million and outside engineering services of $0.4 million to support new product introductions and additional product design activity.
Selling, General and Administrative
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Selling, general and administrative |
$ | 22,465 | $ | 24,729 | $ | 2,264 | 10.1 | % |
The increase in selling, general and administrative expenses from fiscal 2014 to 2015 was due to the cash bonuses awarded to holders of employee equity awards in connection with the 2015 Dividend of $1.8 million and an increase in third-party accounting fees of $0.5 million.
Amortization of Intangible Assets
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Amortization of intangibles assets |
$ | 6,411 | $ | 6,411 | $ | | 0.0 | % |
Amortization of intangible assets was the same in fiscal 2015 and fiscal 2014.
Interest Expense, Net
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Interest expense, net |
$ | 3,118 | $ | 3,831 | $ | 713 | 22.9 | % |
Interest expense, net increased in fiscal 2015 compared to fiscal 2014 due primarily to the refinancing of our credit facilities in August 2015, which resulted in a $0.5 million write-off relating to the former debt issuance costs. In addition, the average amount borrowed increased by $3.1 million in fiscal 2015 compared to fiscal 2014. Prevailing interest rates were comparable during those periods.
Other Expense (Income), Net
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Other expense (income), net |
$ | 253 | ($ | 46 | ) | ($ | 299 | ) | N/M |
56
The change in other expense (income), net from fiscal 2014 to fiscal 2015 was due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations, principally the Singapore Dollar, Malaysian Ringgit and British Pound.
Income Tax Expense (Benefit) from Continuing Operations
Year Ended | Change | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Income tax expense (benefit) from continuing operations |
($ | 5,604 | ) | ($ | 3,991 | ) | $ | 1,613 | (28.8 | %) |
The decrease in the income tax benefit from continuing operations from fiscal 2014 to fiscal 2015 was primarily due to an increase in tax expense in certain foreign jurisdictions in which we conduct business and the impact of recording the valuation allowance against substantially all U.S. federal and state net deferred tax assets during the fourth quarter of 2015. During the fourth quarter of 2015, we determined that it is more likely than not that our U.S. entities will not generate sufficient taxable income to offset reversing deductible temporary differences and to fully utilize tax attribute carryforwards. As a result, we recorded a valuation allowance to reduce our U.S. federal and state deferred tax assets to the amount that is more likely than not to be realized.
57
Quarterly Results of Operations (Unaudited)
The following table sets forth our unaudited quarterly consolidated statement of operations data in dollars for each of the last 10 quarters in the period ended September 23, 2016. The unaudited information for each such quarter has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and, in our opinion, reflect all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this information. The results of historical quarters are not necessarily indicative of the results of operations for a full year or any future period.
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
June 27,
2014 |
September 26,
2014 |
December 26,
2014 |
March 27,
2015 |
June 26,
2015 |
September 25,
2015 |
December 25,
2015 |
March 25,
2016 |
June 24,
2016 |
September 23,
2016 |
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(In thousands) | ||||||||||||||||||||||||||||||||||||||||
Sales |
$ | 59,260 | $ | 51,011 | $ | 61,002 | $ | 77,523 | $ | 73,293 | $ | 75,466 | $ | 64,359 | $ | 73,287 | $ | 95,365 | $ | 105,687 | ||||||||||||||||||||
Cost of sales |
51,568 | 44,189 | 51,520 | 64,161 | 61,224 | 62,812 | 53,890 | 61,362 | 80,185 | 88,802 | ||||||||||||||||||||||||||||||
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Gross profit |
7,692 | 6,822 | 9,482 | 13,362 | 12,069 | 12,654 | 10,469 | 11,925 | 15,180 | 16,885 | ||||||||||||||||||||||||||||||
Operating expenses: |
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Research and development |
1,055 | 890 | 931 | 991 | 1,081 | 1,397 | 1,344 | 1,375 | 1,290 | 1,564 | ||||||||||||||||||||||||||||||
Selling, general and administrative |
6,294 | 4,481 | 6,304 | 5,006 | 6,042 | 7,036 | 6,645 | 6,364 | 7,183 | 6,782 | ||||||||||||||||||||||||||||||
Amortization of intangible assets |
1,603 | 1,603 | 1,603 | 1,603 | 1,603 | 1,602 | 1,603 | 1,603 | 1,803 | 1,804 | ||||||||||||||||||||||||||||||
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Total operating expenses |
8,952 | 6,974 | 8,838 | 7,600 | 8,726 | 10,035 | 9,592 | 9,342 | 10,276 | 10,150 | ||||||||||||||||||||||||||||||
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Income (loss) from operations |
(1,260 | ) | (152 | ) | 644 | 5,762 | 3,343 | 2,619 | 877 | 2,583 | 4,904 |
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6,735 |
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Interest expense, net |
782 | 762 | 758 | 757 | 726 | 1,414 | 934 | 902 | 1,160 | 1,183 | ||||||||||||||||||||||||||||||
Other expense (income), net |
5 | 25 | 147 | (30 | ) | 28 | (40 | ) | (4 | ) | (387 | ) | 244 | (241 | ) | |||||||||||||||||||||||||
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Income (loss) from continuing operations before income taxes |
(2,047 | ) | (939 | ) | (261 | ) | 5,035 | 2,589 | 1,245 | (53 | ) | 2,068 | 3,500 | 5,793 | ||||||||||||||||||||||||||
Income tax expense (benefit) from continuing operations |
(1,780 | ) | (1,469 | ) | (1,760 | ) | (835 | ) | (930 | ) | (2,159 | ) | (67 | ) | 236 | 225 | (1,888 | ) | ||||||||||||||||||||||
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Net income (loss) from continuing operations |
(267 | ) | 530 | 1,499 | 5,870 | 3,519 | 3,404 | 14 | 1,832 | 3,275 | 7,681 | |||||||||||||||||||||||||||||
Income (loss) from discontinued operations before taxes |
347 | | (207 | ) | (335 | ) | 338 | (721 | ) | (6,688 | ) | (1,724 | ) | (2,305 | ) | 16 | ||||||||||||||||||||||||
Income tax expense (benefit) from discontinued operations |
129 | (6 | ) | (83 | ) | (125 | ) | 133 | (333 | ) | 100 | 1 | 2 | 23 | ||||||||||||||||||||||||||
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Net income (loss) from discontinued operations |
218 | 6 | (124 | ) | (210 | ) | 205 | (388 | ) | (6,788 | ) | (1,725 | ) | (2,307 | ) | (7 | ) | |||||||||||||||||||||||
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Net Income (loss) |
$ | (49 | ) | $ | 536 | $ | 1,375 | $ | 5,660 | $ | 3,724 | $ | 3,016 | $ | (6,774 | ) | $ | 107 | $ | 968 | $ | 7,674 | ||||||||||||||||||
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58
The following table sets forth our unaudited quarterly consolidated statement of operations data as a percentage of sales for each of the last ten quarters in the period ended September 23, 2016.
Three Months Ended |
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June 27,
2014 |
September 26,
2014 |
December 26,
2014 |
March 27,
2015 |
June 26,
2015 |
September 25,
2015 |
December 25,
2015 |
March 25,
2016 |
June 24,
2016 |
September 23,
2016 |
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(As a percentage of sales) | ||||||||||||||||||||||||||||||||||||||||
Sales |
100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||||||||||||||
Cost of sales |
87.0 | 86.6 | 84.5 | 82.8 | 83.5 | 83.2 | 83.7 | 83.7 | 84.1 | 84.0 | ||||||||||||||||||||||||||||||
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Gross profit |
13.0 | 13.4 | 15.5 | 17.2 | 16.5 | 16.8 | 16.3 | 16.3 | 15.9 | 16.0 | ||||||||||||||||||||||||||||||
Operating expenses: |
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Research and development |
1.8 | 1.7 | 1.5 | 1.3 | 1.5 | 1.9 | 2.1 | 1.9 | 1.4 | 1.5 | ||||||||||||||||||||||||||||||
Selling, general and administrative |
10.6 | 8.8 | 10.3 | 6.5 | 8.2 | 9.3 | 10.3 | 8.7 | 7.5 | 6.4 | ||||||||||||||||||||||||||||||
Amortization of intangible assets |
2.7 | 3.1 | 2.6 | 2.1 | 2.2 | 2.1 | 2.5 | 2.2 | 1.9 | 1.7 | ||||||||||||||||||||||||||||||
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Total operating expenses |
15.1 | 13.7 | 14.5 | 9.8 | 11.9 | 13.3 | 14.9 | 12.7 | 10.8 | 9.6 | ||||||||||||||||||||||||||||||
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Income (loss) from operations |
(2.1 | ) | (0.3 | ) | 1.1 | 7.4 | 4.6 | 3.5 | 1.4 | 3.5 | 5.1 | 6.4 | ||||||||||||||||||||||||||||
Interest expense, net |
1.3 | 1.5 | 1.2 | 1.0 | 1.0 | 1.9 | 1.4 | 1.2 | 1.2 | 1.1 | ||||||||||||||||||||||||||||||
Other expense (income), net |
| | 0.2 | | | (0.1 | ) | | (0.5 | ) | 0.3 | (0.2 | ) | |||||||||||||||||||||||||||
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Income (loss) from continuing operations before income taxes |
(3.5 | ) | (1.8 | ) | (0.4 | ) | 6.5 | 3.5 | 1.6 | (0.1 | ) | 2.8 | 3.7 | 5.5 | ||||||||||||||||||||||||||
Income tax expense (benefit) from continuing operations |
(3.0 | ) | (2.9 | ) | (2.9 | ) | (1.1 | ) | (1.3 | ) | (2.9 | ) | (0.1 | ) | 0.3 | 0.2 | (1.8 | ) | ||||||||||||||||||||||
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Net income (loss) from continuing operations |
(0.5 | ) | 1.0 | 2.5 | 7.6 | 4.8 | 4.5 | | 2.5 | 3.4 | 7.3 | |||||||||||||||||||||||||||||
Income (loss) from discontinued operations before taxes |
0.6 | | (0.3 | ) | (0.4 | ) | 0.5 | (1.0 | ) | (10.4 | ) | (2.4 | ) | (2.4 | ) | | ||||||||||||||||||||||||
Income tax expense (benefit) from discontinued operations |
0.2 | | (0.1 | ) | (0.2 | ) | 0.2 | (0.4 | ) | 0.2 | | | | |||||||||||||||||||||||||||
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Net income (loss) from discontinued operations |
0.4 | | (0.2 | ) | (0.3 | ) | 0.3 | (0.5 | ) | (10.5 | ) | (2.4 | ) | (2.4 | ) | | ||||||||||||||||||||||||
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Net Income |
(0.1 | ) | 1.1 | 2.3 | 7.3 | 5.1 | 4.0 | (10.5 | ) | 0.1 | 1.0 | 7.3 | ||||||||||||||||||||||||||||
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Sales and gross margin fluctuated based on customer demand, product mix and our ability to adjust our labor force in anticipation of current and future forecasted customer demand. Operating expenses have generally increased starting in the three months ended June 27, 2014 due to increased share-based compensation and management performance bonuses resulting from our grant of additional options and restricted stock awards to new management and more consistent achievement of management performance bonus targets. Additionally, research and development expenses have increased in total dollars as we
59
continue to add personnel to meet increased customer demand for new product designs and to support our entry into emerging markets. Selling, general and administrative expenses have also increased with the addition of new sales personnel to drive our sales growth strategies. In the second and third quarters of 2016, Ajax contributed $5.7 million and $7.7 million of revenue, respectively, and an operating income (loss) of $(0.5) million and $0.7 million, respectively, due to acquisition-related charges. Starting in the fourth quarter of 2015, the Company established a valuation allowance in the United States and is no longer benefiting from losses generated in such jurisdiction with the exception of the third quarter of 2016 during which we recorded a one-time tax benefit of $2.2 million related to the Ajax acquisition. Our historical tax benefits are not necessarily indicative of future results.
Seasonality
We have not historically experienced meaningful seasonality with respect to our business or results of operations.
Liquidity and Capital Resources
We had cash and restricted cash of $25.3 million as of September 23, 2016. Our principal uses of liquidity are to fund our working capital needs, satisfy our debt obligations, and maintain our equipment and purchase new capital equipment. To date, we have financed our operations primarily through cash flows generated from operations. In addition, we utilize our Revolving Credit Facility to meet short term liquidity needs. See Credit Facilities below for additional information on our Credit Facilities.
We believe that our cash, the amounts available under our Credit Facilities and our cash flows from operations, together with the net proceeds of this offering, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.
Cash Flow Analysis
The following table sets forth a summary of operating, investing, and financing activities for the periods presented:
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
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(In thousands) | ||||||||||||||||
Cash provided by operating activities |
$ | 8,091 | $ | 26,690 | $ | 10,991 | $ | 4,025 | ||||||||
Cash used in investing activities |
(3,468 | ) | (1,367 | ) | (1,062 | ) | (19,186 | ) | ||||||||
Cash provided by (used in) financing activities |
(3,231 | ) | (15,508 | ) | (9,508 | ) | 16,277 | |||||||||
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Net increase in cash and restricted cash |
$ | 1,392 | $ | 9,815 | $ | 421 | $ | 1,116 | ||||||||
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Operating Activities
We generated $4.0 million of cash from operating activities during the nine months ended September 23, 2016 due to net income of $8.7 million and non-cash charges of $6.3 million, offset in part by a net increase of $11.0 million in our net operating assets and liabilities. Non-cash charges primarily related to $7.0 million in depreciation and amortization, $1.3 million in share-based compensation, and $0.4 million in amortization of debt issuance cost, offset in part by $2.4 million in deferred tax benefit. The net increase in our net operating assets and liabilities was
60
primarily the result of a $13.4 million increase in accounts receivable due to increased sales and timing of customer payments, an increase in inventory of $10.2 million due to anticipated sales in the fourth quarter of 2016, and a decrease in customer deposits of $4.3 million arising from a reduction in customer orders associated with discontinued operations. The increase in net operating assets and liabilities was partially offset by an increase in accounts payable of $15.7 million resulting from increased materials purchased to support higher sales volumes.
We generated $11.0 million of cash from operating activities during the nine months ended September 25, 2015 due to net income of $12.4 million and non-cash charges of $4.5 million partially offset by a net increase of $5.9 million in our net operating assets and liabilities. Non-cash charges primarily related to $7.5 million in depreciation and amortization, $0.8 million in share-based compensation and amortization of debt issuance cost of $0.7 million, partially offset by $4.5 million in deferred tax benefit. The net increase in our net operating assets and liabilities was primarily the result of a decrease in accounts payable of $4.7 million, a decrease in customer deposits of $2.8 million arising from decreased product orders from a customer that pays a partial deposit at the time a purchase order is placed and a $2.0 million increase in inventory, offset in part by a decrease in accounts receivable of $4.5 million.
We generated $26.7 million of cash from operating activities in fiscal 2015 due to net income of $5.6 million and non-cash charges of $10.1 million, and a net increase of $10.9 million in our net operating assets and liabilities. Non-cash charges primarily related to $9.9 million in depreciation and amortization, $1.1 million in share-based compensation, $3.2 million related to the impairment of intangible and fixed assets and $0.5 million in write-off of former debt issuance cost, partially offset by $4.9 million in deferred tax benefit. The net change in our operating assets and liabilities was primarily the result of a $9.1 million decrease in inventory due to our initiative to reduce our inventory in the fourth quarter of fiscal 2015, a decrease in accounts receivable of $6.3 million due to the timing of customer payments, partially offset by the decrease, in customer deposit of $3.5 million and accounts payable of $1.7 million.
We generated $8.1 million of cash from operating activities in fiscal 2014 due to net income of $6.2 million and non-cash charges of $4.8 million, offset in part by a net increase of $2.8 million in our net operating assets and liabilities. Non-cash charges primarily related to $9.6 million in depreciation and amortization and $1.0 million in share-based compensation offset in part by $6.2 million in deferred tax benefit. The net change in our operating assets and liabilities was primarily the result of a $12.1 million increase in inventory due to materials purchases in the fourth quarter of fiscal 2014 in anticipation of sales increases in the first quarter of fiscal 2015. The increase in net operating assets and liabilities was partially offset by an $8.7 million increase in accounts payable resulting from increased materials purchases in anticipation of sale increases in the first quarter of 2015 and a $1.0 million decrease in accounts receivable based on timing of customer payments.
Investing Activities
Cash used in investing activities during the nine months ended September 23, 2016 was $19.2 million. We used $17.4 million, net of cash acquired, to acquire Ajax and $2.3 million from capital expenditures to purchase test fixtures and leasehold improvements primarily related to our plant expansions in the United States and Malaysia, partially offset by proceeds from sales of certain intangible and fixed assets totaling $0.5 million.
Cash used in investing activities during the nine months ended September 25, 2015 was $1.1 million for capital expenditures primarily related to facility and test fixtures.
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Cash used in investing activities in fiscal 2015 was $1.4 million from capital expenditures for the purchase of property and equipment relating to our manufacturing footprint in our Oregon, Texas and corporate facilities.
Cash used in investing activities in fiscal 2014 was $3.5 million from capital expenditures for the purchase of property and equipment relating to our plant expansion in Scotland, our manufacturing footprint in our Oregon, Texas and Malaysia facilities and ERP hardware upgrade.
Financing Activities
We generated $16.3 million of cash from financing activities during the nine months ended September 23, 2016, which consisted of $27.0 million of proceeds from borrowings under our Credit Facilities and $10.7 million in payments on our Term Loan and Revolving Credit Facility.
We used $9.5 million of cash in financing activities during the nine months ended September 25, 2015, which consisted of $60.0 million for the repayment of bank borrowings, offset in part by $75.0 million in proceeds from new bank borrowings. We also paid cash dividends to our shareholders of $22.1 million and $2.6 million in fees related to the refinancing of our indebtedness, including the entry into our Credit Facilities, in the third quarter of 2015.
We used $15.5 million of cash in financing activities in fiscal 2015, which consisted of $69.8 million for the repayment of bank borrowings offset in part by $79.0 million in proceeds from new bank borrowings. We also paid cash dividends to our shareholders of $22.1 million and $2.6 million in fees related to the refinancing of our indebtedness, including the entry into our Credit Facilities.
We used $3.2 million of cash in financing activities in fiscal 2014, which consisted of $12.2 million for the repayment of bank borrowings offset in part by $9 million in proceeds from bank borrowings.
Credit Facilities
On August 11, 2015, we entered into a $55.0 million term loan facility, or our Term Loan Facility, and a $20.0 million revolving credit facility, including a letter of credit facility, or our Revolving Credit Facility, and together with our Term Loan Facility, our Credit Facilities, pursuant to a Credit Agreement, dated as of August 11, 2015, or the Credit Agreement. We used borrowings under our Credit Facilities to repay all outstanding indebtedness under our prior term loan facility and revolving credit facility. In April 2016, we increased our Term Loan Facility to $70 million to fund the Ajax Acquisition.
As of September 23, 2016, the outstanding principal amount of our Term Loan Facility was $66.3 million and our Revolving Credit Facility was $15.0 million. The outstanding amount of our Term Loan Facility reflected in our consolidated financial statements included elsewhere in this prospectus is net of $2.0 million of debt discount. The material terms of our Credit Facilities are described below and in Description of Certain Indebtedness.
Our Credit Facilities are guaranteed by certain of our subsidiaries and secured by substantially all of our tangible and intangible assets (subject to certain exceptions and limitations). The term loan facility is to be repaid in consecutive quarterly payments of (a) $1,447,727 for the quarters ending December 31, 2016 through September 30, 2018 and (b) $1,034,091 for the quarters ending December 31, 2018 through June 30, 2020, provided that to the extent a qualified initial public offering (as defined below) has occurred, the foregoing
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quarterly payments are reduced to $1,034,091 for the quarters ending December 31, 2016 through June 30, 2020. The outstanding principal amount of our term loan facility and revolving credit facility is due upon maturity on August 11, 2020.
Borrowings under our Term Loan Facility and our Revolving Credit Facility each bear interest at (1) for base rate loans, the base rate (as defined below) plus 3.00% or (2) for eurodollar loans, the eurodollar rate (as defined below) plus 4.00%. The base rate equals the highest of (i) the prime rate, (ii) the federal funds effective rate plus 0.50% and (iii) the eurodollar rate plus 1.00%. The eurodollar rate equals LIBOR, provided that with respect to our Term Loan Facility only, LIBOR shall not be less than 1.00%. We must pay a commitment fee equal to 1.50% per annum on the unused portion of our Revolving Credit Facility.
We are obligated to make certain prepayments on our Credit Facilities under certain circumstances, including (1) upon an initial public offering in which at least $75 million of net cash proceeds are received, $17,500,000 of such net cash proceeds plus an additional amount of such net cash proceeds that would result in our consolidated total net leverage ratio to be less than 1.75:1.00 (2) the incurrence of new indebtedness outside of our Credit Facilities, (3) the receipt of proceeds from asset sales and (4) upon earning excess cash flows. The Credit Agreement contains customary representations, warranties and covenants, including financial covenants.
As amended, the Credit Agreement requires us to comply with the following financial covenants:
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a maximum consolidated fixed charge coverage ratio of 1.25:1.00, commencing with the fiscal quarter ending December 31, 2015; and |
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a maximum consolidated leverage ratio as set forth below for the applicable quarter set forth below: |
Four (4) Fiscal Quarters Ending on or About |
Maximum Consolidated
Leverage Ratio |
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December 31, 2015 through September 2016 |
3.00:1.00 | |||
December 31, 2016 through September 2017 |
2.50:1.00 | |||
December 31, 2017 through September 2018 |
2.25:1.00 | |||
December 31, 2018 through June 30, 2020 |
2.00:1.00 |
Contractual Obligations and Commitments
The following summarizes our contractual obligations and commitments as of September 23, 2016:
Payments Due by Period | ||||||||||||||||||||
Total |
Less Than 1
Year |
1-3 Years | 3-5 Years |
More Than
5 Years |
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(In thousands) | ||||||||||||||||||||
Operating leases |
$ | 9,228 | $ | 3,576 | $ | 3,547 | $ | 1,452 | $ | 653 | ||||||||||
Long-term debt obligations, principal(1) |
81,277 | 5,791 | 10,341 | 65,145 | | |||||||||||||||
Long-term debt obligations, interest(2) |
13,210 | 3,880 | 7,529 | 1,801 | | |||||||||||||||
Purchase obligations(3) |
55,240 | 55,240 | | | | |||||||||||||||
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Total |
$ | 158,955 | $ | 68,487 | $ | 21,417 | $ | 68,398 | $ | 653 | ||||||||||
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(1) | Represents the contractually required principal payments under our Credit Facilities in accordance with the required principal payment schedule. |
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(2) | Represents the contractually required interest payments under our Credit Facilities in accordance with the required interest payment schedule. Interest costs have been estimated based on interest rates in effect for such indebtedness as of September 23, 2016. |
(3) | Purchase obligations consist primarily of inventory purchase obligations (both cancellable and non-cancellable) with our independent suppliers. |
The table above excludes the amount of such uncertain tax positions of $0.5 million as of September 23, 2016 due to the uncertainty of when the related tax settlements will become due.
Internal Control Over Financial Reporting
A companys internal control over financial reporting is a process designed by, or under the supervision of, a companys principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, 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 policies or procedures may deteriorate. If we cannot provide reliable financial information, our business, operating results and share price could be negatively impacted.
During early 2015, we identified a material weakness. Specifically, we had overstated our liabilities for the goods received but not invoiced account and cost of goods sold relating to certain aged transactions, whereby accounts payable was not reduced on a timely basis. To remediate this weakness, we have initiated compensating controls regarding the reconciliation of these accounts at the end of each period, including the implementation of a new account reconciliation tool and a more detailed account review.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Sales Recognition
Product sales are recognized when there is persuasive evidence of an arrangement, product delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Our shipping terms are FOB shipping point or FOB destination, or equivalent terms, and accordingly, sales are recognized when legal title has passed to the customer upon shipment or delivery. Title and risk of loss generally pass to the customer at the time of delivery of the product to a common carrier. All amounts billed to a customer related to shipping and handling are classified as sales, while all costs incurred by us for shipping and handling are classified as cost of sales.
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Sales are recognized when all of the following criteria are met:
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we enter into a legally binding arrangement with a customer; |
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we ship the product; |
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we determine the fee is fixed or determinable based on the payment terms associated with the transaction and free of contingencies or significant uncertainties; and |
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collectability is reasonably assured . We assess collectability based on credit analysis and payment history. We require collateral, typically cash, in the normal course of business if customers do not meet its criteria established for offering credit. |
Inventory Valuation
We write down the carrying value of our inventory to net realizable value for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon assumptions about future demand and market conditions. 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. Inherent in our estimates of demand and 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 demand and 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 fiscal 2014, fiscal 2015, the nine months ended September 25, 2015 and September 23, 2016, we wrote down $1.5 million, $3.0 million, $1.3 million and $3.2 million respectively, in inventory determined to be obsolete.
Goodwill, Intangibles Assets, and Long-lived Assets
Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. We evaluate our goodwill and indefinite life trade name for impairment on an annual basis, and whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. We operate as a single segment and reporting unit. In addition, we evaluate our identifiable intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include significant changes in the manner of our use of the acquired assets or the strategy of our overall business; significant decreases in the market price of the asset; significant negative changes in sales of specific products or services; and significant negative industry or economic trends.
We continually apply judgment when performing these evaluations and continuously monitor for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term sales growth projections, undiscounted net cash flows, discount rates, recent market valuations from transactions by comparable companies, volatility in our market capitalization and general industry, market and macroeconomic conditions. It is possible that changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing fair value, would require us to record a non-cash impairment charge.
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At December 25, 2015, the date of our last impairment analysis, the fair value of the reporting unit was substantially in excess of its carrying value.
Share-Based Compensation
Our share-based compensation was $1.0 million, $1.1 million, $0.8 million and $1.3 million for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively. Compensation expense related to share-based transactions, including employee and non-employee stock options, is measured and recognized in the financial statements based on the fair value of the awards granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model and a single option award approach. Share-based compensation expense is recognized, net of forfeitures, over the requisite service periods of the awards, which is generally four years.
Our use of the Black-Scholes option-pricing model requires the input of subjective assumptions, including the fair value of the underlying ordinary shares, the expected term of the option, and the expected volatility of the price of our ordinary shares, risk-free interest rates, and the expected dividend yield of our ordinary shares. The assumptions used in our option-pricing model represent managements best estimates. These estimates involve inherent uncertainties and the application of managements judgment. If factors change and different assumptions are used, our share-based compensation expense could be materially different in the future.
These assumptions and estimates are as follows:
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Fair Value of Ordinary Shares . Because there has been no public market for our ordinary shares, our board of directors has determined the fair value of our ordinary shares by considering a number of objective and subjective factors, including valuations of comparable companies, operating and financial performance, lack of liquidity of our ordinary shares and general and industry-specific economic outlook, among other factors. In addition, we periodically obtain third party valuations to support the determination by our board of directors of the fair value of our ordinary shares. |
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Risk-Free Interest Rate . We base the risk-free interest rate used in the Black-Scholes option-pricing model based on the U.S. Treasury rates in effect during the corresponding period of grant. |
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Expected Term . We use the simplified method to estimate the expected term of option awards. |
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Volatility . We determine the price volatility factor based on the historical volatilities of our publicly traded peer group as we do not have a trading history for our ordinary shares. Industry peers consist of several public companies in the industries that are similar to us in size, stage of life cycle, and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of the price of our own ordinary shares share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation. |
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Dividend Yield . The expected dividend assumption is based on our current expectations about our anticipated dividend policy. Consequently, we used an expected dividend yield of zero. |
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For valuations after the completion of this offering, our board of directors will determine the fair value of each underlying ordinary share based on the closing price of our ordinary shares as reported on the date of grant.
Income Taxes
The determination of our tax provision is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region and is subject to judgments and estimates. Management carefully monitors the changes in many factors and adjusts the effective tax rate as required.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our business, results of operations and financial position. We believe we have adequately reserved for our uncertain tax positions, however, no assurance can be given that the final tax outcome of these matters will not be different than what we expect. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome for these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve positions and changes to reserves that are considered appropriate, as well as the related net interest.
We file income tax returns in the U.S. federal jurisdiction, various states and various foreign jurisdictions. We are no longer subject to U.S. federal examination for tax years ending before 2013, to state examinations before 2012 or to foreign examinations before 2011. We are currently enjoying a zero rate tax holiday in Singapore that is scheduled to expire at the end of fiscal 2019. This tax rate is subject to achieving certain commitments agreed to with the Economic Development Board of Singapore including investment and employment thresholds. Our tax rate could be significantly affected if we are unable to meet these commitments or if we are unable to favorably renegotiate the commitment requirements. As of December 25, 2015, the Company was in compliance with the commitment requirements, with the exception of the headcount requirement for which the Singapore taxing authority has granted a waiver. The Company intends to be in compliance with the remaining commitment requirements by March 31, 2017.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board, or the FASB, issued Accounting Standard Update, or ASU, 2013-11, Income TaxesPresentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carryforward Exists, on the financial statement presentation of unrecognized tax benefits. The new guidance provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance became effective for us on January 1, 2014 and it was to be applied prospectively to unrecognized tax benefits that existed at the effective date with retrospective application permitted. We adopted the guidance on January 1, 2014. The guidance had no material impact on our financial position or results of operations in the first quarter of 2014.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the
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transfer of promised goods or services to customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The ASU is effective for reporting periods beginning after December 15, 2017 (December 15, 2018 for non-public entities), with an early adoption permitted for reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this accounting standard.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, an amendment to ASC 205, Presentation of Financial Statements. This update provides guidance on managements responsibility in evaluating whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its financial statements or results of operations.
In April 2015, the FASB issued ASU 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. We adopted ASU 2015-03 on December 26, 2015 and retroactively recorded debt issuance costs as a reduction to Term Loan A for all periods presented.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted as of the beginning of an interim or annual period. The Company is currently evaluating the impact of this accounting standard.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for MeasurementPeriod AdjustmentsChanges to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for periods beginning after December 15, 2015. We adopted ASU 2015-16 on December 26, 2015 on a prospective basis for any changes to provisional amounts after the acquisition date. In the third quarter of 2016, we recognized certain measurement period adjustments as disclosed in Note 2 to our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires entities with a classified balance sheet to
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present all deferred tax assets and liabilities as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We adopted ASU 2015-17 on a retrospective basis in 2015. Accordingly, to conform with the 2015 presentation, we reclassified the current deferred taxes to noncurrent on our December 26, 2014 Consolidated Balance Sheet, which decreased current deferred tax assets $3.2 million and decreased noncurrent deferred tax liabilities $3.2 million.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update establishes a comprehensive lease standard for all industries. The new standard requires lessees to recognize a right of use asset and a lease liability for virtually all leases, other than leases that meet the definition of short term leases. The standard is effective for interim and annual reporting periods beginning after December 15, 2018 (December 31, 2019 for non-public entities). We are evaluating what impact, if any, the adoption of this ASU will have on our financial condition, results of operations, cash flows or financial disclosures.
In March 2016, the FASB issued ASU No. 2016-09, which amends ASC Topic 718, CompensationStock Compensation. This amendment simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. We are evaluating what impact, if any, the adoption of this ASU will have on our financial condition, results of operations, cash flows or financial disclosures.
Off-Balance Sheet Arrangements
As of December 25, 2015 and September 23, 2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to financial market risks, including changes in currency exchange rates and interest rates.
Foreign Currency Exchange Risk
Currently, substantially all of our sales and arrangements with third-party suppliers provide for pricing and payment in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.
While not currently significant, we do have certain operating expenses that are denominated in currencies of the countries in which our operations are located, and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian Ringgit, British Pound and Euro. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.
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Interest Rate Risk
We had total outstanding debt of $65.0 million as of December 25, 2015, of which $4.6 million was due within 12 months. As of September 23, 2016, we had total outstanding debt of $81.3 million, of which $5.8 million was due within 12 months. The outstanding amount of debt reflected in our consolidated financial statements included elsewhere in this prospectus is net of $2.0 million of debt discount as of September 23, 2016.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. The interest rate on a significant majority of our outstanding debt is variable, which also reduces our exposure to these interest rate risks. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.
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Company Overview
We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems for semiconductor capital equipment. Our primary offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, or CMP, electroplating and cleaning. We also manufacture certain components for internal use in fluid delivery systems and for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.
Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing processes. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Historically, semiconductor equipment OEMs internally designed and manufactured the fluid delivery subsystems used in their process tools. Currently, most OEMs outsource the design, engineering and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are also increasingly outsourcing the design, engineering and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers highly specialized engineering, design and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their fixed costs and development time, as well as provided significant growth opportunities for specialized subsystems suppliers like us.
Our goal is to be the premier supplier of outsourced fluid delivery subsystems to OEMs engaged in manufacturing capital equipment to produce semiconductors and to leverage our technology into new markets. To achieve this goal, we engage with our customers early in their design and development processes and utilize our deep engineering resources and operating expertise to jointly create innovative and advanced solutions that meet the current and future needs of our customers. These collaborations frequently involve our engineers working at our customers sites and serving as an extension of our customers product design teams. We employ this approach with two of the largest manufacturers of semiconductor capital equipment in the world. We believe this approach enables us to design subsystems that meet the precise specifications our customers demand, allows us to often be the sole supplier of these subsystems during the initial production ramp and positions us to be the preferred supplier for the entire five to ten-year lifespan of the process tool.
The broad technical expertise of our engineering team, coupled with our early customer engagement approach, enables us to offer innovative and reliable solutions to complex fluid delivery challenges. With two decades of experience developing complex fluid delivery subsystems and meeting the constantly changing production requirements of leading semiconductor OEMs, we have developed expertise in fluid delivery that we offer to our OEM customers. In addition, our capital efficient model and the integration of our business systems with those of our customers provides us the flexibility to fulfill increased demand and meet
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changing customer requirements with minimum additional capital outlay. With an aim to superior customer service, we have a global footprint with many facilities strategically located in close proximity to our customers. We have established long standing relationships with top tier OEM customers, including Lam Research and Applied Materials, which were our two largest customers by sales in fiscal 2015.
We grew our sales by 16.7% from $249.1 million in fiscal 2014 to $290.6 million in fiscal 2015, and by 21.2% from $226.3 million in the nine months ended September 25, 2015 to $274.3 million in the nine months ended September 23, 2016. We generated net income from continuing operations of $5.8 million in fiscal 2014, $12.8 in fiscal 2015, $12.8 million in the nine months ended September 25, 2015 and $12.8 million in the nine months ended September 23, 2016. We generated adjusted net income from continuing operations of $11.7 million in fiscal 2014, $20.2 million in fiscal 2015, $17.9 million in the nine months ended September 25, 2015 and $22.0 million in the nine months ended September 23, 2016. See note 3 to Prospectus SummarySummary Consolidated Financial Data for a discussion of adjusted net income, an accompanying presentation of the most directly comparable GAAP financial measure, net income (loss), and a reconciliation of the differences between adjusted net income and net income.
Our Industry
We design, engineer and manufacture critical fluid delivery subsystems for the semiconductor capital equipment.
The Semiconductor Device Industry is Large and Growing
Semiconductors are essential building blocks in all electronic systems. In recent years, semiconductor growth has been driven largely by increasing global demand for mobile devices and computer network systems. As consumers increasingly become accustomed to end products with higher functionality, better power management and smaller form factors, the demand for advanced semiconductor devices is expected to grow. Gartner estimates the semiconductor device market is expected to grow to $350.1 billion in 2017 from $315.0 billion in 2013.
Semiconductor Manufacturing Process is Complex and Constantly Evolving
Semiconductor manufacturing is complex and capital-intensive, requiring hundreds of process steps utilizing specialized manufacturing equipment. Technological advancements in semiconductor manufacturing have traditionally led to a continual increase in the number of transistors in a given area of silicon, enabling smaller and more feature-rich devices. As a result, semiconductor device manufacturers must continuously refine their manufacturing processes and invest in next-generation manufacturing equipment that can produce semiconductors with a smaller chip size or an increasing number of features, both of which require more complexity. Gartner estimates that the global spend on wafer fabrication equipment will grow to $35.7 billion in 2017 from $27.3 billion in 2013.
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The diagram below illustrates the various semiconductor manufacturing process steps and highlights those that require fluid delivery functionality:
Semiconductor manufacturing starts with the wafer preparation process steps, including slicing and polishing the silicon wafers and can include growing an epitaxial layer on the top of the wafer. The next series of steps involve front end processing where layers of circuitry are built into the wafer, including insulating, conducting and semiconducting materials that are precisely placed on the wafer and layered on top of one another in a repetitive process. The front end process steps include deposition, CMP and cleaning, application of photoresist, optical lithography, etch, strip and wet clean and ion implantation. Many of these front end process steps, particularly etch, deposition and CMP need to be repeated more than 20 times to place all the layers on an integrated circuit. The number of front-end steps is expected to increase further as manufacturers adopt various complex next-generation manufacturing techniques. Fluid delivery subsystems play a critical role in the majority of semiconductor manufacturing steps, particularly in front end processing. We believe that the fluid delivery market will benefit from the increase of front-end manufacturing step repetitions which is required as semiconductors increase in complexity.
Changing Semiconductor Manufacturing Processes is Increasing the Need for Fluid Delivery Systems
A number of innovations in the design and manufacturing of semiconductors are being adopted in order to meet the continuing miniaturization and functionality demands, including:
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Multiple patterning : Multiple patterning refers to using multiple passes through the lithography, etch and deposition steps in order to manufacture semiconductors at process nodes below 20 nanometers using current lithography equipment. |
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Tri-gate, or FinFET, transistors : FinFET transistors refer to tri-gate transistors which solve the challenges of current leakage, heat dissipation and lower performance in shrinking two-dimensional transistors, but are more complex to manufacture than two-dimensional planar transistors. |
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Three-dimensional, or 3D, semiconductors : 3D semiconductors refer to integrated circuits that build features in multiple vertical layers, rather than in a single layer. 3D semiconductor processes are common in NAND flash memory and other semiconductor devices. |
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Advanced packaging: Advanced packaging refers to the increasing use of traditional wafer manufacturing techniques to the packaging of ever smaller semiconductor components into a form that can be placed onto a circuit board. |
Each of these innovations increases the number of process steps that a wafer must pass through during the manufacturing process, in particular, the number of etch, deposition and CMP steps. For example, according to Gartner, changes in the market for process requirements will drive an average annual growth in etch spending of 15% and chemical vapor deposition, or CVD, spending of 15% from 2013 to 2017. This growth benefits us directly as the majority of our gas delivery subsystems are used in etch and CVD processes. Also according to Gartner, spending on CMP will grow at an average annual rate of 13% over the same period. This is the primary step where chemical delivery systems are used.
Semiconductor Capital Equipment Industry is Concentrated
The semiconductor capital equipment industry is dominated by a few large OEMs which focus on developing equipment specialized for many complex manufacturing process steps. As semiconductor manufacturing has become more technically advanced and capital intensive in recent years, the semiconductor equipment industry has experienced significant consolidation in order for the remaining OEMs to leverage economies of scale for delivering larger and more complex tools. As a result, most major semiconductor equipment markets are now typically supplied by a limited number of major global suppliers. According to Gartner, the top five semiconductor equipment OEMs by sales in 2015 represented 67% of the total market for wafer fabrication equipment. These few large equipment companies, including our two largest customers, focus on servicing the large foundries and integrated device manufacturers with a broad array of products and service capabilities.
Semiconductor Capital Equipment OEMs Outsource Critical Subsystems including Fluid Delivery Subsystems
Historically, semiconductor equipment OEMs designed and manufactured their process equipment entirely in-house, building their own subsystems and in some cases their own components for use in their process equipment. Today, these OEMs are increasingly outsourcing the development, design, prototyping, engineering, manufacturing, assembly and testing of various critical subsystems to specialized independent suppliers. We believe that subsystem outsourcing has allowed OEMs to benefit from the highly specialized engineering, design and manufacturing skills of the subsystem suppliers while focusing internal resources on their own most critical value-added subsystems and processes. We likewise believe that outsourcing these subsystems enables OEMs to reduce fixed costs, achieve greater operational efficiencies and shorten development timeframes.
This outsourcing trend has been particularly applicable to the fluid delivery subsystem market. Over the past decade, as gas delivery subsystems have become more complex most
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OEMs have increasingly outsourced the design, engineering and manufacturing of these gas delivery subsystems to us and other third party suppliers as these subsystems have become increasingly complex to allow for constantly changing gas recipes. OEMs have begun to outsource chemical delivery subsystems, creating an additional opportunity for suppliers with fluid delivery capability.
Our Competitive Strengths
As a leader in the fluid delivery industry, we believe that our key competitive strengths include the following:
Deep Fluids Engineering Expertise
We believe that our engineering team, comprised of chemical engineers, mechanical engineers and software and systems engineers, has positioned us to expand the scope of our solutions, provide innovative subsystems and strengthen our incumbent position at our OEM customers. Many of our engineers are industry veterans and have spent a significant portion of their careers at our customers, bringing first-hand expertise and a heightened understanding of our customers needs. Our engineering team acts as an extension of our customers product development teams, providing our customers with technical expertise that is outside of their core competencies.
Early Engagement with Customers on Product Development
We seek to engage with our customers and potential customers very early in their process for new product development. We believe this approach enables us to collaborate on product design, qualification, manufacturing and testing in order to provide a comprehensive, customized solution. Through early engagement during the complex design stages, our engineering team gains early insight into our customers technology roadmaps which enables us to pioneer innovative and advanced solutions. In many cases our early engagement with our customers enables us to be the sole source supplier when the product is initially introduced.
Long History and Strong Relationships with Top Tier Customers
We have established deep relationships with top tier OEMs such as Lam Research and Applied Materials, which were our two largest customers by sales in fiscal 2015. Our customers are global leaders by sales and are considered consolidators in the increasingly concentrated semiconductor capital equipment industry. Our existing relationships with our customers have enabled us to effectively compete for new fluid delivery subsystems for our customers next generation products in development. We leverage our deep rooted existing customer relationships with these market leaders to penetrate new business opportunities created through industry consolidation. Our close collaboration with them has contributed to our established market position and several key supplier awards.
Operational Excellence with Scale to Support the Largest Customers
Over our 17 year history of designing and building gas delivery systems, we have developed deep capabilities in operations. We have strategically located our Austin, Texas and Tualatin, Oregon manufacturing facilities near our customers locations in order to provide fast and efficient responses to new product introductions, and accommodate configuration or design changes late in the manufacturing process. We have also built significant capacity in Singapore to support high volume products. In addition to providing high quality and reliable
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fluid delivery subsystems, one of our principal focuses is delivering short lead times to allow our customers the maximum flexibility in their production processes. We have accomplished this by investing in manufacturing systems and developing an efficient supply chain. Our focus on operational efficiency and flexibility allows us to respond quickly to customer requests by frequently shipping products to customers less than three weeks after receiving the order.
Capital Efficient and Scalable Business Model
In general, our business is not capital intensive and we are able to grow sales with a low investment in property, plant and equipment and low levels of working capital. In 2014 and 2015, our total capital expenditures were $3.5 million and $1.4 million, respectively. In particular, our close supplier relationships also enable us to scale production quickly without maintaining significant inventory on hand. The semiconductor capital equipment market has historically been cyclical. We have structured our business to minimize fixed manufacturing overhead and operating expenses to enable us to grow net income at a higher rate than sales during periods of growth. Conversely, our low fixed cost approach allows us to minimize the impact of cyclical downturns on our net income, but results in a smaller increase in gross margin as a percentage of sales in times of increased demand.
The semiconductor capital equipment market has historically been cyclical. We have structured our business to minimize fixed manufacturing overhead and operating expenses to enable us to grow net income at a higher rate than sales during periods of growth. For example, from 2013 to 2015, sales grew at a CAGR of 15.2% while adjusted net income grew at a CAGR of 57.9%. Conversely, our low fixed cost approach allows us to minimize the impact of cyclical downturns on our net income, but results in a smaller increase in gross margin as a percentage of sales in times of increased demand.
Our Growth Strategy
Our objective is to enhance our position as a leader in providing fluid delivery solutions, including subsystems and tool refurbishment, to our customers by leveraging our core strengths. The key elements of our growth strategy are:
Grow Our Market Share within Existing Customer Base
We intend to grow our position with existing customers by continuing to leverage our specialized engineering talent and early collaboration approach with OEMs to foster long-term relationships. Each of our customers produces many different process tools for various process steps. At each customer, we are the outsourced supplier of fluid delivery subsystems for a subset of their entire process tool offerings. We are constantly looking to expand our relationships and to capture additional share at our existing customers. We believe that our early collaborative approach with customers positions us to deliver innovative and dynamic solutions, offer timely deployment and meet competitive cost targets, further enhancing our brand reputation. Due to previous successful engineering projects with this OEM, we were selected as the development partner on key next generation platforms. Success on these platforms along with other operational successes has grown our revenue from $1.1 million in 2011 to $18.8 million in 2015. Through our recent purchase of a plastic machining & fabrication company, we were able to enter the market for chemical delivery subsystems for CMP process tools where we had only limited engagement in the past. Using this and our existing engineering capability, we were awarded the design and manufacturing of the chemical delivery module for one of our two largest customers who is a market leader in this space.
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Grow Our Total Available Market at Existing Customers with Expanded Product Offerings
We continue to work with our existing core customers on additional opportunities, including chemical delivery, one of our important potential growth areas. We believe that wet processes, such as chemical-mechanical planarization, or CMP, clean and electro chemical deposition, or ECD, that require precise chemical delivery are currently an underpenetrated market opportunity for us. By leveraging our existing customer relationships and strong reputation in fluid mechanics, we intend to increase our chemical delivery module market share as well as to introduce additional related products. In April, 2016, we acquired Ajax and its subsidiaries to add chemical delivery subsystem capabilities with our existing customers. The Ajax Acquisition allows us to manufacture and assemble the complex plastic and metal products required by the medical, biomedical, semiconductor and data communication equipment industries. In addition, we believe that as a larger number of leading edge tools are deployed and installed, our market opportunity for refurbishment of legacy systems grows.
Expand Our Total Customer Base Within Fluid Delivery Market
We are actively in discussions with new customers that are considering outsourcing their gas and chemical delivery needs. As an example, we were recently selected as the manufacturing partner for a provider of etch process equipment that was previously not a customer of ours.
Expand Into Emerging Opportunities
We plan to leverage our existing manufacturing platform and engineering expertise to develop or acquire new products and solutions for attractive, high growth applications within new markets such as medical, research, oil and gas and energy. We believe these efforts will diversify our sales exposure while capitalizing on our current capabilities.
Continue to Improve Our Manufacturing Process Efficiency
We continually strive to improve our processes to reduce our manufacturing process cycle time, improve our ability to respond to last minute design or configuration changes, reduce our manufacturing costs and reduce our inventory requirements in order to improve profitability and make our product offerings more attractive to new and existing customers.
Our Products and Services
We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems. Our product and service offerings are classified in the following categories:
Gas Delivery Subsystems
Gas delivery is among the most technologically complex functions in semiconductor capital equipment and is used to deliver, monitor and control precise quantities of the vapors and gases critical to the manufacturing process. Our gas delivery systems consist of a number of gas lines, each controlled by a series of mass flow controllers, regulators, pressure transducers and valves, and an integrated electronic control system. Our gas delivery subsystems are primarily used in equipment for dry manufacturing processes, such as etch, chemical vapor deposition, physical vapor deposition, epitaxy and strip.
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The image below shows a typical dry-process front end semiconductor tool, with the gas delivery subsystem highlighted (generally each tool has multiple gas delivery systems):
Chemical Delivery Subsystems
Our chemical delivery subsystems are used to precisely blend and dispense reactive chemistries and colloidal slurries critical to the specific wet front-end process, such as wet clean, ECD and CMP. In addition to the chemical delivery subsystem, we also develop the process modules that apply the various chemicals directly to the wafer in a process and application-unique manner to create the desired chemical reaction.
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The image below shows a typical wet-process front end semiconductor tool, with a chemical delivery subsystem and corresponding application process module highlighted:
History
Our business of designing and manufacturing critical systems for semiconductor capital equipment manufacturers was started by Celerity, Inc. in 1999. Our business operated as a stand-alone business until 2009 when Celerity sold the business to a private equity fund. Francisco Partners acquired the business in December 2011 and formed Ichor Holdings, Ltd. in March 2012 to serve as the parent company as part of a restructuring to accommodate the expansion of our business in Singapore and Malaysia. In April 2012, we acquired Semi Scenic UK Limited to provide refurbishment services for legacy tools. In April 2016, we purchased Ajax for approximately $17.6 million to add chemical delivery subsystem capabilities with existing customers. We intend to continue to evaluate opportunistic acquisitions to supplement our organic growth.
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Customers, Sales and Marketing
We market and sell our products directly to equipment OEMs in the semiconductor equipment market. These industries are highly concentrated and, as a result, we are dependent upon a small number of key customers. For fiscal 2015, our two largest customers were Lam Research and Applied Materials, which accounted for 57% and 38% of our sales, respectively. We also serve customers in the tool refurbishment market, which we believe is a growing market due to the extended lifetime of current manufacturing equipment. We do not have long-term contracts that require customers to place orders with us in fixed or minimum volumes, and we generally operate on purchase order basis with customers.
Our sales and marketing efforts focus on fostering close business relationships with our customers. As a result, we locate many of our account managers near the customer they support. Our sales process involves close collaboration between our account managers and engineering and operations teams. Account managers and engineers work together with customers and in many cases provide on-site support, including attending customers internal meetings related to production and engineering design. Each customer project is supported by our account managers and customer support team, who ensure we are aligned with all of the customers quality, cost and delivery expectations.
Operations, Manufacturing and Supply Chain Management
We have developed a highly flexible manufacturing model with cost-effective locations situated nearby the manufacturing facilities of our largest customers.
Operations
Our product cycle engagements begin by working closely with our customers to outline the solution specifications before design and prototyping even begin. Our design and manufacturing process is highly flexible, enabling our customers to make alterations to their final requirements throughout the design, engineering and manufacturing process. This flexibility results in significantly decreased design-to-delivery cycle times for our customers. For instance, it can take as little as 20 to 30 days for us to manufacture a gas delivery system with fully evaluated performance metrics after receiving an order.
Manufacturing
We are ISO 9001 qualified at each of our manufacturing locations, and our manufactured subsystems and modules adhere to strict design tolerances and specifications. We operate Class 100 and Class 10,000 clean room facilities for customer-specified testing, assembly and integration of high-purity gas and chemical delivery systems at our locations in Singapore; Tualatin, Oregon; and Austin, Texas. We also operate a facility in Malaysia for components used in our gas delivery subsystems and a facility in Union City, California for critical components used in our chemical delivery subsystems. Our facilities are located in close proximity to our largest customers to allow us to collaborate with them on a regular basis and to enable us to deliver our products on a just-in-time basis, regardless of order size or the degree of changes in the applicable configuration or specifications.
We qualify and test key components that are integrated into our subsystems, and test our fluid delivery subsystems during the design process and again prior to shipping. Our quality management system allows us to access real-time corrective action reports, non-conformance reports, customer complaints and controlled documentation. In addition, our senior management conducts quarterly reviews of our quality control system to evaluate effectiveness. Our customers also complete quarterly surveys which allow us to measure satisfaction.
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Supply Chain Management
We use a wide range of components and materials in the production of our gas and chemical delivery systems, including filters, mass flow controllers, regulators, pressure transducers and valves. We obtain components and materials from a large number or sources, including single source and sole source suppliers. We use consignment material and just-in-time stocking programs to better manage our component inventories and better respond to changing customer requirements. These approaches enable us to significantly reduce our inventory levels and maintain flexibility in responding to changes in product demand.
In addition, a key part of our strategy is to identify multiple suppliers with a strong global reach that are located within close proximity to our manufacturing locations. We have centralized our procurement operations into our Austin, Texas location in order to streamline our materials spending, leverage localized purchasing support within our manufacturing locations and enable the use of regional supply chains.
Technology Development and Engineering
We have a long history of engineering innovation and development. Over time, we have transitioned from being simply an integration engineering and components company into a gas and chemical delivery subsystem leader with complete system engineering and integration expertise. Our industry continues to experience rapid technological change, requiring us to continuously invest in technology and product development and to regularly introduce new products and features that meet our customers evolving requirements.
We have built a team of gas delivery experts, many of whom have previously worked for certain of our customers. As of September 23, 2016, our engineering team consisted of 40 engineers and designers with mechanical, electrical, chemical, systems and software expertise. Our engineers are closely connected with our customers and typically work at our customers sites and operate as an extension of our customers design team. We engineer within our customers processes, design vaults, drawing standards and part numbering systems. These development efforts are designed to meet specific customer requirements in the areas of subsystem design, materials, component selection and functionality. Over 80% of our sales are generated from projects during which our engineers cooperated with our customer early in the design cycle. Through this early collaborative process, we become an integral part of our customers design and development processes, and we are able to quickly anticipate and respond to our customers changing requirements. This close engineering collaboration with OEMs has helped us to transition approximately 85% of our initial customers into repeat business.
Our engineering team 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 and chemical 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.
Competition
The markets for our products are very competitive. When we compete for new business, we face competition from other suppliers of gas or chemical delivery subsystems, as well as the
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internal manufacturing groups of OEMs. While many OEMs have outsourced the design and manufacture of their gas and chemical delivery systems, we would face additional competition if in the future these OEMs elected to develop these systems internally.
The gas delivery subsystem market is highly concentrated and we face competition primarily from Ultra Clean Technology, with limited competition from regional or specialized suppliers. The chemical delivery subsystem industry is fragmented and we face competition from numerous suppliers. In addition, the market for tool refurbishment is fragmented and we compete with many regional competitors.
The primary competitive factors we emphasize include:
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early engagement with customers; |
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size and experience of engineering staff; |
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design-to-delivery cycle times; |
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flexible manufacturing capabilities; and |
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customer relationships. |
We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that could adversely affect sales of our current and future products. In addition, the limited number of potential customers in our industry further intensifies competition. We anticipate that increased competitive pressures will cause intensified price-based competition and we may have to reduce the prices of our products. In addition, we expect to face new competitors as we enter new markets.
Intellectual Property
Our success depends, in part, upon our ability to maintain and protect our technology and products and to conduct our business without infringing the proprietary rights of others. We continue to invest in securing intellectual property protection for our technology and products and protect our technology by, among other things, filing patent applications. We also rely on a combination of trade secrets and confidentiality provisions, and to a much lesser extent, copyrights and trademarks, to protect our proprietary rights. We have historically focused our patent protection efforts in the United States and, as of September 23, 2016, we held 16 U.S. patents. We do not have any active foreign patents but may decide in the future to seek patents in foreign jurisdictions if we believe such patents would benefit our business. While we consider our patents to be valuable assets, we do not believe the success of our business or our overall operations are dependent upon any single patent or group of related patents. In addition, we do not believe that the loss or expiration of any single patent or group of related patents would materially affect our business.
Intellectual property that we develop on behalf of our customers is generally owned exclusively by those customers. In addition, we have agreed to indemnify certain of our customers against claims of infringement of the intellectual property rights of others with respect to our products. Historically, we have not paid any claims under these indemnification obligations, and we do not have any pending indemnification claims against us.
Employees and Labor Relations
As of September 23, 2016, we had approximately 530 full time employees and approximately 141 contract or temporary workers worldwide. Of our total employees,
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approximately 40 are engineers, 31 are engaged in sales and marketing, 545 are engaged in manufacturing, and 55 perform executive and administrative functions. None of our employees are unionized, but in various countries, local law requires our participation in works councils. We have not experienced any material work stoppages at any of our facilities. We consider our relationship with our employees to be good.
Properties
Our principal executive office is located at 3185 Laurelview Ct., Fremont, California 94538. As of September 23, 2016, our principal manufacturing and administrative facilities, including our executive offices, comprises approximately 358,579 square feet. All of our facilities are leased. The table below sets forth the approximate square footage of each of our facilities.
Location |
Approximate
Square Footage |
|||
Kingston, New York(1) |
71,751 | |||
Tualatin, Oregon |
52,546 | |||
Singapore |
76,898 | |||
Austin, Texas |
25,720 | |||
Selangor, Malaysia Building 1(2) |
6,212 | |||
Selangor, Malaysia Buildings 2 and 3(3) |
4,576 | |||
Selangor, Malaysia Building 4 |
12,546 | |||
Santa Clara, California(4) |
4,224 | |||
Fremont, California |
10,647 | |||
East Blantyre, Scotland |
37,651 | |||
Union City, California |
52,808 | |||
Pflugerville, Texas(5) |
3,000 |
(1) | Operations ceased in Kingston as of May 27, 2016. The facility is leased through February 28, 2018. |
(2) | Lease expires January 31, 2017. All operations are expected to be moved to Selangor, Malaysia Building 4 by the end of 2016. |
(3) | Lease expires December 31, 2016. All operations are expected to be moved to Selangor, Malaysia Building 4 by the end of 2016. |
(4) | Operations at this facility were relocated to Fremont, California on September 14, 2014 and this facility was subleased to a third party until the lease expired on July 31, 2016. |
(5) | Operations at this facility were relocated to the Austin facility before the lease expired on August 31, 2016. |
We believe that our existing facilities and equipment are well maintained, in good operating condition and are adequate to meet our currently anticipated requirements.
Environmental, Health, and Safety Regulations
Our operations and facilities are subject to federal, state and local regulatory requirements and foreign laws and regulations, relating to environmental, waste management and health and safety matters, including those 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. We believe that our business is operated in substantial compliance with applicable regulations. However, in the future we could incur substantial costs, including cleanup costs, fines or civil or criminal sanctions, or third-party property damage or personal injury claims, in the event of violations or liabilities under these laws and regulations, or non-compliance with the environmental permits required at our facilities. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the
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future. We are not aware of any threatened or pending environmental investigations, lawsuits or claims involving us, our operations or our current or former facilities.
Legal Proceedings
We are currently not a party to any legal proceedings. However, in the future we may be subject to various legal claims and proceedings which arise in the ordinary course of our business involving claims incidental to our business, including employment-related claims.
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The following table sets forth information regarding our directors and executive officers upon completion of this offering.
Name |
Age |
Position/Title |
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Thomas M. Rohrs |
65 | Executive Chairman, Chief Executive Officer and Director | ||||
Maurice Carson |
59 | President, Chief Financial Officer and Director | ||||
Philip Barros |
36 | Chief Technology Officer | ||||
John Chenault |
69 | Director | ||||
Dipanjan Deb |
47 | Director | ||||
Andrew Kowal |
39 | Director | ||||
Iain MacKenzie |
57 | Director |
Ages shown above are as of September 23, 2016. The following is a brief description of the business experience of each of the persons listed above.
Thomas M. Rohrs has served as Executive Chairman and director of Ichor since February 2012 and as Chief Executive Officer since September 2014. Prior to serving at Ichor, Mr. Rohrs served as Chief Executive Officer and Chairman of Skyline Solar from 2010 to 2012 and Electroglas from 2006 to 2009. Mr. Rohrs also served as Senior Vice President of Global Operations and a member of the Executive Committee for Applied Materials from 1997 to 2002 and as Vice President of Worldwide Operations for Silicon Graphics from 1992 to 1997. Mr. Rohrs currently serves on the board of directors of Advanced Energy and Intevac. Mr. Rohrs previously served on the board of directors of Magma Design Automation, Ultra Clean Technologies and Vignani Technologies. Mr. Rohrs holds a B.S. in mechanical engineering from the University of Notre Dame and an M.B.A. from the Harvard Business School. We believe Mr. Rohrs is qualified to serve as a member of our board of directors because of his extensive experience in technology industries, significant senior leadership and his strategic insight into Ichor, gained from his role as Chief Executive Officer.
Maurice Carson has served as a director of Ichor since February 2012 and as President and Chief Financial Officer since September 2014. Prior to serving at Ichor, Mr. Carson served as Chief Financial Officer of Intematix from 2011 to 2014 and served as Chief Financial Officer of Actel Corporation from 2009 to 2010. Mr. Carson holds a B.S. in finance and accounting from the University of Colorado and an M.B.A. from the University of Chicago. We believe Mr. Carson is qualified to serve as a member of our board of directors because of his extensive experience in finance and operations, particularly in technology industries, and his strategic insight into Ichor, gained from his role as Chief Financial Officer.
Philip Barros has served as Chief Technology Officer of Ichor since September 2015. Previously, Mr. Barros had served as Senior Vice President of Engineering of Ichor since April 2011, and prior to that time, served as Vice President of Engineering at Ichor since 2009. Prior to serving at Ichor, Mr. Barros served in various management positions at Celerity, Inc. from 2004 to 2009, including Vice President of Engineering and Director of Systems Engineering, and served in various engineering and management positions at Applied Materials from 2000 to 2004. Mr. Barros holds a B.S. in Mechanical Engineering from San Jose State.
John Chenault has served as a director of Ichor since October 2015. Mr. Chenault served as Chief Financial Officer of Novellus Systems, a semiconductor company, from April 2005 to September 2005, after which he retired. Prior to that, Mr. Chenault had served as Novellus Systems Vice President of Corporate Development from February 2005 to April 2005, Vice
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President of Operation and Administration from September 2003 to February 2005, Executive Vice President of Worldwide Sales and Service from February 2002 to September 2003 and Executive Vice President of Business Operations from July 1997 to January 2002. Mr. Chenault has served on the board of directors and audit committee of Tessera Technologies since March 2013. Mr. Chenault also served on the board of directors of Ultra Clean Technology from June 2009 to July 2015. Mr. Chenault received a Bachelor of Business degree in Economics and an M.B.A. from Western Illinois University. Mr. Chenault is qualified to serve as a member of our board of directors and as chairman of our audit committee because of his extensive experience in finance and operations, particularly in technology industries, and his experience as a board member at Ultra Clean Technology.
Dipanjan DJ Deb has served as a director of Ichor since February 2012. Mr. Deb co-founded Francisco Partners Management LP, has been a Partner with Francisco Partners since its founding in August 1999 and has served as Chief Executive Officer and Managing Partner of Francisco Partners since August 2005. Prior to co-founding Francisco Partners, Mr. Deb was a principal at TPG Capital, Director of Semiconductor Banking at Robertson, Stephens & Company and a management consultant at McKinsey & Company. Mr. Deb also currently serves on the board of directors of GoodRx, Plex Software, Quest Software and SonicWALL and formerly served on the board of directors of AMI Semiconductor, Barracuda Networks, CBA Group, Cross Match Technologies, Corsair, Legerity, MagnaChip, Metrologic, NPTest/Credence, Numonyx, SMART Modular Technologies, Ultra Clean Technology, Conexant, Globespan, and ON Semiconductor. Mr. Deb holds a B.S. in electrical engineering and computer science from the University of California, Berkeley, where he was a Regents Scholar and an M.B.A. from the Stanford Graduate School of Business. We believe that Mr. Deb is qualified to serve as a member of our board of directors because of his experience in the private equity and venture capital industries analyzing, investing in and serving on the boards of directors of manufacturing and technology companies, as well as his perspective as a representative of our largest shareholder.
Andrew Kowal has served as a director of Ichor since February 2012. Mr. Kowal is a Partner with Francisco Partners Management LP. Prior to joining Francisco Partners in 2001, Mr. Kowal served as a member of Princes Gate Investors where he was responsible for the identification, evaluation and execution of private equity transactions in a variety of industries, including information technology. In addition to Ichor, Mr. Kowal currently serves on the board of directors of Corsair Components, Optanix, OSY Holdings, Procera Networks, Shoregroup and Source Photonics. Mr. Kowal previously served on the board of directors of Aderant Holdings, MagnaChip Semiconductor, Metrologic Instruments and Mitel Networks Corporation. Mr. Kowal holds a B.S. in Economics with a Finance concentration from The Wharton School, University of Pennsylvania. We believe that Mr. Kowal is qualified to serve as a member of our board of directors because of his experience in the private equity and venture capital industries analyzing, investing in and serving on the boards of directors of manufacturing and technology companies, as well as his perspective as a representative of our largest shareholder.
Iain MacKenzie has served as a director of Ichor since October 2015. Mr. MacKenzie has served as President of SMART Modular Technologies, or SMART, a specialty memory solutions provider, since 2002 and Chief Executive Officer since 2005. Prior to serving as SMARTs President and CEO, Mr. MacKenzie was vice president of worldwide operations for SMART and Force Computers when both were owned by Solectron. Before that, he was responsible for the start-up, SMART Modular Technologies (Europe) Ltd. Subsidiary, where he also served as general manager. Mr. MacKenzie holds the Higher National Diploma in mechanical and production engineering and the Ordinary National Diploma in electrical/electronic engineering from the Kirkcaldy College of Technology (Fife University) in Scotland. Mr. MacKenzie is
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qualified to serve as a member of our board of directors and as a member of our audit committee because of his extensive business and financial background and his multiyear service as the Chief Executive Officer of an international technology company.
Controlled Company
For purposes of NASDAQ rules, we will be a controlled company after completion of this offering. Controlled companies under those rules are companies of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. Francisco Partners will continue to control more than 50% of the voting power of our ordinary shares upon completion of this offering and will continue to have the right to designate a majority of the members of our board of directors for nomination for election and the voting power to elect such directors following this offering. Accordingly, we expect to be eligible to, and we intend to, take advantage of certain exemptions from corporate governance requirements provided in NASDAQ rules. Specifically, as a controlled company, we will not be required to have (1) a majority of independent directors, (2) a Nominating and Corporate Governance Committee composed entirely of independent directors, (3) a Compensation Committee composed entirely of independent directors or (4) an annual performance evaluation of the Nominating and Corporate Governance Committee and Compensation Committee. Therefore, following this offering, we may not have a majority of independent directors, our Compensation, Nominating and Corporate Governance Committee may not consist entirely of independent directors and such committee may not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the applicable NASDAQ corporate governance requirements. In the event that we cease to be a controlled company, we will be required to comply with those requirements within specified transition periods.
The controlled company exemption does not modify the independence requirements for the Audit Committee, and we intend to comply with the requirements of the Sarbanes-Oxley Act and NASDAQ rules, which require that our Audit Committee be composed of at least three members, two of whom will be independent upon the listing of our ordinary shares on NASDAQ and each of whom will be independent within one year of our initial public offering.
Composition of our Board of Directors
Upon the completion of this offering, our board of directors will consist of six directors. The authorized number of directors may be changed from time to time by resolution of our board of directors and with the prior written consent of Francisco Partners for so long as it holds director nomination rights. Vacancies on our board of directors can be filled by resolution of our board of directors. Subject to any rights applicable to any then outstanding preferred shares, any additional directorships resulting from an increase in the number of directors may only be filled by the directors then in office unless otherwise required by law or by a resolution passed by our board of directors. The term of office for each director will be until his or her successor is elected at the applicable annual general meeting or his or her death, resignation or removal, whichever is earliest to occur. In addition, Francisco Partners will have director nomination rights under our amended and restated memorandum and articles of association. See Description of Share CapitalDirector Nomination Rights.
Upon the completion of this offering, our board of directors will be divided into three classes, each serving staggered, three-year terms:
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our Class I directors will be Iain MacKenzie and Thomas Rohrs, and their terms will expire at the first annual general meeting of shareholders following our initial public offering; |
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our Class II directors will be Dipanjan Deb and Andrew Kowal, and their terms will expire at the second annual general meeting of shareholders following our initial public offering; and |
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our Class III directors will be Maurice Carson and John Chenault, and their terms will expire at the third annual general meeting of shareholders following our initial public offering. |
As a result, only one class of directors will be elected at each annual general meeting of shareholders, with the other classes continuing for the remainder of their respective terms.
Committees of our Board of Directors
Upon the completion of this offering, the standing committees of our board of directors will be an Audit Committee and a Compensation, Nominating and Corporate Governance Committee. Each of the committees will report to our board of directors as they deem appropriate and as our board of directors may request. The expected composition, duties and responsibilities of these committees are set forth below.
Audit Committee
The Audit Committee will be responsible for, among other matters: (1) oversight of the quality and integrity of our financial statements and financial reporting processes and of our systems of internal accounting and financial controls and disclosure controls; (2) the qualifications and independence of our independent auditors; (3) the performance of our internal audit function and independent auditors; and (4) compliance with legal and regulatory requirements and codes of conduct and ethics programs established by management and our board of directors.
Immediately following this offering, the Audit Committee will consist of John Chenault, Andrew Kowal and Iain MacKenzie. We believe that each of Messrs. Chenault and MacKenzie will qualify as an independent director according to the rules and regulations of the SEC and NASDAQ with respect to audit committee membership. We expect to have a fully independent Audit Committee within one year of our initial public offering in order to comply with the applicable rules and regulations of NASDAQ.
We also believe that Mr. Chenault qualifies as an audit committee financial expert, as such term is defined in Item 401(h) of Regulation S-K. Our board of directors will adopt a written charter for the Audit Committee in connection with this offering, which will be available on our corporate website at www.ichorsystems.com upon the completion of this offering. The information on our website is not part of this prospectus.
Compensation, Nominating and Corporate Governance Committee
The Compensation, Nominating and Corporate Governance Committee will be responsible for, among other matters: (1) reviewing and approving all compensation, including incentive compensation and corporate and individual goals and objectives relevant to our chief executive officer, and evaluating our chief executive officers performance in light of those goals and objectives; (2) reviewing and approving the base salaries, incentive compensation and equity-based compensation of our other executive officers; (3) approving all significant compensation or incentive plans for executives (including material changes to all such plans); (4) having the sole authority to retain or obtain the advice of any compensation consultant, independent legal
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counsel or other adviser after taking into account certain factors which address the independence of that consultant, counsel or adviser; (5) annually reviewing and discussing with management the Compensation Discussion and Analysis for the Companys proxy statement, if applicable; (6) subject to the rights of Francisco Partners under our amended and restated memorandum and articles of association, identifying and recommending to our board of directors the persons to be nominated for election as directors and to each of the committees of our board of directors; and (7) leading our board of directors in its annual review of the performance of our board of directors.
Immediately following this offering, the Compensation, Nominating and Corporate Governance Committee will consist of Dipanjan Deb and Andrew Kowal. Our board of directors will adopt a written charter for the Compensation, Nominating and Corporate Governance Committee in connection with this offering, which will be available on our corporate website at www.ichorsystems.com upon the completion of this offering. The information on our website is not part of this prospectus.
Compensation Committee Interlocks and Insider Participation
For fiscal 2015, our board of directors made all compensation decisions. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or Compensation Committee.
Risk Oversight
Our board of directors will oversee the risk management activities designed and implemented by our management. Our board of directors will execute its oversight responsibility for risk management both directly and through its committees. The full board of directors will also consider specific risk topics, including risks associated with our strategic plan, business operations and capital structure. In addition, our board of directors will receive detailed regular reports from members of our senior management and other personnel that include assessments and potential mitigation of the risks and exposures involved with their respective areas of responsibility.
Our board of directors will delegate to the Audit Committee oversight of our risk management process. Our other committees of our board of directors will also consider and address risk as they perform their respective committee responsibilities. All committees will report to the full board of directors as appropriate, including when a matter rises to the level of a material or enterprise level risk.
Family Relationships
There are no family relationships between any of our executive officers and directors or director nominees.
Code of Business Ethics and Conduct
We expect our board of directors to adopt a code of business ethics and conduct in connection with the completion of this offering. The code of business ethics and conduct will apply to all of our employees, officers and directors. The full text of our code of business ethics and conduct will be posted on our corporate website at www.ichorsystems.com upon the completion of this offering. If we make any substantive amendments to this code or grant any
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waiver from a provision to our chief executive officer, principal financial officer or principal accounting officer, we will disclose the nature of such amendment or waiver on our website. The information contained on our website is not part of this prospectus.
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The following section provides compensation information pursuant to the scaled disclosure rules applicable to emerging growth companies under the rules of the SEC and may contain statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our executive compensation program and should not be understood to be statements of managements expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Overview
Our Named Executive Officers for fiscal 2015, which consist of our principal executive officer and the two other most highly compensated executive officers, are:
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Thomas Rohrs, our Chief Executive Officer; |
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Maurice Carson, our President and Chief Financial Officer; and |
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Philip Barros, our Chief Technology Officer. |
Historically, our board of directors has set the compensation of our executive officers. The primary objectives of our executive compensation program have been to: (1) attract, engage, and retain superior talent who contribute to our long-term success; (2) motivate, inspire and reward executive officers whose knowledge, skills and performance are critical to our business; (3) ensure compensation is aligned with our corporate strategies and business objectives; and (4) provide our executive officers with incentives that effectively align their interests with those of our shareholders.
Executive Compensation Design Overview
Our executive compensation program has reflected our growth and development oriented corporate culture. To date, the compensation of our Named Executive Officers has consisted of a combination of base salary, annual cash incentive compensation and long-term incentive compensation in the form of restricted stock or stock options. Our executive officers and all salaried employees also are eligible to receive health and welfare benefits.
As we transition from a private company to a publicly-traded company, we will evaluate our philosophy and compensation plans and arrangements as circumstances require. At a minimum, we expect to review our executive compensation, programs, objectives and philosophy annually. In addition, as we gain experience as a public company, we expect that the specific direction, emphasis and components of our executive compensation program will continue to evolve.
Elements of Compensation
Base Salary
The annual base salaries for our Named Executive Officers as of the beginning of fiscal 2015 were:
Named Executive Officer |
Base Salary | |||
Thomas Rohrs |
$ | 375,000 | ||
Maurice Carson |
$ | 350,000 | ||
Philip Barros(1) |
$ | 310,000 |
(1) | Mr. Barros salary was increased to $335,000 in September 2015. |
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Incentive Compensation Plan
We pay performance-based cash incentives in order to align the compensation of our Named Executive Officers with our short-term operational and performance goals and to provide near-term rewards for our Named Executive Officers to meet these goals. Our short-term, performance-based cash incentive plan for fiscal 2015, or the 2015 ICP, provides for incentive payments correlated to each six-month period during our fiscal year. These incentive payments are based on the attainment of pre-established objective financial and operating goals and are intended to motivate executives to work effectively to achieve performance objectives and reward them when objectives are met and results are certified by our board of directors.
Mr. Rohrs target award for each half of fiscal 2015 was equal to 42.5% of his base salary (or 85% of his base salary for the entire fiscal year), up to a maximum award for each half of fiscal 2015 equal to 85% of his base salary (or up to 170% of his base salary for the entire fiscal year). Mr. Carsons target award for each half of fiscal 2015 was equal to 30% of his base salary (or 60% of his base salary for the entire fiscal year), up to a maximum award for each half of fiscal 2015 equal to 60% of his base salary (or up to 120% of his base salary for the entire fiscal year). Mr. Barros target award for each half of fiscal 2015 was equal to 25% of his base salary (or 50% of his base salary for the entire fiscal year), up to a maximum award for each half of fiscal 2015 equal to 50% of his base salary (or up to 100% of his base salary for the entire fiscal year).
The following tables set forth (1) the metrics used to determine each named executive officers payment for each six-month period under the 2015 ICP, which include management by objectives, or MBOs, that provide for individualized performance goals and earnings before interest, taxes, depreciation and amortization, or EBITDA, (2) the weight given to each metric, and (3) the related threshold, target and maximum levels:
Metrics for First Six-Month Period of 2015 |
Weight | Threshold | Target | Maximum | ||||||||||||
(Dollars in millions) | ||||||||||||||||
Sales |
30% | $ | 152.22 | $ | 177.0 | $ | 203.55 | |||||||||
Gross Margin |
20% | 12.56% | 14.6% | 16.79% | ||||||||||||
EBITDA |
30% | $ | 11.35 | $ | 13.2 | $ | 15.18 | |||||||||
Individual MBOs |
20% | |||||||||||||||
100% |
Metrics for Second Six-Month Period of 2015 |
Weight | Threshold | Target | Maximum | ||||||||||||
(Dollars in millions) | ||||||||||||||||
Sales |
30% | $ | 177.25 | $ | 206.1 | $ | 237.02 | |||||||||
Gross Margin |
20% | 14.36% | 16.7% | 19.21% | ||||||||||||
EBITDA |
30% | $ | 18.92 | $ | 22.0 | $ | 25.30 | |||||||||
Individual MBOs |
20% | |||||||||||||||
100% |
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The following table sets forth the result that we achieved with respect to each metric based on internal reporting as of the end of each six-month period and the corresponding percentage payout under the 2015 ICP. The actual result of certain metrics was subject to adjustment for nonrecurring or unusual expenses or events occurring during the period, and therefore the actual results of such metrics under the 2015 ICP as presented below may differ from the fiscal 2015 financial information set forth elsewhere in this prospectus:
First Six-Month
Period |
Second Six-Month Period | |||||||||||||||
Actual |
Percentage
Payout |
Actual |
Percentage
Payout |
|||||||||||||
(Dollars in millions) | ||||||||||||||||
Sales |
$ | 195.78 | 167 | % | $ | 175.7 | 0 | % | ||||||||
Gross Margin |
14.2 | % | 80 | % | 13.20 | % | 0 | % | ||||||||
EBITDA |
$ | 15.76 | 200 | % | $ | 13.20 | 0 | % | ||||||||
Individual MBOs |
| (1) | | 0 | % |
(1) | The percentage payouts with respect to the individual MBOs for Messrs. Rohrs, Carson and Barros were 105%, 85% and 100% respectively. |
Each of Messrs. Rohrs, Carson and Barros was paid a bonus under the 2015 ICP for the first six-month period of fiscal 2015 of $234,441, $150,255 and $113,228, respectively. None of our Named Executed Officers were paid bonuses under the 2015 ICP for the second six-month period of fiscal 2015 because none of the threshold amounts for the above objectives were achieved.
Equity Compensation
We use equity awards issued under the Ichor Holdings, Ltd. 2012 Equity Incentive Plan, or the 2012 Incentive Plan, to incentivize and reward our executive officers, including our Named Executive Officers, for long-term corporate performance based on the value of our ordinary shares and, thereby, to align the interests of our executive officers with those of our shareholders. These equity awards have either been in the form of stock options to purchase our ordinary shares or restricted stock. Each of Messrs. Rohrs and Carson has a restricted stock award that will vest upon the completion of this offering provided that he is both an executive officer and director on or prior to the 91st day prior to this offering. None of our Named Executive Officers received an equity award during fiscal 2015.
The size of equity awards to each of the Named Executive Officers reflects such officers importance as an executive officer and also takes into account, among other factors, such officers role and responsibilities, the competitive market for executive officers, and the size, value and vesting status of existing equity awards at the time new equity awards are granted. The market for quality executive officers is competitive and our board of directors relies on several factors to assess the competitiveness of the market, including Francisco Partners experience recruiting executive officers for its portfolio companies and our directors own experiences in recruiting and retaining qualified executive officers.
We expect to adopt a new equity incentive plan in connection with the completion of this offering. Upon adoption of our new equity incentive plan, no further grants will be made under our 2012 Incentive Plan, provided that grants outstanding under the 2012 Incentive Plan will continue to be governed by such plan. A summary of the material terms of such new equity incentive plan are set forth below under 2016 Omnibus Incentive Plan.
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Summary of 2012 Incentive Plan
The following is a summary of the material terms of the 2012 Incentive Plan. This summary is qualified by reference to the actual text of the plan, which will be filed as an exhibit to the registration statement of which this prospectus forms a part.
The 2012 Incentive Plan allows for the grant of stock options (both incentive and non-qualified) and stock awards (both restricted and nonrestricted). The purpose of the 2012 Incentive Plan is to provide incentives that will attract, retain and motivate high performing outside directors, employees and consultants by providing them with an ownership interest in conjunction with our long-term success.
Administration. The 2012 Incentive Plan is currently administered by our board of directors. Our board of directors has full authority to administer and interpret the 2012 Incentive Plan, to grant awards under the 2012 Incentive Plan, to determine the persons to whom awards will be granted, to determine the terms and conditions of each award, to determine the number of ordinary shares to be covered by each award and to make all other determinations in connection with the 2012 Incentive Plan and the awards thereunder as the board of directors deems necessary or desirable.
Available Shares. As of September 23, 2016, the aggregate number of ordinary shares with respect to which awards may be granted under the Equity Plan was 3,104,293, which may be either authorized and unissued ordinary shares or ordinary shares held in or acquired for our treasury, of which there were 778,187 shares available for grant. The foregoing share amounts give effect to the reverse stock split described elsewhere in this prospectus. The number of shares with respect to which awards may be granted under the Equity Plan may be adjusted, in the discretion of our board of directors, in the event that we affect a stock dividend or stock split or there occurs any other event which necessitates such adjustment. In general, if awards under the 2012 Incentive Plan are for any reason cancelled or forfeited or expire or terminate unexercised, the shares covered by such awards will again be available for the grant of awards under the 2012 Incentive Plan.
Eligibility for Participation. Our outside directors, employees and consultants are eligible to receive awards under the 2012 Incentive Plan. The selection of participants is made by our board of directors.
Grant Agreements. Awards granted under the 2012 Incentive Plan are evidenced by grant agreements, which need not be identical, that provide additional terms, conditions, restrictions and limitations covering the grant of the award, including additional terms providing for the acceleration of exercisability or vesting of awards in the event of a change in control or conditions regarding the participants employment, as determined by our board of directors. Each stock option granted under the plan may be a nonqualified stock option or an incentive stock option within the meaning of the Internal Revenue Code.
Our board of directors determines the number of ordinary shares subject to each award, the term of each award, which may not exceed 10 years, the exercise price, the vesting schedule, if any, and the other material terms of each award. No stock option may have an exercise price less than the fair market value of an ordinary share at the time of grant. Stock options will be exercisable at such time or times and subject to such terms and conditions as determined by our board of directors at grant and the exercisability of such options may be accelerated by our board of directors.
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Health and Retirement Benefits
We provide medical, dental, vision, life insurance and disability benefits to all eligible employees. Our Named Executive Officers are eligible to participate in these benefits on the same basis as all other employees.
We maintain a qualified 401(k) savings plan which allows participants to defer from 0% to 50% of cash compensation up to the maximum amount allowed under Internal Revenue Service guidelines. We also provide matching contributions up to $2,500 per year for each of our executive officers and other employees.
Summary Compensation Table
The following table presents summary information regarding the total compensation paid to, earned by, and awarded to each of our Named Executive Officers in fiscal 2015.
Name and principal position |
Year |
Salary
($) |
Bonus
($)(1) |
Option
awards ($)(2) |
Non-equity
incentive plan compensation ($)(3) |
All other
compensation ($)(4) |
Total
($) |
|||||||||||||||||||||
Thomas Rohrs |
2015 | $ | 375,000 | $ | 583,318 | $ | 6,088 | $ | 234,441 | $ | 2,500 | $ | 1,201,347 | |||||||||||||||
Chief Executive Officer |
2014 | $ | 282,692 | | $ | 636,749 | $ | 35,775 | $ | 42,500 | $ | 997,716 | ||||||||||||||||
Maurice Carson |
2015 | $ | 350,000 | $ | 176,337 | | $ | 150,255 | $ | 2,500 | $ | 679,092 | ||||||||||||||||
President and Chief Financial Officer |
||||||||||||||||||||||||||||
Philip Barros |
2015 | $ | 315,769 | $ | 160,534 | $ | 4,719 | $ | 113,228 | $ | 2,500 | $ | 596,750 | |||||||||||||||
Chief Technology Officer |
2014 | $ | 300,769 | | | $ | 41,013 | $ | 2,500 | $ | 344,282 |
(1) | Represents bonuses paid in connection with the 2015 Dividend. The bonus amounts payable to each NEO equaled the product of (x) $0.155, which is the per share dividend amount paid to shareholders and (y) the number of shares of common stock underlying options and where held, the number of shares of restricted stock, held by each such individual at the time of the 2015 Dividend. Such bonus amounts are paid as the underlying awards vest, provided that certain future payments will be accelerated and paid in connection with this offering. |
(2) | Mr. Rohrs was granted stock options under the 2012 Incentive Plan in connection with his appointment as Chief Executive Officer in September 2014. The value of Mr. Rohrs option award was based on the fair value of the award as of the grant date calculated in accordance with ASC 718, excluding any estimate of future forfeitures. Also includes for each Named Executive Officer, incremental value associated with the modification of the exercise prices of outstanding options in connection with the 2015 Dividend pursuant to the terms of the 2012 Incentive Plan. |
(3) | Represents the actual amount earned by each of our Named Executive Officers under our short-term, performance-based cash incentive plan for fiscal 2015 or fiscal 2014, as applicable. See Elements of Compensation-Incentive Compensation Plan for additional information regarding the 2015 ICP. |
(4) | Represents matching contributions of $2,500 per year under our 401(k) plan and (b) for Mr. Rohrs, $40,000 paid as a retention sign-on bonus payment pursuant to his employment agreement. |
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth information regarding outstanding equity awards for each of our Named Executive Officers as of December 25, 2015 (giving effect to the 1 for 8.053363 reverse split of our ordinary shares). December 25, 2015 for each of our Named Executive Officers.
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Name |
Grant Date |
Number of
securities underlying unexercised options exercisable |
Number of
securities underlying unexercised options unexercisable |
Option
exercise price ($) |
Option
expiration date |
Number of
shares or units of stock that have not vested |
Market
value of shares or units of stock that have not vested ($)(1) |
|||||||||||||||||||||
Thomas Rohrs(2) |
3/12/2012 | 48,303 | 3,220 | $ | 8.05 | 3/12/2019 | | | ||||||||||||||||||||
10/25/2013 | 214,678 | 128,807 | $ | 8.05 | 10/25/2020 | | | |||||||||||||||||||||
10/25/2013 | 32,202 | 19,321 | $ | 14.90 | (3) | 10/25/2020 | | | ||||||||||||||||||||
11/15/2013 | 22,377 | $ | 210,848 | |||||||||||||||||||||||||
9/19/2014 | (2) | 30,291 | $ | 285,413 | ||||||||||||||||||||||||
9/19/2014 | 0 | 215,908 | $ | 8.05 | 9/19/2021 | | | |||||||||||||||||||||
Maurice Carson(4) |
3/12/2012 | 57,963 | 3,864 | $ | 8.05 | 3/12/2019 | | | ||||||||||||||||||||
9/19/2014 | 63,567 | 139,848 | $ | 8.05 | 9/19/2021 | | | |||||||||||||||||||||
9/19/2014 | 61,856 | $ | 582,777 | |||||||||||||||||||||||||
9/19/2014 | (4) | 89,963 | $ | 847,674 | ||||||||||||||||||||||||
Philip Barros(5) |
3/12/2012 | 144,908 | 9,661 | $ | 8.05 | 3/12/2019 | | | ||||||||||||||||||||
3/12/2012 | 48,303 | 3,228 | $ | 14.90 | (3) | 3/12/2019 | | |
(1) | There is no ascertainable public market value for our ordinary shares. The market value reported in this table is based upon a valuation analysis of the fair market value of our ordinary shares performed on March 17, 2016. |
(2) | Mr. Rohrs option and restricted stock awards vest as follows: (i) with respect to the March 2012 award, 25% of the award vested on the one year anniversary of the date of grant and the remainder vested ratably on a quarterly basis thereafter, (ii) with respect to the October 2013 awards, 25% of each award vested on June 30, 2014 and the remainder vests ratably on a quarterly basis thereafter, subject to Mr. Rohrs continued employment with us; provided that if his employment is terminated without cause and he is removed from our board of directors on or after June 30, 2016, then all unvested options shall vest on the date thereof, (iii) with respect to the November 2013 award, 25% of the award vested on June 30, 2014 and the remainder vests ratably on a quarterly basis thereafter, subject to Mr. Rohrs continued employment with us, (iv) with respect to the September 2014 option award, 25% of the award vested on the one year anniversary of the date of grant and the remainder vests ratably on a quarterly basis thereafter and (v) with respect to the September 2014 restricted stock award, the award fully vests in the event of a qualified sale of the Company or an initial public offering (including this offering) provided that Mr. Rohrs service as our executive officer and director does not terminate on or prior to the 91st day prior to such sale or initial public offering, as applicable. |
(3) | In connection with the 2015 Dividend, our board of directors approved an adjustment to the exercise price of such options from $16.10 to $14.89. |
(4) | Mr. Carsons option and restricted stock awards vest as follows: (i) with respect to the March 2012 award, 25% of the award vests on the one year anniversary of the date of grant and the remainder vests ratably on a quarterly basis thereafter, (ii) with respect to the September 2014 option award, 25% of the award vests on the one year anniversary of the date of grant and the remainder vests ratably on a quarterly basis thereafter, (iii) with respect to 89,963 restricted shares of the September 2014 restricted stock award, 25% of the award vests on the one year anniversary of the date of grant and the remainder vests ratably on a quarterly basis thereafter and (iv) with respect to 89,963 restricted shares of the September 2014 restricted stock award, the award fully vests in the event of a qualified sale of the Company or an initial public offering (including this offering) provided that Mr. Carsons service as our executive officer and director does not terminate on or prior to the 91st day prior to such sale or initial public offering, as applicable. |
(5) | Each of Mr. Barros option awards vest as follows: 25% of each award vested on March 12, 2012 and the remainder vests ratably on a quarterly basis thereafter, subject to Mr. Barros continued employment with us. |
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2016 Omnibus Incentive Plan
In connection with this offering, we expect to adopt the 2016 Omnibus Incentive Plan, or the 2016 Plan. The 2016 Plan provides for grants of stock options, stock appreciation rights, restricted stock, other share-based awards and other cash-based awards. Directors, officers and other employees of us and our subsidiaries, as well as others performing consulting or advisory services for us, are eligible for grants under the 2016 Plan. The purpose of the 2016 Plan is to provide incentives that will attract, retain and motivate high performing officers, directors, employees and consultants by providing them with appropriate incentives and rewards either through a proprietary interest in our long-term success or compensation based on their performance in fulfilling their personal responsibilities. Set forth below is a summary of the material terms of the 2016 Plan. For further information about the 2016 Plan, we refer you to the complete copy of the 2016 Plan, which is attached as an exhibit to the registration statement, of which this prospectus is a part.
Administration . The 2016 Plan is administered by the Compensation, Nominating and Corporate Governance Committee of our board of directors. Among the Committees powers is to determine the form, amount and other terms and conditions of awards; clarify, construe or resolve any ambiguity in any provision of the 2016 Plan or any award agreement; amend the terms of outstanding awards; and adopt such rules, forms, instruments and guidelines for administering the 2016 Plan as it deems necessary or proper. The Committee has authority to administer and interpret the 2016 Plan, to grant discretionary awards under the 2016 Plan, to determine the persons to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions of each award, to determine the number of ordinary shares to be covered by each award, to make all other determinations in connection with the 2016 Plan and the awards thereunder as the Committee deems necessary or desirable and to delegate authority under the 2016 Plan to our executive officers.
Available Shares . The aggregate number of ordinary shares which may be issued or used for reference purposes under the 2016 Plan or with respect to which awards may be granted may not exceed 1,888,000 shares, subject to automatic increase on the first day of each fiscal year beginning in fiscal year 2018 by the lesser of (1) 2% of the ordinary shares outstanding on the last day of the immediately preceding fiscal year, or (2) such lesser number of shares as determined by the Committee. The number of shares available for issuance under the 2016 Plan may be subject to adjustment in the event of a reorganization, stock split, merger or similar change in the corporate structure or the outstanding ordinary shares. In the event of any of these occurrences, we will make any adjustments we consider appropriate to, among other things, the number and kind of shares, options or other property available for issuance under the plan or covered by grants previously made under the plan. The shares available for issuance under the plan may be, in whole or in part, either authorized and unissued ordinary shares or ordinary shares held in or acquired for our treasury. In general, if awards under the 2016 Plan are for any reason cancelled, or expire or terminate unexercised, the shares covered by such awards may again be available for the grant of awards under the 2016 Plan.
The maximum number of ordinary shares with respect to which any stock option, stock appreciation right, shares of restricted stock or other share-based awards that are subject to the attainment of specified performance goals and intended to satisfy Section 162(m) of the Internal Revenue Code and may be granted under the 2016 Plan during any fiscal year to any eligible individual will be 750,000 shares (per type of award). The total number of ordinary shares with respect to all awards that may be granted under the 2016 Plan during any fiscal year to any eligible individual will be 1,000,000 shares. There are no annual limits on the number of ordinary shares with respect to an award of restricted stock that are not subject to the
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attainment of specified performance goals to eligible individuals. The maximum number of ordinary shares subject to any performance award which may be granted under the 2016 Plan during any fiscal year to any eligible individual will be 750,000 shares. The maximum value of a cash payment made under a performance award which may be granted under the 2016 Plan during any fiscal year to any eligible individual will be $5,000,000. The aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all types of awards granted under the Plan to any individual non-employee director in any fiscal year (excluding awards made pursuant to deferred compensation arrangements in lieu of all or a portion of cash retainers and any stock dividends payable in respect of outstanding awards) may not exceed $1,000,000.
Eligibility for Participation . Members of our board of directors, as well as employees of, and consultants to, us or any of our subsidiaries and affiliates are eligible to receive awards under the 2016 Plan.
Award Agreement . Awards granted under the 2016 Plan are evidenced by award agreements, which need not be identical, that provide additional terms, conditions, restrictions and/or limitations covering the grant of the award, including, without limitation, additional terms providing for the acceleration of exercisability or vesting of awards in the event of a change of control or conditions regarding the participants employment, as determined by the Committee.
Stock Options . The Committee may grant nonqualified stock options to eligible individuals and incentive stock options only to eligible employees. The Committee will determine the number of ordinary shares subject to each option, the term of each option, which may not exceed ten years, or five years in the case of an incentive stock option granted to a ten percent shareholder, the exercise price, the vesting schedule, if any, and the other material terms of each option. No incentive stock option or nonqualified stock option may have an exercise price less than the fair market value of an ordinary share at the time of grant or, in the case of an incentive stock option granted to a ten percent shareholder, 110% of such shares fair market value. Options will be exercisable at such time or times and subject to such terms and conditions as determined by the Committee at grant and the exercisability of such options may be accelerated by the Committee.
Stock Appreciation Rights . The Committee may grant stock appreciation rights, which we refer to as SARs, either with a stock option, which may be exercised only at such times and to the extent the related option is exercisable, which we refer to as a Tandem SAR, or independent of a stock option, which we refer to as a Non-Tandem SAR. A SAR is a right to receive a payment in ordinary shares or cash, as determined by the Committee, equal in value to the excess of the fair market value of one share of our ordinary shares on the date of exercise over the exercise price per share established in connection with the grant of the SAR. The term of each SAR may not exceed ten years. The exercise price per share covered by a SAR will be the exercise price per share of the related option in the case of a Tandem SAR and will be the fair market value of our ordinary shares on the date of grant in the case of a Non-Tandem SAR. The Committee may also grant limited SARs, either as Tandem SARs or Non-Tandem SARs, which may become exercisable only upon the occurrence of a change in control, as defined in the 2016 Plan, or such other event as the Committee may designate at the time of grant or thereafter.
Restricted Stock . The Committee may award shares of restricted stock. Except as otherwise provided by the Committee upon the award of restricted stock, the recipient generally has the rights of a shareholder with respect to the shares, including the right to receive
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dividends, the right to vote the shares of restricted stock and, conditioned upon full vesting of shares of restricted stock, the right to tender such shares, subject to the conditions and restrictions generally applicable to restricted stock or specifically set forth in the recipients restricted stock agreement. The Committee may determine at the time of award that the payment of dividends, if any, will be contractually waived until the expiration of the applicable restriction period.
Recipients of restricted stock are required to enter into a restricted stock agreement with us that states the restrictions to which the shares are subject, which may include satisfaction of pre-established performance goals, and the criteria or date or dates on which such restrictions will lapse.
If the grant of restricted stock or the lapse of the relevant restrictions is based on the attainment of performance goals, the Committee will establish for each recipient the applicable performance goals, formulae or standards and the applicable vesting percentages with reference to the attainment of such goals or satisfaction of such formulae or standards while the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate provisions for disregarding, or adjusting for, changes in accounting methods, corporate transactions, including, without limitation, dispositions and acquisitions, and other similar events or circumstances. Section 162(m) of the Internal Revenue Code requires that performance awards be based upon objective performance measures. The performance goals for performance-based restricted stock will be based on one or more of the objective criteria set forth on Exhibit A to the 2016 Plan and are discussed in general below.
Other Share-Based Awards . The Committee may, subject to limitations under applicable law, make a grant of such other share-based awards, including, without limitation, performance units, dividend equivalent units, stock equivalent units, restricted stock and deferred stock units under the 2016 Plan that are payable in cash or denominated or payable in or valued by our ordinary shares or factors that influence the value of such shares. The Committee may determine the terms and conditions of any such other awards, which may include the achievement of certain minimum performance goals for purposes of compliance with Section 162(m) of the Internal Revenue Code and/or a minimum vesting period. The performance goals for performance-based other share-based awards will be based on one or more of the objective criteria set forth on Exhibit A to the 2016 Plan and discussed in general below.
Other Cash-Based Awards . The Committee may grant awards payable in cash. Cash-based awards will be in such form, and dependent on such conditions, as the Committee will determine, including, without limitation, being subject to the satisfaction of vesting conditions or awarded purely as a bonus and not subject to restrictions or conditions. If a cash-based award is subject to vesting conditions, the Committee may accelerate the vesting of such award in its discretion.
Performance Awards . The Committee may grant a performance award to a participant payable upon the attainment of specific performance goals. The Committee may grant performance awards that are intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code as well as performance awards that are not intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. If the performance award is payable in cash, it may be paid upon the attainment of the relevant performance goals either in cash or in shares of restricted stock, based on the then current fair market value of such shares, as determined by the Committee. Based on service, performance and/or other factors or criteria, the Committee may, at or after grant, accelerate the vesting of all or any part of any performance award.
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Performance Goals . The Committee may grant awards of restricted stock, performance awards, and other share-based awards that are intended to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. These awards may be granted, vest and be paid based on attainment of specified performance goals established by the committee. These performance goals may be based on the attainment of a certain target level of, or a specified increase or decrease in, one or more of the following measures selected by the committee: (1) earnings per share; (2) operating income; (3) gross income; (4) net income, before or after taxes; (5) cash flow; (6) gross profit; (7) gross profit return on investment; (8) gross margin return on investment; (9) gross margin; (10) operating margin; (11) working capital; (12) earnings before interest and taxes; (13) earnings before interest, tax, depreciation and amortization; (14) return on equity; (15) return on assets; (16) return on capital; (17) return on invested capital; (18) net sales; (19) gross sales; (20) sales growth; (21) annual recurring sales; (22) recurring sales; (23) license sales; (24) sales or market share; (25) total shareholder return; (26) economic value added; (27) specified objectives with regard to limiting the level of increase in all or a portion of our bank debt or other long-term or short-term public or private debt or other similar financial obligations, which may be calculated net of cash balances and other offsets and adjustments as may be established by the Committee; (28) the fair market value of one of our ordinary shares; (29) the growth in the value of an investment in our ordinary shares assuming the reinvestment of dividends; or (30) reduction in operating expenses.
To the extent permitted by law, the Committee may also exclude the impact of an event or occurrence which the Committee determines should be appropriately excluded, such as (1) restructurings, discontinued operations, extraordinary items and other unusual or non-recurring charges; (2) an event either not directly related to our operations or not within the reasonable control of management; or (3) a change in accounting standards required by generally accepted accounting principles.
Performance goals may also be based on an individual participants performance goals, as determined by the Committee.
In addition, all performance goals may be based upon the attainment of specified levels of our performance, or the performance of a subsidiary, division or other operational unit, under one or more of the measures described above relative to the performance of other corporations. The Committee may designate additional business criteria on which the performance goals may be based or adjust, modify or amend those criteria.
Change in Control . In connection with a change in control, as defined in the 2016 Plan, the Committee may accelerate vesting of outstanding awards under the 2016 Plan. In addition, such awards may be, in the discretion of the committee, (1) assumed and continued or substituted in accordance with applicable law; (2) purchased by us for an amount equal to the excess of the price of one ordinary share paid in a change in control over the exercise price of the awards; or (3) cancelled if the price of an ordinary share paid in a change in control is less than the exercise price of the award. The Committee may also provide for accelerated vesting or lapse of restrictions of an award at any time.
Shareholder Rights . Except as otherwise provided in the applicable award agreement, and with respect to an award of restricted stock, a participant has no rights as a shareholder with respect to ordinary shares covered by any award until the participant becomes the record holder of such shares.
Amendment and Termination. Notwithstanding any other provision of the 2016 Plan, our board of directors may at any time amend any or all of the provisions of the 2016 Plan, or
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suspend or terminate it entirely, retroactively or otherwise, subject to shareholder approval in certain instances; provided, however, that, unless otherwise required by law or specifically provided in the 2016 Plan, the rights of a participant with respect to awards granted prior to such amendment, suspension or termination may not be adversely affected without the consent of such participant.
Transferability. Awards granted under the 2016 Plan generally are nontransferable, other than by will or the laws of descent and distribution, except that the committee may provide for the transferability of nonqualified stock options at the time of grant or thereafter to certain family members.
Recoupment of Awards. The 2016 Plan provides that awards granted under the 2016 Plan are subject to any recoupment policy that we may have in place or any obligation that we may have regarding the clawback of incentive-based compensation under the Securities Exchange Act of 1934 or under any applicable rules and regulations promulgated by the Securities and Exchange Commission.
Term. The 2016 Plan has a 10-year term. Any award outstanding under the 2016 Plan at the time of termination will remain in effect until such award is exercised or has expired in accordance with its terms.
Severance Obligations
We are obligated to pay severance benefits to Messrs. Rohrs, Carson and Barros upon the termination of their employment in certain circumstances.
Pursuant to Mr. Rohrs and Mr. Carsons employment agreements, in the event of a termination without cause by us or for good reason by Mr. Rohrs or Mr. Carson prior to a sale of the Company or following the one-year anniversary of a sale of the Company, Mr. Rohrs or Mr. Carson, as applicable, is entitled to (i) an amount equal to 12 months of his base salary at the rate then in effect, (ii) bonuses previously earned but unpaid and (iii) subsidies of health continuation coverage under COBRA (to the same extent we subsidize active employees coverage) for 12 months following the termination, or until there is eligibility of benefits from a successor employer. Each of Mr. Rohrs and Mr. Carsons employment agreement also provides that in the event of a termination during the one-year period following a sale of the Company, Mr. Rohrs or Mr. Carson, as applicable, is entitled to an amount equal to his target incentive bonus then in effect.
Pursuant to Mr. Barros offer letter, in the event of a termination of Mr. Barros employment without cause due to downsizing, he is entitled to a severance payment equal to three months of his base salary at the rate then in effect. If Mr. Barros termination occurs within 12 months of a change of control, he is entitled to a total payment equal to six months of his base salary at the rate then in effect. Additionally, following a sale of the Company or the completion of an initial public offering, Mr. Barros is entitled to a one-time bonus payment of $200,000.
Director Compensation
During fiscal 2015, our non-employee directors, who were not affiliated with Francisco Partners, earned cash compensation for service on our board of directors. In addition, we reimbursed our directors for expenses associated with attending meetings of our board of directors and committees of our board of directors. The following table provides information regarding compensation earned by our non-employee directors for service as directors for fiscal
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2015. Each member of management who served on the board of directors did not receive any additional compensation for his role as director.
Name |
Fees earned
or paid in cash |
Stock
awards |
Option
awards(3) |
Non-equity
incentive plan compensation |
Nonqualified
deferred compensation earnings |
All other
compensation |
Total | |||||||||||||||||||||
Kevin Brady(1) |
$ | 56,120 | (2) | | | | | | $ | 56,120 | ||||||||||||||||||
John Chenault |
25,000 | | $ | 258,657 | | | | 283,657 | ||||||||||||||||||||
Dipanjan Deb |
| | | | | | | |||||||||||||||||||||
Andrew Kowal |
| | | | | | | |||||||||||||||||||||
Iain MacKenzie |
25,000 | | 215,573 | | | | 240,573 |
(1) | Mr. Brady resigned from our board of directors in August 2016. |
(2) | Includes an annual cash retainer of $20,000 and a cash bonus paid in connection with the 2015 Dividend. The bonus amount equaled the product of (x) $0.155, which is the per share dividend amount paid to shareholders, and (y) the number of shares of common stock underlying options held by Mr. Brady at the time of the 2015 Dividend. |
(3) | The value of these option awards was based on the fair value of the award as of the grant date calculated in accordance with ASC 718, excluding any estimate of future forfeitures. |
Prior to the completion of this offering, we will enter into indemnification agreements with each of our executive officers and directors. The indemnification agreements will provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under applicable law.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial ownership of our ordinary shares as of November 1, 2016 and as adjusted to reflect the sale of the ordinary shares in this offering, for
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each person, or group of affiliated persons, known by us to beneficially own more than 5% of our ordinary shares; |
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each selling shareholder; |
|
each Named Executive Officer; |
|
each of our directors; and |
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all of our executive officers and directors as a group. |
The information in the following table gives effect to the conversion of all outstanding Series A preferred shares into ordinary shares and the subsequent reverse stock split of our ordinary shares, as described elsewhere in this prospectus. Each shareholders percentage ownership before the offering is based on 17,850,009 ordinary shares outstanding as of November 1, 2016. Each shareholders percentage ownership after the offering is based on 23,600,009 ordinary shares outstanding immediately after the completion of this offering.
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. Ordinary shares subject to options that are currently exercisable or exercisable within 60 days of November 1 are deemed to be outstanding and beneficially owned by the person holding the options. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each shareholder identified in the table possesses sole voting and investment power over all ordinary shares shown as beneficially owned by the shareholder.
Unless otherwise noted below, the address of each beneficial owner listed on the table is c/o Ichor Holdings, Ltd., 3185 Laurelview Ct., Fremont, California 94538.
Beneficial ownership prior
to the completion of this offering |
Beneficial ownership following the completion of
this offering |
|||||||||||||||||||||||
Name |
Number of
shares |
Percentage |
No exercise of
underwriters option |
Full exercise of
underwriters option |
||||||||||||||||||||
Number of
shares |
Percentage |
Number of
shares |
Percentage | |||||||||||||||||||||
5% and Selling Shareholders: |
||||||||||||||||||||||||
Entities affiliates with Francisco Partners(1) |
17,722,808 | 99.3 | % | 17,722,808 | 75.1 | % | 16,860,308 | 71.4 | % | |||||||||||||||
Directors and Executive Officers: |
||||||||||||||||||||||||
Thomas M. Rohrs(2) |
734,927 | 4.0 | 734,927 | 3.0 | 734,927 | 3.0 | ||||||||||||||||||
Maurice Carson(3) |
316,817 | 1.7 | 316,817 | 1.3 | 316,817 | 1.3 | ||||||||||||||||||
Philip Barros(4) |
206,092 | 1.1 | 206,092 | * | 206,092 | * | ||||||||||||||||||
John Chenault(5) |
19,322 | * | 19,322 | * | 19,322 | * | ||||||||||||||||||
Dipanjan Deb(6) |
| * | | * | | * | ||||||||||||||||||
Andrew Kowal |
| * | | * | | * | ||||||||||||||||||
Iain MacKenzie(7) |
16,101 | * | 16,101 | * | 16,101 | * | ||||||||||||||||||
Directors and executive officers as a group (7 persons) |
1,293,259 | 6.8 | 1,293,259 | 5.2 | 1,293,259 | 5.2 |
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* | Represents beneficial ownership of less than one percent (1%). |
(1) | Consists of (A) prior to this offering and after this offering if the underwriters do not exercise their option to purchase additional shares (i) 15,765,091 shares held by Francisco Partners III (Cayman), L.P., or FP III Cayman, (ii) 182,062 shares held by Francisco Partners Parallel Fund III (Cayman), L.P., or FPPF III Cayman, and (iii) 1,775,655 shares held by Ichor Investment Holdings, LLC, or IIH LLC., and (B) after this offing if the underwriters exercise in full their option to purchase additional shares (i) 14,997,865 shares hold by FP III Cayman, (ii) 173,202 shares held by FPPF II Cayman and (iii) 1,689,241 shares held by IIH LLC. FP IIII Cayman and FPPF III Cayman are collectively referred to as the Francisco Funds. FP III Cayman owns approximately 30% of the outstanding units of IIH LLC. Francisco Partners GP III (Cayman), L.P., or FP GP Cayman III, is the general partner of each of FP III Cayman and FPPF III Cayman and the manager of IIH LLC. Francisco Partners GP III Management (Cayman), Limited, or FP GP III Management, is the general partner of FP GP Cayman III. In those capacities, FP GP III and FP GP III Management may be deemed to share voting and dispositive power with respect to the ordinary shares owned by FP III Cayman, FPPF III Cayman and IIH LLC. An investment committee comprised of Dipanjan Deb, David R. Golob, Keith Geeslin and Ezra Perlman, certain of the managers of FP GP III Management, share voting and dispositive power with respect to the shares beneficially held by FP GP III Management. Each of the managers of FP GP III Management expressly disclaims beneficial ownership of any ordinary shares, except to the extent of their pecuniary interest. The address of each of the entities listed above is One Letterman Drive, Building C, Suite 410, San Francisco, CA 94129. |
(2) | Includes 652,706 shares that may be acquired within 60 days upon the exercise of vested options or the vesting of restricted shares. |
(3) | Includes 271,835 shares that may be acquired within 60 days upon the exercise of vested options or the vesting of restricted shares. |
(4) | Represents shares that may be acquired within 60 days upon the exercise of vested options. |
(5) | Represents shares that may be acquired within 60 days upon the exercise of vested options. |
(6) | Consists of the shares listed in footnote (1) above, which are held by entities affiliated with Francisco Partners. Mr. Deb is a managing director of FP GP III Management and a member of the investment committee, and may be deemed to be the beneficial owner of such shares. Mr. Deb disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest. |
(7) | Represents shares that may be acquired within 60 days upon the exercise of vested options. |
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Policies and Procedures for Related Person Transactions
Prior to the completion of this offering, we will adopt a written Related Person Transactions Policy and Procedures that will set forth our policies and procedures regarding the identification, review, consideration, approval and oversight of related-person transactions. For purposes of our policy only, a related-person transaction is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we (including any of our subsidiaries) were, are or will be participants, the amount involved exceeds $120,000 and a related person has or will have a direct or indirect interest. Various transactions are not covered by this policy, including transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person, equity and debt financing transactions with a related person that are approved by our board of directors, and other transactions not otherwise required to be disclosed under Item 404 of Regulation S-K. A related person, as determined since the beginning of our last fiscal year, is any executive officer, director or nominee to become director, a holder of more than 5% of our ordinary shares, including any immediate family members of such persons. Any related-person transaction may only be consummated if approved or ratified by the affirmative vote of a majority of our dis-interested directors then in office in accordance with the policy guidelines set forth below.
Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our Audit Committee for review and recommendation for approval to our board of directors. In considering related-person transactions, our Audit Committee and board of directors take into account the relevant available facts and circumstances and the extent of the related persons interest in the transaction. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval process.
A copy of our Related-Person Transaction Policy, when available, will be on our corporate website at www.ichorsystems.com following the completion of this offering. The information contained on our website is not part of this prospectus.
Transactions with Francisco Partners
We have entered into a Management Services Agreement, Master Consulting Agreements, a Members Agreement and an Investor Rights Agreement with Francisco Partners or its affiliates. The material terms of each of these agreements are summarized below.
Management Services Agreement and Master Consulting Agreements
In connection with our acquisition and ownership by Francisco Partners, we have entered into the following management services agreement and two consulting services agreements: (1) a Master Services Agreement, or the MSA, with an affiliate of Francisco Partners that expires in December 2021, with automatic one year extensions unless either we or Francisco Partners provides a termination notice to the other at least 90 days prior to the expiration of the initial or any extension term; (2) a Master Consulting Agreement, or the 2013 Consulting Agreement, effective as of June 26, 2013, with Francisco Partners Consulting, LLC, an entity which is owned and controlled by individual operations executives in which Francisco Partners holds no interest, or FPC; (3) a Master Consulting Agreement, or the 2014 Consulting Agreement, effective as of January 1, 2014, with FPC; (4) an Amended and Restated Master Consulting
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Agreement, or the 2015 Consulting Agreement, effective as of January 1, 2015, with FPC and (5) a Master Consulting Agreement, or the 2016 Consulting Agreement, effective as of January 1, 2016, with FPC. Each of the 2013 Consulting Agreement, 2014 Consulting Agreement, 2015 Consulting Agreement and 2016 Consulting Agreement has a term of one year.
Pursuant to the terms of the MSA, Francisco Partners provides us with consulting and advisory services, including general management services, identification, support and negotiation of acquisitions and dispositions, support and analysis with respect to financing alternatives and finance marketing, strategic planning functions and general finance functions. We reimburse Francisco Partners for reasonable out-of-pocket expenses incurred in connection with providing us consulting and advisory services and are also scheduled to pay an annual advisory fee equal to $1.5 million per fiscal year. However, Francisco Partners has waived payment of all such out-of-pocket fees and advisory fees for 2013, 2014 and 2015. If paid, these expenses would be recorded as other operating expenses in the period in which such expenses are paid.
Pursuant to the terms of the 2013 Consulting Agreement, 2014 Consulting Agreement, 2015 Consulting Agreement and 2016 Consulting Agreement, FPC provides us with operational consulting services, including consulting relating to executive operations, human capital management, procurement and supply chain optimization, sales and marketing, research and development and professional services. Each agreement requires us to pay an annual service fee and reimburse FPC for reasonable out-of-pocket expenses. We incurred service fees of (1) $324,000 under the 2013 Consulting Agreement in fiscal 2013, (2) $580,000 under the 2014 Consulting Agreement in fiscal 2014 and (3) $342,000 under the 2015 Consulting Agreement in fiscal 2015. We expect to incur service fees of $500,000 under the 2016 Consulting Agreement in fiscal 2016. The MSA and the 2016 Consulting Agreement will be terminated upon the consummation of this offering for no additional consideration payable to FPC.
Members Agreement
We are party to a Members Agreement with Francisco Partners and certain other shareholders which provides certain board appointment, preemptive and other rights.
Each party to the Members Agreement agreed to vote all of the shares it beneficially owns to maintain the authorized number of directors as set forth in our memorandum and articles of association. Each party also agreed to vote its shares to elect to our board of directors nominated by FP III (Cayman) and to vote for no other person. The Members Agreement also provides for customary preemptive rights for the parties in the event that we issue new shares, subject to certain exceptions (including this offering). In addition, we cannot amend our memorandum and articles of association without the approval of Francisco Partners.
The Members Agreement will be terminated upon the consummation of this offering.
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Investor Rights Agreement
We are party to an Investor Rights Agreement with Francisco Partners and the other shareholders from time to time party thereto which sets forth certain rights and obligations of Francisco Partners and such other shareholders. The Investor Rights Agreement provides:
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if Francisco Partners demands that we effect any registration, qualification or compliance with respect to all or part of its Registrable Securities (as defined therein), then we must promptly give notice of the proposed registration, qualification or compliance to all other holders and as soon practicable, use our best efforts to effect such registration, qualification or compliance; |
|
if, at any time, we register any of our securities, we agree to (a) promptly give to each holder written notice thereof and (b) include in such registration, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by any holder within 20 days after the receipt of such written notice from us; |
|
in connection with any registrations, filings or qualifications, we will pay the fees and expenses of counsel selected by the shareholders selling the greatest number of shares in such offering; |
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a 180-day holdback agreement in connection with our initial public offering; and |
|
certain information rights for each of the parties to the agreement. |
Other Transactions
We sublease a facility from Precision Flow Inc. pursuant to an agreement that terminates in February 2018. Kevin Brady, who was a member of our board of directors until his resignation in August 2016, is the president and majority owner of Precision Flow Inc. We paid Precision Flow Inc. rent in the amounts of approximately $852,000, $975,000, $1,155,000 and $694,000 during fiscal years 2013, 2014 and 2015 and the nine months ended September 23, 2016, respectively.
Ceres Technologies, Inc., which is owned by Mr. Brady, is one of our suppliers. We have made purchases from Ceres Technologies on a purchase order basis. We paid Ceres Technologies an aggregate of approximately $1,838,000, $1,556,000, $841,000 and $126,000 during fiscal years 2013, 2014 and 2015 and the nine months ended September 23, 2016, respectively.
In fiscal 2013 and 2014, we paid two entities owned by our former chief executive officer for various services performed at his direction. We paid these entities an aggregate of $327,000 in fiscal 2013 and $173,000 in fiscal 2014. No payments were made to these entities after June 30, 2014, and our relationship with these entities has terminated.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Facilities
On August 11, 2015, we entered into a new $55.0 million Term Loan Facility and a $20.0 million Revolving Credit Facility, or our Credit Facilities, which were established pursuant to a Credit Agreement, by and among Ichor Holdings, LLC, Precision Flow Technologies, Inc. and Ichor Systems, Inc., as borrowers, certain of their subsidiaries as guarantors, Bank of America, N.A. as administrative agent, L/C issuer, and swingline lender, and the lenders from time to time party thereto, or the Credit Agreement.
To finance the Ajax Acquisition, on April 12, 2016, we increased our Term Loan Facility by an additional principal amount of $15.0 million and agreed to certain related amendments to the terms of our Credit Facilities. As of September 23, 2016, there was $66.3 million and $15.0 million outstanding under our Term Loan Facility and Revolving Credit Facility, respectively. The outstanding amount of our Term Loan Facility reflected in our consolidated financial statements included elsewhere in this prospectus is net of $2.0 million of debt discount.
The following summary is a description of the principal terms of our Credit Facilities and the related documents governing those facilities.
Guarantors
As of September 23, 2016, the sole guarantors under our Credit Facilities were two of our foreign subsidiaries. In addition, the borrowers under our Credit Facilities, which include Ichor Holdings, LLC, Precision Flow Technologies, Inc., Ichor Systems, Inc. and Ajax, are all jointly and severally liable for all obligations under our Credit Facilities.
Payments and Interest
Our Term Loan Facility is to be repaid in consecutive quarterly payments of (a) $1,447,727 for the quarters ending December 31, 2016 through September 30, 2018 and (b) $1,034,091 for the quarters ending December 31, 2018 through June 30, 2020, provided that to the extent a qualified initial public offering and certain related prepayments (as described under Prepayments below) has occurred, the foregoing quarterly payments are reduced to $1,034,091 for the quarters ending December 31, 2016 through June 30, 2020. The outstanding principal amount of our Term Loan Facility and our Revolving Credit Facility, if any, is due upon maturity on August 11, 2020.
Borrowings under our Term Loan Facility and our Revolving Credit Facility each bear interest at (1) for base rate loans, the base rate (as defined below) plus 3.00% or (2) for eurodollar loans, the eurodollar rate (as defined below) plus 4.00%. The base rate equals the highest of (i) the prime rate, (ii) the federal funds effective rate plus 0.50% and (iii) the eurodollar rate plus 1.00%. The eurodollar rate equals LIBOR, provided that with respect to our Term Loan Facility only, LIBOR shall not be less than 1.00%.
Prepayments
We are obligated to make prepayments on our Credit Facilities under the following circumstances: (i) if we incur additional indebtedness that is not permitted under our Credit Facilities, 100% of the net cash proceeds must be applied toward prepayment of the loans; (ii) if we receive net cash proceeds pursuant to non-ordinary course asset sales, casualty losses or
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non-permitted dispositions, in each case subject to certain thresholds, exceptions and reinvestment rights, 100% of the net cash proceeds must be applied toward prepayment of the loans; and (iii) 50% of our excess cash flow (as defined in the Credit Agreement), calculated on an annual basis, subject to customary adjustments and credits, is required to be applied toward the prepayment of the loans, provided that such percentage shall be reduced to 25% if our consolidated total net leverage ratio is less than 2.25:1.00 as of the last day of the fiscal year and 0% if less than 1.75:1.00 as of the last day of the fiscal year. The prepayments in clauses (i) through (iii) above shall be applied first, to the next four principal installments under our Term Loan Facility in direct order of maturity, second, to the remaining principal installments under our Term Loan Facility (excluding the final scheduled installment date on the maturity date) on a pro rata basis and third, to our Revolving Credit Facility.
We may be able to reduce our scheduled amortization payments in the event of an initial public offering (including this offering) in which at least $75,000,000 of net cash proceeds are received, so long as we apply to repayment of our Credit Facilities at least $17,500,000 of such net cash proceeds plus an additional amount of such net cash proceeds that would result in our consolidated total net leverage ratio to be less than 1.75:1.00. Any such optional prepayment shall be applied first to the next four principal installments under our Term Loan Facility in direct order of maturity, and then to the remaining principal installments under our Term Loan Facility (including the final scheduled installment date on the maturity date) on a pro rata basis.
Covenants
Our Credit Facilities contain customary covenants and restrictions on our activities, including limitations on: the incurrence of additional indebtedness; liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends and the repurchase of capital stock; transactions with affiliates; fundamental changes; dispositions; the ability to change the nature of our business, accounting policies or reporting practices, or fiscal year; financial covenants; and the ability to amend the terms of our organizational documents.
Events of Default
Events of default under our Credit Facilities include the following:
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a failure to pay principal, interest, fees or other amounts under our Credit Facilities when due taking into account any applicable grace period; |
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any representation or warranty shall have been incorrect or misleading in any material respect when made; |
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a failure to perform or observe covenants or other terms of our Credit Facilities, subject to certain grace periods; |
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a failure to perform on any obligations under, or the existence of any default under, any other of the other loan documents, subject to certain grace periods; |
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cross-default to other material debt; |
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bankruptcy events; |
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unsatisfied final judgments over a certain threshold; |
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subordination provisions with respect to subordinated debt ceasing to be valid and enforceable; |
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a change in control; and |
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certain defaults under the Employee Retirement Income Security Act of 1974. |
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In connection with this offering, we will amend and restate our memorandum and articles of association. Copies of the forms of our memorandum and articles of association are filed as exhibits to the registration statement of which this prospectus forms a part. Material provisions of our memorandum and articles of association and relevant sections of Cayman Islands law are summarized below. The following summary is qualified in its entirety by the provisions of our memorandum and articles of association.
General
As of September 23, 2016, we had authorized capital stock (or share capital) of $40,000, divided into 250,000,000 ordinary shares of common stock, each with a par value of $0.0001 and 150,000,000 Series A Preferred Shares, each with a par value of $0.0001. As of September 23, 2016, 1,024,405 ordinary shares were issued and outstanding and 142,728,221 shares of Series A Preferred Stock were issued and outstanding. The number of issued and outstanding ordinary shares does not include 1,149,121 legal issued shares that were unvested as of September 23, 2016 and not considered outstanding for accounting purposes. Ichor Holdings, Ltd. was incorporated in the Cayman Islands on January 30, 2012 with registered number 265939. Our affairs are governed by our memorandum and articles of association and the Companies Law and the common law of the Cayman Islands.
Immediately prior to the completion of this offering, the outstanding Series A Preferred Shares will convert into an aggregate of 142,728,221 ordinary shares and immediately thereafter will be effect a 1 for 8.053363 reverse split of our ordinary shares. As of the completion of this offering, our authorized share capital will consist of $22,000, divided into 200,000,000 ordinary shares, each with a par value of $0.0001, and 20,000,000 preferred shares, each with a par value of $0.0001.
Ordinary Shares
Holders of ordinary shares are entitled to cast one vote for each share on all matters submitted to a vote of shareholders, including the election of directors. The holders of ordinary shares are entitled to receive ratably such dividends, if any, as may be declared by our directors out of funds legally available therefore. We do not expect for the foreseeable future to pay dividends on our ordinary shares. Instead, we anticipate that all of our earnings, if any, in the foreseeable future will be used for working capital and other general corporate purposes. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions. Such holders do not have any preemptive or other rights to subscribe for additional shares. All holders of ordinary shares are entitled to share ratably in any assets for distribution to shareholders upon our liquidation, dissolution or winding up.
There are no conversion, redemption or sinking fund provisions applicable to the ordinary shares.
Preferred Shares
Pursuant to our articles of association to be in effect upon the completion of this offering, our board of directors will be authorized, without any action by our shareholders, to designate and issue preferred shares in one or more series and to designate the powers, preferences and rights of each series, which may be greater than the rights of our ordinary shares. It is not possible to
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state the actual effect of the issuance of any shares of preferred shares upon the rights of holders of our ordinary shares until the board of directors determines the specific rights of the holders of such preferred shares. However, the effects might include, among other things:
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impairing dividend rights of our ordinary shares; |
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diluting the voting power of our ordinary shares; |
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impairing the liquidation rights of our ordinary shares; and |
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delaying or preventing a change of control of us without further action by our shareholders. |
Upon the completion of this offering, no shares of our preferred shares will be outstanding, and we have no present plan to issue any of our preferred shares following this offering.
Limitations on the Right to Own or Vote Shares
As a Cayman Islands company, we may not hold our own shares as a shareholder, save for shares that are redeemed or repurchased by us or surrendered by a shareholder and held as treasury shares. We may not exercise any voting or other rights in respect of treasury shares nor may any dividend be declared or paid or other distribution be made in respect of treasury shares. However, bonus shares may be issued in respect of treasury shares although they will, in turn, be treated as treasury shares.
Limitations on Transfer of Shares
Our articles of association give our directors, at their discretion, the right to decline to register any transfers of shares that are not fully paid-up shares.
Disclosure of Shareholder Ownership
There are no provisions in our memorandum of association or articles of association governing the ownership threshold above which shareholder ownership must be disclosed by any shareholder.
Director Nomination Rights
Our articles of association will provide Francisco Partners the right to designate: (i) all of the nominees for election to our board of directors for so long as Francisco Partners beneficially owns 40% or more of the total number of ordinary shares then outstanding; (ii) a number of directors (rounded up to the nearest whole number) equal to 40% of the total directors for so long as Francisco Partners beneficially owns at least 30% and less than 40% of the total number of ordinary shares then outstanding; (iii) a number of directors (rounded up to the nearest whole number) equal to 30% of the total directors for so long as Francisco Partners beneficially owns at least 20% and less than 30% of the total number of ordinary shares then outstanding; (iv) two directors for so long as Francisco Partners beneficially owns at least 10% and less than 20% of the total number of ordinary shares then outstanding; and (v) one director for so long as Francisco Partners beneficially owns at least 5% and less than 10% of the total number of ordinary shares then outstanding. In each case, Francisco Partnerss nominees must comply with applicable law and stock exchange rules. In addition, Francisco Partners shall be entitled to designate the replacement for any of its board designees whose board service terminates prior to the end of the directors term regardless of Francisco Partnerss beneficial ownership at such time. Francisco Partners shall also have the right to have its designees participate on
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committees of our board of directors proportionate to its stock ownership, subject to compliance with applicable law and stock exchange rules. Our articles of association will also prohibit us from increasing or decreasing the size of our board of directors without the prior written consent of Francisco Partners for so long as it has nomination rights. These provisions will have no further force or effect at such time as Francisco Partners owns less than 5% of our outstanding ordinary shares.
Changes in Share Capital
We may, from time to time, by ordinary resolution passed by a majority of the votes cast by shareholders present at a shareholder meeting entitled to vote on such resolution, or passed by a unanimous written consent of our shareholders, increase our share capital by such sum, to be allocated among shares of such par value, as the resolution shall prescribe. The new shares shall be subject to the same provisions with reference to the payment of calls, liens, transfers, transmissions, forfeitures and otherwise as the shares in the original share capital. We may by ordinary resolution passed at a shareholder meeting by a majority of the votes cast by shareholders present at such meeting and entitled to vote on such resolution, or passed by a unanimous written consent of our shareholders:
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consolidate our share capital into shares of larger par value than our existing shares; |
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sub-divide our share capital into shares of smaller par value; |
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divide our shares into multiple classes; and |
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cancel any shares which, at the date of the passing of the resolution, have not been issued and diminish the amount of the shares so cancelled. |
We may by special resolution passed by at least two-thirds of the votes cast by shareholders present at a shareholder meeting and entitled to vote on such resolution, or passed by a unanimous written consent of our shareholders, reduce our share capital to the extent not representing shares in issue or following court application and consent, reduce our share capital in relation to shares in issue or any capital redemption reserve fund maintained in accordance with the Cayman Island Companies Law (as revised).
Amendments
Our articles of association provide that our articles of association may only be amended at a shareholder meeting upon approval by two-thirds of the votes cast by our shareholders or, for so long as we are a controlled company, a unanimous written consent signed by all shareholders.
Material Differences in Corporate Law
The Cayman Islands Companies Law is modeled after the corporate legislation of the United Kingdom but does not follow recent United Kingdom statutory enactments, and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware and their shareholders.
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Title of Organizational Documents | Certificate of Incorporation | Memorandum of Association | ||
Bylaws | Articles of Association | |||
Duties of Directors | Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders. The duty of care requires that directors act in an informed and deliberative manner and inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of care also requires that directors exercise care in overseeing and investigating the conduct of the corporations employees. The duty of loyalty may be summarized as the duty to act in good faith, not out of self-interest, and in a manner which the director reasonably believes to be in the best interests of the shareholders. |
As a matter of Cayman Islands law, directors of Cayman Islands companies owe fiduciary duties to the their respective companies to, amongst other things, act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty has four essential elements:
a duty to act in good faith in what the directors bona fide consider to be the best interests of the company (and in this regard, it should be noted that the duty is owed to the company and not to associate companies, subsidiaries or holding companies);
a duty not to personally profit from opportunities that arise from the office of director;
a duty of trusteeship of the companys assets;
a duty to avoid conflicts of interest; and |
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a duty to exercise powers for the purpose for which such powers were conferred.
A director of a Cayman Islands company also owes the company a duty to act with skill, care and diligence. A director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. |
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Limitations on Personal Liability of Directors |
Subject to the limitations described below, a certificate of incorporation may provide for the elimination or limitation of the personal liability of a director to the corporation or its shareholders for monetary damages for a breach of fiduciary duty as a director.
Such provision cannot limit liability for breach of loyalty, bad faith, intentional misconduct, unlawful payment of dividends or unlawful share purchase or redemption. In addition, the certificate of incorporation cannot limit liability for any act or omission occurring prior to the date when such provision becomes effective. |
The Companies Law of the Cayman Islands has no equivalent provision to Delaware law regarding the limitation of directors liability. However, as a matter of public policy, Cayman Islands law will not allow the limitation of a directors liability to the extent that the liability is a consequence of the director committing a crime or of the directors own actual fraud, dishonesty or willful default. | ||
Indemnification of
Directors, Officers, Agents, and Others |
A corporation has the power to indemnify any director, officer, employee, or agent of corporation who was, is, or is threatened to be made a party who acted in good faith and in a manner he believed to be in the best interests of the corporation, and if with respect to a criminal proceeding, had no reasonable cause to believe his conduct would be unlawful, against amounts actually and reasonably incurred. | Cayman Islands law does not limit the extent to which a companys articles of association may provide for indemnification of directors and officers, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against the consequences of committing a crime, or against the indemnified persons own actual fraud or dishonesty. | ||
Interested Directors |
Under Delaware law, subject to provisions in the certificate of incorporation, a transaction in which a director who has an interest in such transaction would not be voidable if (i) the material facts as to such interested directors relationship or interests are disclosed or are known to the board of directors and the board in good faith authorizes the transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors are less | Our articles of association contain provisions that permit a director to vote on a transaction in which he or she is interested provided he or she discloses such interest to the board of directors. |
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than a quorum, (ii) such material facts are disclosed or are known to the shareholders entitled to vote on such transaction and the transaction is specifically approved in good faith by vote of the shareholders, or (iii) the transaction is fair as to the corporation as of the time it is authorized, approved or ratified. Under Delaware law, a director could be held liable for any transaction in which such director derived an improper personal benefit. | ||||
Voting Requirements |
The certificate of incorporation may include a provision requiring supermajority approval by the directors or shareholders for any corporate action.
In addition, under Delaware law, certain business combinations involving interested shareholders require approval by a supermajority of the non-interested shareholders.
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For the protection of shareholders, certain matters must be approved by special resolution of the shareholders, including alteration of the memorandum or articles of association, appointment of inspectors to examine company affairs, reduction of share capital (subject, in relevant circumstances, to court approval), change of name, authorization of a plan of merger or transfer by way of continuation to another jurisdiction or consolidation or voluntary winding up the company.
The Companies Law of the Cayman Islands requires that a special resolution be passed by a super majority of two-thirds or such higher percentage as set forth in the articles of association, of shareholders being entitled to vote and do vote in person or by proxy at a general meeting. |
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Voting for Directors |
Under Delaware law, unless otherwise specified in the certificate of incorporation or bylaws of the corporation, directors shall be elected by a plurality of the votes of the shares | The Companies Law of the Cayman Islands defines special resolutions only. A companys articles of association can therefore tailor the definition of ordinary resolutions as a |
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present in person or represented by proxy at the meeting and entitled to vote on the election of directors. | whole, or with respect to specific provisions. Our articles of association provide that with respect to the election of directors, an ordinary resolution shall be passed by a majority of the votes cast by such members as being entitled to vote in person or by proxy. | |||
Cumulative Voting |
No cumulative voting for the election of directors unless so provided in the certificate of incorporation. | No cumulative voting for the election of directors unless so provided in the articles of association. | ||
Directors Powers Regarding Bylaws |
The certificate of incorporation may grant the directors the power to adopt, amend or repeal bylaws. | The memorandum and articles of association may only be amended by a special resolution of the shareholders. | ||
Nomination and
Removal of Directors and Filling Vacancies on Board |
Shareholders may generally nominate directors if they comply with advance notice provisions and other procedural requirements in company bylaws. Holders of a majority of the shares may remove a director with or without cause, except in certain cases involving a classified board or if the company uses cumulative voting. Unless otherwise provided for in the certificate of incorporation, directorship vacancies are filled by a majority of the directors elected or then in office. | Nomination and removal of directors and filling of board vacancies are governed by the terms of the articles of association. Our articles of association provide that only shareholders that hold more than 15% of our outstanding ordinary shares (unless the Exchange Act and proxy rules provide otherwise) and comply with our advance notice provisions may nominate directors. These provisions will not apply to nominations by Francisco Partners pursuant to the terms of our articles of association. Our articles of association also provide that shareholders may only remove directors for cause and with a special resolution of two-thirds, provided that, prior to the first date on which Francisco Partners and its affiliates cease to beneficially own at least 30% of our ordinary shares, a director may be removed with or without cause upon the affirmative vote of Francisco Partners and its affiliates which beneficially own ordinary shares. Under our |
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articles of association, vacancies on the board are generally filled by the vote of a majority of the directors elected or then in office, subject to the rights of Francisco Partners. | ||||
Mergers and Similar Arrangements |
Under Delaware law, with certain exceptions, a merger, consolidation, exchange or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. Under Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction.
Delaware law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90% of each class of capital stock without a vote by shareholders of such subsidiary. Upon any such merger, dissenting shareholders of the subsidiary would have appraisal rights.
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Cayman Islands Companies Law provides for mergers and consolidations where two or more companies are being formed into a single entity. The legislation makes a distinction between a consolidation and a merger. In a consolidation, a new entity is formed from the combination of each participating company, and the separate consolidating parties, as a consequence, cease to exist and are each stricken by the Registrar of Companies. In a merger, one company remains as the surviving entity, having in effect absorbed the other merging parties that are then stricken and cease to exist.
Two or more Cayman-registered companies may merge or consolidate. Cayman-registered companies may also merge or consolidate with foreign companies provided that the laws of the foreign jurisdiction permit such merger or consolidation.
Under Cayman Islands Companies Laws, a plan of merger or consolidation shall be authorized by each constituent company by way of (i) a special resolution of the members of each such constituent company; and (ii) such other authorization, if any, as may be specified in such constituent companys articles of association.
Shareholder approval is not required where a parent company registered in the Cayman Islands seeks to merge |
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with one or more of its subsidiaries registered in the Cayman Islands and a copy of the plan of merger is given to every member of each subsidiary company to be merged unless that member agrees otherwise. | ||||
Where the merger or consolidation involves a foreign company, the procedure is similar, save that with respect to the foreign company, the director of the Cayman Islands company is required to make a declaration to the effect that, having made due enquiry, he is of the opinion that the requirements set out below have been met: (i) that the merger or consolidation is permitted or not prohibited by the constitutional documents of the foreign company and by the laws of the jurisdiction in which the foreign company is incorporated, and that those laws and any requirements of those constitutional documents have been or will be complied with; (ii) that no petition or other similar proceeding has been filed and remains outstanding or order made or resolution adopted to wind up or liquidate the foreign company in any jurisdictions; (iii) that no receiver, trustee, administrator or other similar person has been appointed in any jurisdiction and is acting in respect of the foreign company, its affairs or its property or any part thereof; (iv) that no scheme, order, compromise or other similar arrangement has been entered into or made in any jurisdiction whereby the rights of creditors of the foreign company are and continue to be suspended or restricted. |
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Where the surviving company is the Cayman Islands company, the director of the Cayman Islands company is further required to make a declaration to the effect that, having made due enquiry, he is of the opinion that the requirements set out below have been met: (i) that the foreign company is able to pay its debts as they fall due and that the merger or consolidated is bona fide and not intended to defraud unsecured creditors of the foreign company; (ii) that in respect of the transfer of any security interest granted by the foreign company to the surviving or consolidated company (a) consent or approval to the transfer has been obtained, released or waived; (b) the transfer is permitted by and has been approved in accordance with the constitutional documents of the foreign company; and (c) the laws of the jurisdiction of the foreign company with respect to the transfer have been or will be complied with; (iii) that the foreign company will, upon the merger or consolidation becoming effective, cease to be incorporated, registered or exist under the laws of the relevant foreign jurisdiction; and (iv) that there is no other reason why it would be against the public interest to permit the merger or consolidation. | ||||
Secured creditors must consent to the merger although application can be made to the Grand Court of the Cayman Islands to proceed if such secured creditor does not grant its consent to the merger. Where a foreign company wishes to merge with a Cayman company, |
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consent or approval to the transfer of any security interest granted by the foreign company to the resulting Cayman entity in the transaction is required, unless otherwise released or waived by the secured party. If the merger plan is approved, it is then filed with the Cayman Islands General Registry along with a declaration by a director of each company. The Registrar of Companies will then issue a certificate of merger which shall be prima facie evidence of compliance with all requirements of the Companies Law in respect of the merger or consolidation. The surviving entity remains active while the other company or companies are automatically dissolved. Where the above procedures are adopted, the Companies Law provides for a right of dissenting shareholders to be paid a payment of the fair value of his shares upon their dissenting to the merger or consolidation if they follow a prescribed procedure. In essence, that procedure is as follows (a) the shareholder must give his written objection to the merger or consolidation to the constituent company before the vote on the merger or consolidation, including a statement that the shareholder proposes to demand payment for his shares if the merger or consolidation is authorized by the vote; (b) within 20 days following the date on which the merger or consolidation is approved by the shareholders, the constituent company must give written notice to each shareholder who made a written objection; (c) a shareholder must within 20 days following receipt of such notice from the |
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constituent company, give the constituent company a written notice of his intention to dissent including, among other details, a demand for payment of the fair value of his shares; (d) within seven days following the date of the expiration of the period set out in paragraph (b) above or seven days following the date on which the plan of merger or consolidation is filed, whichever is later, the constituent company, the surviving company or the consolidated company must make a written offer to each dissenting shareholder to purchase his shares at a price that the company determines is the fair value and if the company and the shareholder agree the price within 30 days following the date on which the offer was made, the company must pay the shareholder such amount; (e) if the company and the shareholder fail to agree a price within such 30 day period, within 20 days following the date on which such 30 day period expires, the company (and any dissenting shareholder) must file a petition with the Cayman | ||||
Islands Grand Court to determine the fair value and such petition must be accompanied by a list of the names and addresses of the dissenting shareholders with whom agreements as to the fair value of their shares have not been reached by the company. At the hearing of that petition, the court has the power to determine the fair value of the shares together with a fair rate of interest, if any, to be paid by the company upon the amount determined to be the fair value. |
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Any dissenting shareholder whose name appears on the list filed by the company may participate fully in all proceedings until the determination of fair value is reached. These rights of a dissenting shareholder are not be available in certain circumstances, for example, to dissenters holding shares of any class in respect of which an open market exists on a recognized stock exchange or recognized interdealer quotation system at the relevant date or where the consideration for such shares to be contributed are shares of any company listed on a national securities exchange or shares of the surviving or consolidated company.
Cayman companies may also be restructured or amalgamated under supervision of the Grand Court of the Cayman Islands by way of a scheme of arrangement. This option is not used with any frequency because a business transaction can be achieved through other means, such as a share capital exchange, merger (as described above), asset acquisition or control, through contractual arrangements, of an operating business. In the event that a business transaction is sought pursuant to a scheme of arrangement it would require the approval of a majority, in number, of each class of shareholders and creditors with whom the arrangement is to be made and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by |
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proxy at a meeting, or meeting summoned for that purpose. | ||||
The convening of the meetings and subsequently the terms of the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the Court the view that the transaction ought not be approved, the Court can be expected to approve the arrangement if it satisfies itself that:
the company is not proposing to act illegally or beyond the scope of its authority and the statutory provisions as to majority vote have been complied with;
the shareholders and creditors (as applicable) have been fairly represented at the meeting in question; and
the arrangement is such as a businessman would reasonably approve; and the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law of the Cayman Islands or that would amount to a fraud on the minority (a legal concept, different than fraud in the sense of dishonesty). |
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When a takeover offer is made and accepted by holders of 90% of the shares to whom the offer is made within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer |
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such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.
If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares. |
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Shareholder Suits |
Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court generally has discretion to permit the winning party to recover attorneys fees incurred in connection with such action. | The rights of shareholders under Cayman Islands law are not as extensive as those under Delaware law. Class actions are generally not available to shareholders under Cayman Islands laws and our Cayman Islands counsel is not aware of a significant number of such reported actions having been brought in Cayman Islands courts. Derivative actions have been brought in the Cayman Islands courts and the Cayman Islands courts have confirmed the availability for such actions. In principle, we will normally be the proper plaintiff in any claim based on a breach of duty owed to us and a derivative action may not be brought by a minority shareholder. However, the Cayman Islands courts would ordinarily be expected to follow English case law precedent, which would permit a shareholder to commence an action in the companys name to remedy a wrong done to it where the act complained of is alleged to be beyond the companys corporate power or is illegal or |
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would result in the violation of its memorandum of association or articles of association or where the individual rights of the plaintiff shareholder have been infringed or are about to be infringed. Furthermore, consideration would be given by the court to acts that are alleged to constitute a fraud on the minority or where an act requires the approval of a greater percentage of shareholders than actually approved it. The winning party in such an action generally would be able to recover a portion of attorneys fees incurred in connection with such action. | ||||
Inspection of Corporate Records | Under Delaware law, shareholders of a Delaware corporation have the right during normal business hours to inspect for any proper purpose, and to obtain copies of list(s) of shareholders and other books and records of the corporation and its subsidiaries, if any, to the extent the books and records of such subsidiaries are available to the corporation. | Shareholders of a Cayman Islands company have no general right under Cayman Islands law to inspect or obtain copies of a list of shareholders or other corporate records of the company. However, these rights may be provided in the companys articles of association. Under our articles of association, shareholders will not have any rights to inspect or obtain copies of shareholder lists or other corporate records, provided that a list of shareholders will be made available at our principal executive office or other specified location for ten business days prior to each general meeting of shareholders. | ||
Shareholder Proposals | Unless provided in the corporations certificate of incorporation or bylaws, Delaware law does not include a provision restricting the manner in which shareholders may bring business before a meeting. | The Companies Law of the Cayman Islands does not provide shareholders any right to bring business before a meeting or requisition a general meeting. However, these rights may be provided in the companys articles of association. Our articles of association provide that only shareholders that |
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comply with our advance notice provisions may submit proposals to be brought before a meeting. The advance notice provisions do not apply to Francisco Partners. | ||||
Approval of Corporate Matters by Written
Consent |
Delaware law permits shareholders to take action by written consent signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting of shareholders. |
The Companies Law of the Cayman Islands allows a special resolution to be passed in writing if signed by all the shareholders and authorized by the articles of association. Our articles of association authorize such written consents while we are a controlled company, but we believe that the unanimity requirement will make this option impractical after the consummation of this offering. Written consents are not authorized if we are not a controlled company. |
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Calling of Special Shareholders Meetings | Delaware law permits the board of directors or any person who is authorized under a corporations certificate of incorporation or bylaws to call a special meeting of shareholders. |
The Companies Law of the Cayman Islands does not have provisions governing the proceedings of shareholders meetings which are usually provided in the articles of association.
Our articles of association allow only a majority of our directors or the chairman of our board of directors to call extraordinary general meetings. |
Registration Rights
For information on registration rights, please see Certain Relationships and Related Party TransactionsInvestor Rights Agreement.
Certain Effects of Authorized but Unissued Stock
Upon completion of this offering, we will have 176,399,991 ordinary shares remaining authorized but unissued. Authorized but unissued ordinary shares are available for future issuance without shareholder approval. Issuance of these shares will dilute your percentage ownership in us.
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Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares is Broadridge Corporate Issuer Solutions, Inc. Its address is 1717 Arch Street, Suite 1300, Philadelphia, PA 19103.
Listing
We have applied to list our ordinary shares on the NASDAQ Global Select Market under the symbol ICHR.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our ordinary shares. Future sales of substantial amounts of our ordinary shares in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of our ordinary shares. No prediction can be made as to the effect, if any, future sales of shares, or the availability of shares for future sales, will have on the market price of our ordinary shares prevailing from time to time. We also cannot predict with certainty when or if Francisco Partners will otherwise sell its ordinary shares. The sale of substantial amounts of our ordinary shares in the public market, or the perception that such sales could occur, could harm the prevailing market price of our ordinary shares.
As a result of the lock-up agreements, other contractual restrictions on resale and the provisions of Rule 144, described below, 5,750,000 ordinary shares to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act.
Sale of Restricted Shares
Upon completion of this offering, we will have 23,600,009 ordinary shares outstanding. All of the ordinary shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by or owned by our affiliates, as that term is defined in Rule 144 under the Securities Act, may generally only be sold publicly in compliance with the limitations of Rule 144 described below. As defined in Rule 144, an affiliate of an issuer is a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by or is under common control with, such issuer. Immediately following the completion of this offering, Francisco Partners will own 75.1% of our outstanding ordinary shares (or 71.4% if the underwriters exercise in full their option to purchase additional shares from the selling shareholders). Shares held by Francisco Partners will be restricted securities as that term is used in Rule 144. Subject to contractual restrictions, including the lock-up agreements described below, Francisco Partners will be entitled to sell these shares in the public market only if the sale of such shares is registered with the SEC or if the sale of such shares qualifies for an exemption from registration under Rule 144 or any other applicable exemption under the Securities Act. At such time as these restricted shares become unrestricted and available for sale, the sale of these restricted shares, whether pursuant to Rule 144 or otherwise, may have a negative effect on the price of our ordinary shares.
Rule 144
In general, under Rule 144 of the Securities Act as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.
In general, under Rule 144 as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
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1% of the number of ordinary shares then outstanding; or |
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the average weekly trading volume of the ordinary shares during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Rule 144 also provides that a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale and who has for at least six months beneficially owned our ordinary shares that are restricted securities, will be entitled to freely sell such ordinary shares subject only to the availability of current public information regarding us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale and who has beneficially owned for at least one year our ordinary shares that are restricted securities, will be entitled to freely sell such ordinary shares under Rule 144 without regard to the current public information requirements of Rule 144.
Registration Rights
As described above in Certain Relationships and Related Party TransactionsInvestor Rights Agreement, following the completion of this offering, subject to the 180-day lock-up period described above, Francisco Partners will be entitled, subject to certain exceptions, to certain rights with respect to the registration under the Securities Act of the ordinary shares held by them. By exercising their registration rights and causing a large number of shares to be registered and sold in the public market, Francisco Partners could cause the price of the ordinary shares to fall. In addition, any demand to include such shares in our registration statements could have a material adverse effect on our ability to raise needed capital. We have not granted any other holders of our securities any registration rights other than pursuant to the Registration Rights Agreement.
Equity Compensation Plans
We intend to file a registration statement on Form S-8 to register the issuance of an aggregate of 1,888,000 ordinary shares initially reserved for issuance under our equity compensation plans. Such registration statement will become effective upon filing with the SEC. Shares registered under such registration statement will be available for sale in the open market following the effective date, unless such shares are subject to vesting restrictions with us, Rule 144 restrictions applicable to our affiliates or the lock-up restrictions described below.
Lock-Up Agreements
We, each of our directors and officers and Francisco Partners have agreed that, without the prior written consent of Deutsche Bank Securities Inc. on behalf of the underwriters, we and they will not (subject to certain exceptions), during the period ending 180 days after the date of this prospectus (subject to certain extensions):
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offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or any other securities convertible into or exercisable or exchangeable for ordinary shares; or |
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enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our ordinary shares; |
whether any transaction described above is to be settled by delivery of our ordinary shares or such other securities, in cash or otherwise. For additional information, see Underwriting.
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Material Cayman Islands Tax Consequences
The following summary contains a description of certain Cayman Islands tax consequences of the acquisition, ownership and disposition of our ordinary shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase our ordinary shares. The summary is based upon the tax laws of Cayman Islands and regulations thereunder as of the date hereof, which are subject to change.
If you are considering the purchase of our ordinary shares, you should consult your own tax advisors concerning the particular tax consequences to you of the purchase, ownership and disposition of our ordinary shares, as well as the consequences to you arising under the laws of your country of citizenship, residence or domicile.
Cayman Islands Taxation
The following is a discussion of certain Cayman Islands income tax consequences of an investment in our ordinary shares. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended to be tax advice, does not consider any investors particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.
Under Existing Cayman Islands Laws:
Payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal or a dividend or capital to any holder of our ordinary shares, as the case may be, nor will gains derived from the disposal of our ordinary shares be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax.
No stamp duty is payable in respect of the issue of ordinary shares or on an instrument of transfer in respect of an ordinary share.
The Company has been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, has applied for and has received an undertaking from the Governor in Cabinet of the Cayman Islands in the following form:
The Tax Concessions Law
(2011 Revision)
Undertaking as to Tax Concessions
In accordance with Section 6 of the Tax Concessions Law (2011 Revision) the Governor in Cabinet undertakes with us:
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(a) that no Law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations; and |
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(b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable: |
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(i) on or in respect of our shares, debentures or other obligations; or |
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(ii) by way of the withholding in whole or part, of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (2011 Revision). |
These concessions shall be for a period of TWENTY years from the 22nd day of September 2015.
Material U.S. Federal Income Tax Consequences
Subject to the limitations and qualifications stated herein, this discussion sets forth a summary of material U.S. federal income tax consequences to U.S. Holders (as defined below) of the purchase, ownership and disposition of the ordinary shares. The discussion is based on the U.S. Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as currently in effect and all subject to change at any time, possibly with retroactive effect. We cannot assure you that a change in law will not alter significantly the tax consequences described in this summary. We have not sought and do not expect to seek any rulings from the U.S. Internal Revenue Service, or the IRS, regarding the matters discussed below. There can be no assurance that the IRS will not take positions concerning the tax consequences of the purchase, ownership or disposition of our ordinary shares that differ from those discussed below.
The discussion of holders tax consequences addresses only those persons that acquire their ordinary shares in this offering and that hold those ordinary shares as capital assets (generally, property held for investment) and does not address the tax consequences to any special class of holder, including without limitation, holders of (directly, indirectly or constructively) 10% or more of the ordinary shares, dealers in securities or currencies, banks, tax-exempt organizations, life insurance companies, financial institutions, broker-dealers, regulated investment companies, real estate investment trusts, traders in securities that elect the mark-to-market method of accounting for their securities holdings, persons that hold securities that are a hedge or that are hedged against currency or interest rate risks or that are part of a straddle, conversion or integrated transaction, persons holding ordinary shares through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States, certain U.S. expatriates, persons who acquired ordinary shares pursuant to the exercise of an employee stock option or otherwise as compensation, partnerships or other entities classified as partnerships for U.S. federal income tax purposes and U.S. Holders (as defined below) whose functional currency for U.S. federal income tax purposes is not the U.S. dollar. This discussion does not address the effect of the U.S. federal alternative minimum tax, or U.S. federal estate and gift tax, or any state, local or foreign tax laws on a holder of ordinary shares.
For purposes of this discussion, a U.S. Holder is a beneficial owner of ordinary shares that is for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States; |
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
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a trust (i) if a court within the U.S. can exercise primary supervision over its administration, and one or more U.S. persons have the authority to control all of the substantial decisions of that trust, or (ii) that was in existence on August 20, 1996, and |
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validly elected under applicable Treasury Regulations to continue to be treated as a domestic trust. |
If a partnership or any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes holds our ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partners in partnerships that hold our ordinary shares should consult their tax advisors.
If you are considering the purchase of our ordinary shares, you should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of our ordinary shares, as well as the consequences to you arising under other U.S. federal tax laws and the laws of any other applicable taxing jurisdiction and any applicable tax treaty in light of your particular circumstances.
Dividends and Other Distributions
As described in the section titled Dividend Policy, we do not currently anticipate that we will pay any cash dividends on our ordinary shares for the foreseeable future. However, subject to the discussion below on the passive foreign investment company rules, if we do make distributions of cash or other property in respect of our ordinary shares, the U.S. dollar amount of the gross amount of any such distribution will be taxable as a dividend, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Such income will be includable in your gross income on the day actually or constructively received by you. To the extent the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess amount will be treated first as a tax-free return of your tax basis in your ordinary shares, and then, to the extent such excess amount exceeds your tax basis in your ordinary shares, as capital gain. The Company, however, may not calculate earnings and profits in accordance with U.S. federal tax principles. In that case, the Company intends to treat the full amount of any distribution by the Company to U.S. Holders as a dividend for U.S. federal income tax purposes. U.S. Holders of the ordinary shares that are corporations generally will not be entitled to claim a dividends received deduction with respect to dividends paid on the ordinary shares.
Dividends received by a non-corporate U.S. Holder, including an individual, may qualify for the lower rates of tax applicable to qualified dividend income, provided that (1) our ordinary shares are readily tradable on an established securities market in the United States and (2) we are not a passive foreign investment company for our taxable year in which the dividend is paid and the preceding taxable year. Under a published IRS Notice, common or ordinary shares are considered to be readily tradable on an established securities market in the United States if they are listed on the NASDAQ Global Select Market, as our ordinary shares are expected to be. Accordingly, subject to the passive foreign investment company risk discussed below (see Passive Foreign Investment Company), dividends paid to a non-corporate U.S. Holder with respect to ordinary shares for which the requisite holding period is satisfied should be eligible for the preferential tax rates applicable to qualified dividend income.
Even if dividends would otherwise be eligible for the preferential tax rates applicable to qualified dividend income, a non-corporate U.S. Holders will not be eligible for the reduced rates of taxation if the non-corporate U.S. Holder does not hold our Shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date or if the non-corporate U.S. Holder elects to treat the dividend income as investment income pursuant to Section 163(d)(4) of the Code. In addition, the rate reduction will not apply to dividends of a
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qualified foreign corporation if the non-corporate U.S. Holder receiving the dividend is obligated to make related payments with respect to positions in substantially similar or related property.
You should consult your own tax advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividends that we pay with respect to the ordinary shares, as well as the effect of any change in applicable law.
Disposition of the Ordinary Shares
You will recognize gain or loss on a sale or exchange of our ordinary shares in an amount equal to the difference between the amount realized (in U.S. dollars) on the sale or exchange and your tax basis (in U.S. dollars) in the ordinary shares. Subject to the passive foreign investment company rules discussed below, such gain or loss generally will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual, that has held the ordinary shares for more than one year at the time of the same or exchange, you will be eligible for reduced tax rates with respect to such gain. The deductibility of capital losses is subject to limitations.
Any gain or loss that you recognize on a disposition of our ordinary shares generally will be treated as U.S.-source income or loss for foreign tax credit limitation purposes. You should consult your own tax advisors regarding the proper treatment of gain or loss, as well as the availability of a foreign tax credit, in your particular circumstances.
Passive Foreign Investment Company
Based on the current and anticipated value of our assets and the composition of our income and assets, we do not expect to be treated as a passive foreign investment company, or PFIC, for U.S. federal income purposes for our current taxable year ending December 30, 2016. However, the determination of PFIC status is based on an annual determination that cannot be made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. Accordingly, we cannot assure you that we will not be treated as a PFIC for our current taxable year ending December 30, 2016, or for any future taxable year or that the IRS will not take a contrary position. Kirkland & Ellis LLP, our U.S. tax counsel, therefore expresses no opinion with respect to our PFIC status for any taxable year or our expectations relating to such status set forth in this paragraph.
A non-U.S. corporation will be treated as a PFIC for U.S. federal income tax purposes for any taxable year if, applying applicable look-through rules, either:
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at least 75% of its gross income for such year is passive income; or |
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at least 50% of the value of its assets (determined based on a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. |
For these purposes, we will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock. Subject to various exceptions, passive income generally includes dividends, interest, royalties and rents (other than certain royalties and rents derived in the active conduct of a trade or business and not derived from a related person).
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We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. If we are a PFIC for any taxable year during which you hold ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which you hold the ordinary shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a deemed sale election with respect to the ordinary shares, as applicable.
If we are or become a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the preferential tax rates discussed above with respect to dividends paid to non-corporate U.S. Holders would not apply. In addition, if we are a PFIC for any taxable year during which you hold ordinary shares, in the absence of a qualifying electing fund election (which, as noted below, will not be available to you), you will be subject to special tax rules with respect to any excess distribution that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary shares, unless you make a mark-to-market election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
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the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares, |
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the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income, and |
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the amount allocated to each other year will be subject to the highest ordinary income tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets.
Under attribution rules, if we are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs, you will be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in the proportion that the value of the ordinary shares you own bears to the value of all of our ordinary shares, and you may be subject to the rules described in the preceding paragraphs with respect to the shares of such lower-tier PFICs you are deemed to own. You should consult your own tax advisor regarding the application of the PFIC rules to any of our subsidiaries.
In certain circumstances, a U.S. Holder of shares in a PFIC may avoid the adverse tax consequences described above by making a qualified electing fund election to include in income its share of the corporations income on a current basis. However, you may make a qualified electing fund election with respect to your ordinary shares only if we agree to furnish you annually with a PFIC annual information statement as specified in the applicable Treasury regulations. We currently do not intend to prepare or provide the information that would enable you to make a qualified electing fund election.
Alternatively, a U.S. Holder of marketable stock (as defined below) in a PFIC may make a mark-to-market election with respect to such stock to elect out of the tax treatment discussed
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above. If you make a valid mark-to-market election for the ordinary shares you will include in income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of your taxable year over your adjusted basis in such ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. If you make such an election, the tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by us, except that the preferential tax rate discussed above under Dividends and Other Distributions would not apply.
The mark-to-market election is available only for marketable stock, which is stock that is traded in other than de minimis quantities, or regularly traded, on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. The NASDAQ Global Select Market is a qualified exchange. We anticipate that our ordinary shares will be regularly traded on the NASDAQ Global Select Market, and therefore, in 2016 and any subsequent year in which our ordinary shares continue to be regularly traded, the mark-to-market election would be available to a holder of our ordinary shares if we become a PFIC. If any of our subsidiaries are or become PFICs, the mark-to-market election will not be available with respect to the shares of such subsidiaries that are treated as owned by you. Consequently, you could be subject to the PFIC rules with respect to income of the lower-tier PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments.
If you hold ordinary shares in any year in which we are a PFIC, you will also be subject to annual information reporting requirements.
The PFIC rules are complex, and you should consult your own tax advisors regarding the application of the PFIC rules to your investment in our ordinary shares and the availability, application and consequences of the elections discussed above.
Information Reporting and Backup Withholding
Unless an exception applies, information reporting to the IRS generally will be required with respect to payments on the ordinary shares and proceeds of the sale, exchange, redemption or other disposition of the ordinary shares paid to U.S. Holders, other than corporations and other exempt recipients. Backup withholding, currently at the rate of 28%, may apply to those payments if such a holder fails to provide an accurate taxpayer identification number to the paying agent and to certify that no loss of exemption from backup withholding has occurred. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded, or credited against the holders U.S. federal income tax liability, if any, provided the required information is furnished to the IRS.
In addition, certain U.S. Holders who are individuals that hold certain foreign financial assets (which may include the ordinary shares), or who have a beneficial interest in or signatory authority over certain foreign financial accounts, are required to report information relating to such assets or accounts, subject to certain exceptions.
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You should consult your own tax advisor regarding the application of the information reporting and backup withholding requirements to your particular situation.
Information with Respect to Foreign Financial Assets
U.S. Holders who are individuals or certain entities generally will be required to report our name, address and such information relating to an interest in the ordinary shares as is necessary to identify the class or issue of which your ordinary shares are a part. These requirements are subject to exceptions, including an exception for ordinary shares held in accounts maintained by certain financial institutions and an exception applicable if the aggregate value of all specified foreign financial assets (as defined in the Code) does not exceed $50,000.
U.S. Holders should consult their tax advisors regarding the application of these information reporting rules.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, interest, dividends and gains from the sale or other disposition of capital assets for taxable years beginning after December 31, 2012. Each U.S. Holder that is an individual, estate or trust should consult its own tax advisors regarding the effect, if any, of this tax provision on their ownership and disposition of ordinary shares.
POTENTIAL PURCHASERS OF OUR ORDINARY SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL, AND NON- U.S. INCOME, ESTATE, AND OTHER TAX AND TAX TREATY CONSIDERATIONS OF PURCHASING, OWNING AND DISPOSING OF OUR ORDINARY SHARES.
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Subject to the terms and conditions of the underwriting agreement, the underwriters named below, through their representative Deutsche Bank Securities Inc., have severally agreed to purchase from us the following respective number of ordinary shares at a public offering price less the underwriting discounts and commissions listed on the cover page of this prospectus:
Underwriters |
Number of
Shares |
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Deutsche Bank Securities Inc. |
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Stifel, Nicolaus & Company, Incorporated |
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RBC Capital Markets, LLC |
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Cowen and Company, LLC |
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Needham & Company, LLC |
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Total |
5,750,000 | |||
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The underwriting agreement provides that the obligations of the several underwriters to purchase the ordinary shares offered hereby are subject to certain conditions precedent and that the underwriters will purchase all of the ordinary shares offered by this prospectus, other than those covered by the option to purchase additional ordinary shares described below, if any of these shares are purchased.
We have been advised by the representative of the underwriters that the underwriters propose to offer the ordinary shares to the public at the public offering price listed on the cover of this prospectus and to dealers at a price that represents a concession not in excess of $ per share under the public offering price. After the initial public offering, the representative of the underwriters may change the offering price and other selling terms.
The selling shareholders have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to 862,500 additional ordinary shares at the public offering price less the underwriting discounts and commissions listed on the cover page of this prospectus. The underwriters may exercise this option to purchase additional ordinary shares in connection with the sale of the ordinary shares offered by this prospectus. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional ordinary shares as the number of ordinary shares to be purchased by it in the above table bears to the total number of ordinary shares offered by this prospectus. The selling shareholders will be obligated, pursuant to the option, to sell these additional ordinary shares to the underwriters to the extent the option is exercised. If any additional ordinary shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the 5,750,000 shares are being offered.
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The underwriting discounts and commissions per share are equal to the public offering price per ordinary share less the amount paid by the underwriters to us and the selling shareholders per ordinary share. The underwriting discounts and commissions are % of the initial public offering price. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part. We and the selling shareholders have agreed to pay the underwriters the following discounts and commissions, assuming either no exercise or full exercise by the underwriters of the underwriters option to purchase additional ordinary shares from the selling shareholders:
Total Fees | ||||||||||||
Fee per
Share |
Without Exercise
of Option |
With Full Exercise
of Option |
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Discounts and commissions paid by us |
$ | $ | $ | |||||||||
Discounts and commissions paid by the selling shareholders |
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Total |
$ | $ | $ |
In addition, we estimate the total expenses of this offering payable by us, excluding underwriting discounts and commissions, will be approximately $2.5 million. We have also agreed to reimburse the underwriters for certain of their expenses in an amount up to $40,000 as set forth in the underwriting agreement. The selling shareholders will be responsible for their own respective underwriting discounts and commissions on their ordinary shares sold in this offering. We will pay all other expenses incurred by such selling shareholders, including any legal costs and registration fees associated with their ordinary shares being sold in this offering. These expenses have been included in the estimate above.
We and the selling shareholders have agreed to indemnify the several underwriters against some specified types of liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of any of these liabilities.
Each of our officers and directors and substantially all of our shareholders and holders of options to purchase our ordinary shares have, subject to certain limited exceptions, agreed not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is designed to, or could be expected to, result in the disposition of any ordinary shares or other securities convertible into or exchangeable or exercisable for our ordinary shares or derivatives of our ordinary shares owned by these persons prior to this offering or ordinary shares issuable upon exercise of options held by these persons for a period of 180 days after the effective date of the registration statement of which this prospectus is a part without the prior written consent of Deutsche Bank Securities Inc. This consent may be given at any time without public notice except in limited circumstances. We have entered into a similar agreement with the representative of the underwriters. There are no agreements between the representative and any of our shareholders or affiliates releasing them from these lock-up agreements prior to the expiration of the 180-day period.
The representative of the underwriters has advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority.
In connection with this offering, the underwriters may purchase and sell our ordinary shares in the open market. These transactions may include short sales, purchases to cover positions created by short sales and stabilizing transactions.
Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. Covered short sales are sales made in an amount not
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greater than the underwriters option to purchase additional ordinary shares from the selling shareholders in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional ordinary shares.
Naked short sales are any sales in excess of the option to purchase additional ordinary shares. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market prior to the completion of this offering.
Stabilizing transactions consist of various bids for or purchases of our ordinary shares made by the underwriters in the open market prior to the completion of this offering.
Purchases to cover a short position and stabilizing transactions may have the effect of preventing or slowing a decline in the market price of our ordinary shares. Additionally, these purchases may stabilize, maintain or otherwise affect the market price of our ordinary shares.
As a result, the price of our ordinary shares may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ Global Select Market, in the over-the-counter market or otherwise.
A prospectus in electronic format is being made available on Internet web sites maintained by one or more of the lead underwriters of this offering and may be made available on web sites maintained by other underwriters. Other than the prospectus in electronic format, the information on any underwriters web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which the prospectus forms a part.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities having relationships with us, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities having relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
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Pricing of this Offering
Prior to this offering, there had been no public market for our ordinary shares. Consequently, the initial public offering price of our ordinary shares was determined by negotiation between us, the selling shareholders and the representative of the underwriters. Among the primary factors that were considered in determining the public offering price are:
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prevailing market conditions; |
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our results of operations in recent periods; |
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the present stage of our development; |
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the market capitalizations and stages of development of other companies that we and the representative of the underwriters believe to be comparable to our business; and |
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estimates of our business potential. |
Notice to Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), an offer to the public of any shares which are the subject of this offering contemplated by this prospectus may not be made in that Relevant Member State other than the offers contemplated in the prospectus once the prospectus has been approved by the competent authority in such Member State and published and passported in accordance with the Prospectus Directive as implemented in the Relevant Member State except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
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to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
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to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; |
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by the underwriters to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the underwriters for any such offer; or |
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in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares shall result in a requirement for the publication by the Issuer or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an offer to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that member state by any measure implementing the Prospectus Directive in that member state and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
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Notice to Investors in the United Kingdom
Each underwriter has represented and agreed that (a) it has only communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of the shares (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order, or (ii) to high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) and (d) of the Order, with all such persons together being referred to as relevant persons, and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the our ordinary shares in, from or otherwise involving the United Kingdom. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
141
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(1) | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(2) | where no consideration is or will be given for the transfer; |
(3) | where the transfer is by operation of law; |
(4) | as specified in Section 276(7) of the SFA; or |
(5) | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Notice to Prospective Investors in Switzerland
The prospectus does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations, and the shares will not be listed on the SIX Swiss Exchange. Therefore, the prospectus may not comply with the disclosure standards of the Swiss Code of Obligations and/or the listing rules (including any prospectus schemes) of the SIX Swiss Exchange. Accordingly, the shares may not be offered to the public in or from Switzerland, but only to a selected and limited circle of investors, which do not subscribe to the shares with a view to distribution.
Notice to Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Notice to Investors in Canada
The ordinary shares may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations . Any resale of the ordinary shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
142
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
143
The validity of the ordinary shares offered pursuant to this prospectus will be passed upon by Maples and Calder, Cayman Islands. Selected legal matters as to U.S. law in connection with this offering will be passed upon by Kirkland & Ellis LLP (a partnership that includes professional corporations), Chicago, Illinois. Certain partners of Kirkland & Ellis LLP are members of a limited partnership that is an investor in one or more investment funds affiliated with Francisco Partners, including Francisco Partners III (Cayman), L.P. Kirkland & Ellis LLP has from time to time represented, and may continue to represent, Francisco Partners and certain affiliated entities in connection with various legal matters. The underwriters have been represented by Latham & Watkins LLP, Menlo Park, California.
The consolidated financial statements of Ichor Holdings, Ltd. and its subsidiaries as of December 26, 2014 and December 25, 2015 and for each of the years in the two-year period then ended have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
KPMG LLP provided a service to an entity under common control by Francisco Partners III, L.P. during fiscal 2013 which is not permissible under the independence rules of the Securities and Exchange Commission. The service was loan personnel (consisting of one individual and costing approximately $26,000) and was provided starting prior to the sister entity becoming an affiliate and continued for a period of two months thereafter. KPMG LLP and our audit committee, in consultation with legal counsel, concluded that the service does not, did not and will not impact KPMG LLPs ability to exercise objective and impartial judgment on all issues encompassed within the audits of the Company.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-1 with the SEC with respect to our ordinary shares being distributed as contemplated by this prospectus. This prospectus is a part of and does not contain all of the information set forth in the Registration Statement and the exhibits and schedules to the Registration Statement. For further information with respect to us and our ordinary shares, please refer to the Registration Statement, including its exhibits and schedules. Statements made in this prospectus relating to any contract or other document are not necessarily complete and you should refer to the exhibits attached to the Registration Statement for copies of the actual contract or document. You may read and copy all materials that we file with the SEC, including the Registration Statement and its exhibits and schedules, at the SECs public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, as well as on the website maintained by the SEC at www.sec.gov . Please call the SEC at 1-800-SEC-0330 for more information on the public reference room. Information contained on any website referenced in this prospectus does not and will not constitute a part of this prospectus or the Registration Statement on Form S-1 of which this prospectus is a part.
144
In addition, we will file periodic reports and other information with the SEC. You may request a copy of any of our filings with the SEC at no cost, by writing or telephoning us at the following address:
ICHOR HOLDINGS, LTD.
3185 Laurelview Ct.
Fremont, California 94538
You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this prospectus.
145
ICHOR HOLDINGS, LTD. AND SUBSIDIARIES
Consolidated
December 26, 2014, December 25, 2015 and September 23, 2016 (unaudited)
(With Independent Auditors Report Thereon)
F-1
ICHOR HOLDINGS, LTD. AND SUBSIDIARIES
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 |
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Ichor Holdings, Ltd.:
We have audited the accompanying consolidated balance sheets of Ichor Holdings, Ltd. and its subsidiaries as of December 25, 2015 and December 26, 2014, and the related consolidated statements of operations, shareholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ichor Holdings, Ltd. and its subsidiaries as of December 25, 2015 and December 26, 2014, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Portland, Oregon
April 22, 2016, except for the impact of the matters discussed in Notes 14 and 15 pertaining to earnings per share and discontinued operations as to which the date is October 7, 2016.
F-3
ICHOR HOLDINGS, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands except share and per share amounts)
December 26,
2014 |
December 25,
2015 |
September 23,
2016 |
Pro Forma
September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current assets: |
||||||||||||||||
Cash |
$ | 14,373 | $ | 24,188 | $ | 24,004 | $ | 50,997 | ||||||||
Restricted cash |
| | 1,300 | 1,300 | ||||||||||||
Accounts receivable, net |
17,943 | 12,394 | 30,700 | 30,700 | ||||||||||||
Inventories |
30,803 | 31,287 | 57,398 | 57,398 | ||||||||||||
Prepaid expenses and other current assets |
4,345 | 3,924 | 6,060 | 6,060 | ||||||||||||
Current assets from discontinued operations |
26,902 | 16,539 | 195 | 195 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
94,366 | 88,332 | 119,657 | 146,650 | ||||||||||||
Property and equipment, net |
9,000 | 7,482 | 9,669 | 9,669 | ||||||||||||
Other noncurrent assets |
243 | 246 | 3,269 | 3,269 | ||||||||||||
Deferred tax assets |
| 296 | 455 | 455 | ||||||||||||
Intangible assets, net |
37,541 | 31,131 | 33,950 | 33,950 | ||||||||||||
Goodwill |
70,015 | 70,015 | 77,093 | 77,093 | ||||||||||||
Non-current assets from discontinued operations |
4,398 | 521 | 8 | 8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 215,563 | $ | 198,023 | $ | 244,101 | $ | 271,094 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities and Shareholders Equity | ||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 36,913 | $ | 42,027 | $ | 66,488 | $ | 66,488 | ||||||||
Accrued liabilities |
3,719 | 3,951 | 6,181 | 6,181 | ||||||||||||
Current portion of long-term debt |
3,250 | 4,550 | 5,791 | 5,791 | ||||||||||||
Customer deposits |
23 | 26 | | | ||||||||||||
Other current liabilities |
1,986 | 3,063 | 4,890 | 4,890 | ||||||||||||
Current liabilities from discontinued operations |
20,358 | 9,855 | 681 | 681 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
66,249 | 63,472 | 84,031 | 84,031 | ||||||||||||
Revolving line |
12,000 | 10,000 | 15,000 | 15,000 | ||||||||||||
Term loan A, net of debt discount |
9,698 | 48,038 | 58,469 | 18,469 | ||||||||||||
Term loan B |
30,187 | | | | ||||||||||||
Deferred tax liabilities |
5,070 | 495 | 437 | 437 | ||||||||||||
Other non-current liabilities |
2,103 | 1,254 | 1,342 | 1,342 | ||||||||||||
Non-current liabilities from discontinued operations |
195 | 86 | 50 | 50 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
125,502 | 123,345 | 159,329 | 119,329 | ||||||||||||
Shareholders equity |
||||||||||||||||
Preferred units, $0.0001 par value; 150,000,000 shares authorized; 142,728,221 shares issued and outstanding for December 26, 2014, December 25, 2015 and September 23, 2016 |
142,728 | 142,728 | 142,728 | | ||||||||||||
Common stock, $0.0001 par value; 250,000,000 shares authorized; 180,212, 526,763 and 1,024,405 shares issued and outstanding for December 26, 2014, December 25, 2015 and September 23, 2016 |
| | | 2 | ||||||||||||
Additional paid in capital |
1,886 | 3,004 | 4,349 | 214,068 | ||||||||||||
Accumulated deficit |
(54,553 | ) | (71,054 | ) | (62,305 | ) | (62,305 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total shareholders equity |
90,061 | 74,678 | 84,772 | 151,765 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities and shareholders equity |
$ | 215,563 | $ | 198,023 | $ | 244,101 | $ | 271,094 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
ICHOR HOLDINGS, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands except share and per share amounts)
Year Ended
December 26, 2014 |
Year Ended
December 25, 2015 |
Nine Months
Ended September 25, 2015 |
Nine Months
Ended September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Net sales |
$ | 249,087 | $ | 290,641 | $ | 226,282 | $ | 274,339 | ||||||||
Cost of sales |
212,747 | 242,087 | 188,197 | 230,349 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
36,340 | 48,554 | 38,085 | 43,990 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development |
3,915 | 4,813 | 3,469 | 4,229 | ||||||||||||
Selling, general and administrative |
22,465 | 24,729 | 18,084 | 20,329 | ||||||||||||
Amortization of intangible assets |
6,411 | 6,411 | 4,808 | 5,210 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
32,791 | 35,953 | 26,361 | 29,768 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
3,549 | 12,601 | 11,724 | 14,222 | ||||||||||||
Interest expense, net |
3,118 | 3,831 | 2,898 | 3,245 | ||||||||||||
Other expense (income), net |
253 | (46 | ) | (42 | ) | (384 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from continuing operations before income taxes |
178 | 8,816 | 8,868 | 11,361 | ||||||||||||
Income tax benefit from continuing operations |
(5,604 | ) | (3,991 | ) | (3,924 | ) | (1,427 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income from continuing operations |
5,782 | 12,807 | 12,792 | 12,788 | ||||||||||||
Discontinued operations (Note 15): |
||||||||||||||||
Income (loss) from discontinued operations before taxes |
132 | (7,406 | ) | (718 | ) | (4,013 | ) | |||||||||
Income tax expense (benefit) from discontinued operations |
(254 | ) | (225 | ) | (326 | ) | 26 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) from discontinued operations |
386 | (7,181 | ) | (392 | ) | (4,039 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
6,168 | 5,626 | 12,400 | 8,749 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Less: Preferred stock dividend |
| (22,127 | ) | | | |||||||||||
Less: Undistributed earnings attributable to preferred shareholders |
(6,165 | ) | | (12,773 | ) | (12,663 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to common shareholders |
$ | 3 | $ | (16,501 | ) | $ | (373 | ) | $ | (3,914 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) per share from continuing operations attributable |
||||||||||||||||
Basic |
$ | 0.04 | $ | (36.31 | ) | $ | 0.09 | $ | 0.16 | |||||||
Diluted |
$ | 0.02 | $ | (36.31 | ) | $ | 0.05 | $ | 0.05 | |||||||
Net income (loss) per share attributable to common shareholders: |
||||||||||||||||
Basic |
$ | 0.04 | $ | (64.28 | ) | $ | (1.74 | ) | $ | (4.95 | ) | |||||
Diluted |
$ | 0.02 | $ | (64.28 | ) | $ | (1.78 | ) | $ | (5.06 | ) | |||||
Shares used to compute net income from continuing operations per share attributable to common shareholders: |
||||||||||||||||
Basic |
67,663 | 256,701 | 213,935 | 790,678 | ||||||||||||
Diluted |
148,357 | 256,701 | 414,028 | 2,392,154 | ||||||||||||
Shares used to compute net income per share attributable to common shareholders: |
||||||||||||||||
Basic |
67,663 | 256,705 | 214,368 | 790,707 | ||||||||||||
Diluted |
148,357 | 256,705 | 209,551 | 773,518 | ||||||||||||
Pro forma net income from continuing operations per share attributable to common shareholders (unaudited): |
||||||||||||||||
Basic |
$ | 0.68 | $ | 0.68 | ||||||||||||
Diluted |
$ | 0.68 | $ | 0.68 | ||||||||||||
Shares used to compute pro forma net income from continuing operations per share attributable to common shareholders (unaudited): |
||||||||||||||||
Basic |
20,951,860 | 21,018,165 | ||||||||||||||
Diluted |
20,951,860 | 21,217,023 |
See accompanying notes to consolidated financial statements.
F-5
ICHOR HOLDINGS, LTD. AND SUBSIDIARIES
Consolidated Statements of Shareholders Equity
(In thousands except share amounts)
Preferred units | Common stock |
Additional
paid-in capital |
Accumulated
deficit |
Total
shareholders equity |
||||||||||||||||||||||||
Units | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance as of December 27, 2013 |
142,728,221 | $ | 142,728 | | $ | | $ | 856 | $ | (60,721 | ) | $ | 82,863 | |||||||||||||||
Capital contributions |
| | | | 19 | | 19 | |||||||||||||||||||||
Share-based compensation expense |
| | | | 1,011 | | 1,011 | |||||||||||||||||||||
Vesting of restricted stock |
| | 180,212 | | | | | |||||||||||||||||||||
Net income |
| | | | | 6,168 | 6,168 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance as of December 26, 2014 |
142,728,221 | $ | 142,728 | 180,212 | $ | | $ | 1,886 | $ | (54,553 | ) | $ | 90,061 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Share-based compensation expense |
| | | | 1,118 | | 1,118 | |||||||||||||||||||||
Vesting of restricted stock |
| | 346,551 | | | | | |||||||||||||||||||||
Dividend to shareholders |
| | | | |
|
(22,127
|
)
|
|
(22,127
|
)
|
|||||||||||||||||
Net income |
| | | | | 5,626 | 5,626 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance as of December 25, 2015 |
142,728,221 | $ | 142,728 | 526,763 | $ | | $ | 3,004 | $ | (71,054 | ) | $ | 74,678 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Share-based compensation expense (unaudited) |
| | | | 1,345 | | 1,345 | |||||||||||||||||||||
Vesting of restricted stock (unaudited) |
| | 497,642 | | | | | |||||||||||||||||||||
Net income (unaudited) |
| | | | | 8,749 | 8,749 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance as of September 23, 2016 (unaudited) |
142,728,221 | $ | 142,728 | 1,024,405 | $ | | $ | 4,349 | $ | (62,305 | ) | $ | 84,772 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
ICHOR HOLDINGS, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Year
Ended December 26, 2014 |
Year
Ended December 25, 2015 |
Nine Months
Ended September 25, 2015 |
Nine Months
Ended September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
$ | 6,168 | $ | 5,626 | $ | 12,400 | $ | 8,749 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||||
Depreciation and amortization |
9,628 | 9,936 | 7,453 | 7,049 | ||||||||||||
Impairment of intangible assets |
| 1,825 | | | ||||||||||||
Impairment of property, plant, and equipment |
| 1,335 | | | ||||||||||||
Share-based compensation |
1,011 | 1,118 | 807 | 1,345 | ||||||||||||
Deferred income taxes |
(6,195 | ) | (4,927 | ) | (4,459 | ) | (2,485 | ) | ||||||||
Amortization of debt issuance costs |
309 | 834 | 703 | 395 | ||||||||||||
Changes in operating assets and liabilities, net of assets acquired: |
| | | | ||||||||||||
Accounts receivable, net |
959 | 6,333 | 4,464 | (13,420 | ) | |||||||||||
Inventories |
(12,125 | ) | 9,110 | (2,017 | ) | (10,236 | ) | |||||||||
Prepaid expenses and other assets |
(41 | ) | 403 | (1,218 | ) | (2,065 | ) | |||||||||
Accounts payable |
8,749 | (1,676 | ) | (4,705 | ) | 15,657 | ||||||||||
Customer deposits |
(202 | ) | (3,451 | ) | (2,848 | ) | (4,263 | ) | ||||||||
Accrued liabilities |
213 | 169 | 961 | 1,397 | ||||||||||||
Other liabilities |
(383 | ) | 55 | (550 | ) | 1,902 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by operating activities |
8,091 | 26,690 | 10,991 | 4,025 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Capital expenditures |
(3,468 | ) | (1,367 | ) | (1,062 | ) | (2,253 | ) | ||||||||
Cash paid for acquisitions, net of cash acquired |
| | | (17,406 | ) | |||||||||||
Proceeds from sale of intangible assets |
| | | 230 | ||||||||||||
Proceeds from sale of property, plant, and equipment |
| | | 243 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(3,468 | ) | (1,367 | ) | (1,062 | ) | (19,186 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities: |
||||||||||||||||
Proceeds from capital contributions |
19 | | | | ||||||||||||
Dividends to shareholders |
| (22,127 | ) | (22,127 | ) | | ||||||||||
Deferred financing fees |
| (2,631 | ) | (2,631 | ) | | ||||||||||
Borrowings under revolving commitment |
9,000 | 24,000 | 20,000 | 12,000 | ||||||||||||
Repayments on revolving commitment |
(9,000 | ) | (26,000 | ) | (16,000 | ) | (7,000 | ) | ||||||||
Borrowing on long-term debt |
| 55,000 | 55,000 | 15,000 | ||||||||||||
Repayments on long-term debt |
(3,250 | ) | (43,750 | ) | (43,750 | ) | (3,723 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
(3,231 | ) | (15,508 | ) | (9,508 | ) | 16,277 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase in cash |
1,392 | 9,815 | 421 | 1,116 | ||||||||||||
Cash and restricted cash at beginning of year |
12,981 | 14,373 | 14,373 | 24,188 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and restricted cash at end of period |
$ | 14,373 | $ | 24,188 | $ | 14,794 | $ | 25,304 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid during the year: |
||||||||||||||||
Cash paid for interest |
$ | 2,663 | $ | 2,632 | $ | 2,016 | $ | 2,628 | ||||||||
Cash paid (received) for taxes |
611 | 496 | 232 | (129 | ) | |||||||||||
Supplemental disclosures of non-cash activities: |
||||||||||||||||
Capital expenditures included in accounts payable |
$ | 86 | $ | 10 | $ | 75 | $ | 197 |
See accompanying notes to consolidated financial statements.
F-7
(1) Organization and Summary of Significant Accounting Policies
(a) Organization and Operations of the Company
Ichor Holdings, Ltd. and Subsidiaries (the Company) designs, develops, manufactures and distributes gas and liquid delivery subsystems and complete tool solutions purchased by capital equipment manufacturers for use in the semiconductor markets. The Company is headquartered in Fremont, California and has operations in the United States, United Kingdom, Singapore, and Malaysia.
On December 30, 2011, Ichor Systems Holdings, LLC (Ichor Systems Holdings) consummated a sales transaction with Icicle Acquisition Holdings, LLC (Icicle), a Delaware limited liability company. Shortly after consummation of the sale transaction, Icicle Acquisition Holdings, LLC changed its name to Ichor Holdings, LLC (Ichor Holdings).
In March 2012, Ichor Holdings completed a reorganization of its legal structure, forming Ichor Holdings, Ltd., a Cayman Islands entity. Ichor Holdings, Ltd. is now the reporting entity and the ultimate parent company of the operating entities.
In January 2016, the Company decided to shut its Kingston, New York facility which was the primary facility for the Precision Flow Technologies, Inc. subsidiary. In May 2016, the Company ceased operations in this facility and ended the relationship with the customer it served in this location. The Companys consolidated financial statements and accompanying notes for current and prior periods have been retroactively adjusted to present the results of operations of the Precision Flow Technologies, Inc. subsidiary as discontinued operations. In addition, the assets and liabilities to be disposed of have been treated and classified as discontinued operations. For more information on discontinued operations see Note 15.
(b) Basis of Presentation
The accompanying consolidated financial statements include the following wholly owned subsidiaries of Ichor Holdings, Ltd.:
|
FP-Ichor Ltd. (Cayman) |
|
Icicle Acquisition Holding Coöperatief U.A. |
|
Icicle Acquisition Holding B.V. |
|
Ichor Holdings Ltd (Scotland). |
|
Ichor Systems Ltd. (Scotland) |
|
Ichor Holdings, LLC |
|
Ichor Systems, Inc. |
|
Ichor Systems Malaysia Sdn Bhd |
|
Ichor Systems Singapore Pte. Ltd. |
|
Precision Flow Technologies, Inc. |
|
Ajax-United Patterns & Molds, Inc. |
All intercompany balances and transactions have been eliminated in consolidation.
(c) Unaudited Interim Financial Statements
The interim consolidated balance sheet as of September 23, 2016, the consolidated statements of operations and cash flows for the nine months ended September 25, 2015 and
F-8
September 23, 2016, and the consolidated statement of shareholders equity for the nine months ended September 23, 2016 are unaudited. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Companys financial position as of September 23, 2016 and its results of operations and cash flows for the nine months ended September 25, 2015 and September 23, 2016. The financial data and the other financial information disclosed in these notes to the consolidated financial statements related to the nine month periods are also unaudited. The results of operations for the nine months ended September 23, 2016 are not necessarily indicative of the results to be expected for the full fiscal year or any other future periods.
(d) Unaudited Pro Forma Shareholders Equity
The pro forma shareholders equity as of September 23, 2016 presents the Companys shareholders equity as though the preferred shareholders elected to have all of the Companys outstanding preferred stock converted into shares of common stock and the subsequent 1-for-8.053363 reverse split of the Companys common stock, the vesting of the restricted shares and options, the completion of the initial public offering (IPO) of 5,750,000 shares of the Companys ordinary shares at $13.00 per share net of underwriter discounts, commissions, other offering expenses, as well as the repayment of $40 million of the Companys borrowings under the Credit Facility.
(e) Year-End
The Company uses a 52 to 53 week fiscal year ending on the last Friday of December. Fiscal 2014 and 2015 ended on December 26, 2014 and December 25, 2015, respectively, and both years included 52 weeks.
(f) Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods presented. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include the fair value of assets and liabilities acquired in acquisitions, estimated useful lives for long-lived assets, allowance for doubtful accounts, inventory valuation, uncertain tax positions, fair value assigned to stock options granted, and impairment analysis for both definite-lived intangible assets and goodwill.
(g) Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 605, Revenue Recognition . Product revenue is recognized when there is persuasive evidence of an arrangement, product delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Product revenue typically is recognized at the time of shipment or when the customer takes title of the goods. All amounts billed to a customer related to shipping and handling are classified as net sales, while all costs incurred by the Company for shipping and handling are classified as cost of goods sold.
F-9
(h) Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist of accounts receivable, accounts payable and long-term debt.
For the years ended December 26, 2014 and December 25, 2015, the Company derived approximately 96% and 95%, respectively, of its revenue from continuing operations from two customers. For the nine months ended September 25, 2015 and September 23, 2016, the Company derived approximately 95% (unaudited) and 97% (unaudited), respectively, of its revenue from continuing operations from two customers. As of December 26, 2014, December 25, 2015, and September 23, 2016 those customers represented, in the aggregate, approximately 86%, 79%, and 89% (unaudited) respectively, of the accounts receivable balance.
Accounts receivable are carried at invoice price less an estimate for doubtful accounts. Payment terms vary by customer, but generally are due within 1560 days. The Company reviews a customers credit history before extending credit. The Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other information, and totaled $385, $123 and $175 (unaudited) at December 26, 2014, December 25, 2015, and September 23, 2016, respectively. Activity related to the Companys allowance for doubtful accounts is as follows:
Balance, December 27, 2013 |
$ | 140 | ||
Charges to costs and expenses |
246 | |||
Write-offs |
(1 | ) | ||
|
|
|||
Balance, December 26, 2014 |
$ | 385 | ||
Charges to costs and expenses |
(6 | ) | ||
Write-offs |
(256 | ) | ||
|
|
|||
Balance, December 25, 2015 |
$ | 123 | ||
Charges to costs and expenses (unaudited) |
52 | |||
|
|
|||
Balance, September 23, 2016 (unaudited) |
$ | 175 | ||
|
|
The Company requires collateral, typically cash, in the normal course of business if customers do not meet its criteria established for offering credit. If the financial condition of the Companys customers were to deteriorate and result in an impaired ability to make payments, additions to the allowance may be required. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded to income when received.
The Company uses qualified manufacturers to supply many components and subassemblies of its products. The Company obtains the majority of its components from a limited group of suppliers. A majority of the purchased components used in the Companys products are customer specified. An interruption in the supply of a particular component would have a temporary adverse impact on the Companys operating results.
The Company maintains cash balances at both United States-based and foreign-based commercial banks. At various times during the year, cash balances in the United States will exceed amounts that are insured by the Federal Deposit Insurance Corporation (FDIC). The majority of the cash maintained in foreign-based commercial banks is insured by the government where the foreign banking institutions are based. Cash held in foreign-based commercial banks totaled $1,128, $9,494 and $4,771 (unaudited) at December 26, 2014, December 25, 2015, and September 23, 2016, respectively. No losses have been incurred at
F-10
December 26, 2014, December 25, 2015, and September 23, 2016 for the amounts exceeding the insured limits.
(i) Fair Value Measurements
The Company estimates the fair value of its financial assets and liabilities based upon comparison of such assets and liabilities to the current market values for instruments of a similar nature and degree of risk. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
|
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date |
|
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability |
|
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date |
There were no changes to the Companys valuation techniques during the year ended December 25, 2015. The Companys financial assets and liabilities include cash, accounts receivable, accounts payable, and debt. The Company estimates that the recorded value of its financial assets and liabilities approximates fair value as of December 26, 2014 and December 25, 2015.
The Company estimates the value of intangible assets on a nonrecurring basis based on an income approach utilizing discounted cash flows. Under this approach, the Company estimates the future cash flows from its asset groups and discounts the income stream to its present value to arrive at fair value. Future cash flows are based on recently prepared operating forecasts. Operating forecasts and cash flows include, among other things, revenue growth rates that are calculated based on managements forecasted sales projections. A discount rate is utilized to convert the forecasted cash flows to their present value equivalent. The discount rate applied to the future cash flows includes a subject-company risk premium, an equity market risk premium, a beta, and a risk-free rate. As this approach contains unobservable inputs, the measurement of fair value for intangible assets is classified as Level 3.
At December 26, 2014, the intangible assets passed the recoverability test resulting in no impairment. At December 25, 2015, certain intangibles assets associated with our Kingston facility did not pass the recoverability test and the Company recorded an impairment charge of $1,825. See note 15 for additional details on the expected closure of the Kingston, New York location.
Our goodwill assessment performed in the fourth quarters of 2014 and 2015 did not indicate impairment of goodwill.
F-11
(j) Inventories
Inventories are stated at the lower of cost or market. The majority of inventory values are based upon standard costs that approximate average costs.
The Company analyzes its inventory levels and records a write-down for inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected customer demand. Various factors are considered in making this determination, including recent sales history and predicted trends, industry market conditions, and general economic conditions. The Company recorded inventory write-downs of $1,511, $3,000, $1,249 (unaudited) and $3,166 (unaudited) for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively. Included in these write-downs are $403, $1,506, $168 (unaudited) and $1,999 (unaudited), for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively, related to the Kingston, New York operation.
(k) Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:
Machinery |
510 years | |
Leasehold improvements |
Lesser of 15 years
or lease term |
|
Computer software, hardware and equipment |
35 years | |
Office furniture, fixtures and equipment |
57 years | |
Vehicles |
5 years |
Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in selling, general and administrative expenses on the consolidated statements of operations.
(l) Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate, in managements judgment, that the carrying amount of an asset (or asset group) may not be recoverable. In analyzing potential impairments, projections of future cash flows from the asset group are used to estimate fair value. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset group, a loss is recognized for the difference between the estimated fair value and the carrying value of the asset group. The projections are based on assumptions, judgments and estimates of revenue growth rates for the related business, anticipated future economic, regulatory and political conditions, the assignment of discount rates relative to risk, and estimates of terminal values.
In connection with the decision to exit the Kingston, New York facility in 2016, as discussed in footnote 15, the Company performed long-lived asset recoverability tests and it was determined the carrying value of the Systems Integration long-lived assets exceeded the undiscounted cash flows. Accordingly, the Company recorded a write-down to its customer relationships, developed technology, and property, plant, and equipment of $1,260, $565, and $1,335, respectively, during the year ended December 25, 2015.
F-12
(m) Other Non-Current Assets (unaudited)
In conjunction with the acquisition of Ajax, which occurred on April 12, 2016, the Company acquired two investments and a note receivable that were recorded at fair value on the date of acquisition. The Company has a cost method investment in CHawk Technology International, Inc., of approximately $1.5 million and an equity method investment in Ajax Foresight Global Manufacturing Sdn. Bhd. of $0.5 million, each of which are private companies. The Company accounts for these investments on the cost and equity method, respectively, as the Company does not control either entity. The note receivable of $0.9 million is due from Ajax Foresight Global Manufacturing Sdn. Bhd. (a related party). At the end of each reporting period the Company determines whether events or circumstances have occurred that are likely to have a significant adverse effect on the fair value of these investments and note receivable. As of September 23, 2016, no such circumstances have been identified.
(n) Intangible Assets
The Company accounts for its intangible assets that have a definite life and are amortized on a basis consistent with their expected cash flows over the following estimated useful lives:
Trademarks |
10 years | |||
Customer relationships |
10 years | |||
Developed technology |
7 years |
(o) Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. We first make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test. If the conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then perform a two-step goodwill impairment test. Under the first step, the fair value of the reporting unit is compared to its carrying value, and, if an indication of goodwill impairment exists in the reporting unit, the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting units goodwill as determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. For purposes of testing goodwill for impairment, the Company has concluded it operates in one reporting unit.
The Company performed a quantitative goodwill impairment test in the fourth quarter of fiscal 2014 and a qualitative assessment in the fourth quarter of fiscal 2015. Our goodwill assessment performed in 2014 and 2015 did not indicate impairment of goodwill.
F-13
(p) Warranty Costs
The Companys product warranties vary by customer, but generally extend for a period of one to two years from the date of sale. Provisions for warranties are determined primarily based on historical warranty cost as a percentage of sales, adjusted for specific problems that may arise. Historical product warranty expense has not been significant.
(q) Advertising Costs
The Company charges advertising costs to operations as incurred. Advertising costs were not significant and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
(r) Self-Insurance
The Company sponsors a self-insured medical plan for employees and their dependents. A third party is engaged to assist in estimating the loss exposure related to the self-retained portion of the risk associated with this insurance.
(s) Special Bonus
On August 11, 2015, the Board of Directors instituted a special bonus to certain members of management totaling $3,110, of which $1,761, $205, and $132 was earned and recorded as a component of selling, general, and administrative, research and development, and cost of sales, respectively, in fiscal 2015. The remaining $1,012 can be earned by certain members of management through the fourth quarter of 2018 based on their continued employment. During the nine months ended September 23, 2016, the Company expensed $310 related to the special bonus. Management does not expect to pay bonuses of this nature in future periods.
(t) Share-Based Payments
The Company records compensation expense associated with equity compensation based on the estimated fair value at the grant date. The Company uses the Black-Scholes Option Pricing Model to determine the fair value of share-based awards.
(u) Income Taxes
The Company recognizes deferred income taxes using the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense differs from the statutory rate primarily as a result of an increase in the valuation allowance in the US offset by a net decrease in liabilities for uncertain tax positions and the impact of foreign operations.
The Company files federal income tax returns, foreign income tax returns, as well as multiple state and local tax returns. The Company is no longer subject to US Federal examination for tax years ending before 2013, to state examinations before 2012, or to foreign examinations before 2011. The 2012 federal income tax return was audited by the IRS and the
F-14
IRS issued a determination letter in March of 2015, which resulted in a decrease to the net operating loss carryforward of $1,275 and was recorded as a reduction in the deferred tax asset as of the year ended December 26, 2014.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the Companys consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes interest and penalties as a component of income tax benefit.
(v) Foreign Operations
The functional currency of the Companys international subsidiaries located in the United Kingdom, Singapore, and Malaysia, is the U.S. dollar. Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense, net on the accompanying consolidated statements of operations. Substantially, all of the Companys sales and agreements with third-party suppliers provide for pricing and payments in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. Foreign operations consist of net sales of $143,446, $173,735, $100,586 (unaudited) and $162,675 (unaudited) for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively. Assets of foreign operations totaled $38,925, $52,852 and $72,826 (unaudited) at December 26, 2014, December 25, 2015, and September 23, 2016, respectively.
(w) Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The ASU is effective for reporting periods beginning after December 15, 2017 (December 15, 2018 for non-public entities), with an early adoption permitted for reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this accounting standard.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern , an amendment to ASC 205, Presentation of Financial Statements . This update provides guidance on managements responsibility in evaluating whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted.
F-15
The Company does not expect the adoption of ASU 2014-15 to have a material impact on its financial statements or results of operations.
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. We adopted ASU 2015-03 on December 26, 2015 and retroactively recorded debt issuance costs as a reduction to Term Loan A for all periods presented.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) : Simplifying the Measurement of Inventory , which for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted as of the beginning of an interim or annual period. The Company does not expect this initiative to have a significant impact on its ongoing financial reporting.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement Period AdjustmentsChanges to the accounting for measurement-period adjustments relate to business combinations . Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for periods beginning after December 15, 2015. We adopted ASU 2015-16 on December 26, 2015 on a prospective basis for any changes to provisional amounts after the acquisition date. In the third quarter of 2016, we recognized certain measurement period adjustments as disclosed in Note 2 to our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes ( Topic 740): Balance Sheet Classification of Deferred Taxes , which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We adopted ASU 2015-17 on a retrospective basis in 2015. Accordingly, to conform with the 2015 presentation, we reclassified the current deferred taxes to noncurrent on our December 26, 2014 Consolidated Balance Sheet, which decreased current deferred tax assets $3.2 million and decreased noncurrent deferred tax liabilities $3.2 million.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update establishes a comprehensive lease standard for all industries. The new standard requires lessees to recognize a right of use asset and a lease liability for virtually all leases, other than leases that meet the definition of short term leases. The standard is effective for interim and annual reporting periods beginning after December 15, 2018 (December 31, 2019 for non-public
F-16
entities). We are evaluating what impact, if any, the adoption of this ASU will have on our financial condition, results of operations, cash flows or financial disclosures.
In March 2016, the FASB issued ASU No. 2016-09, which amends ASC Topic 718, CompensationStock Compensation . This amendment simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. The Company does not expect this initiative to have a significant impact on its ongoing financial reporting.
(2) Ajax-United Patterns & Molds, Inc. Acquisition (unaudited)
In April 2016, the Company completed a stock purchase agreement of Ajax-United Patterns & Molds, Inc. (Ajax), a manufacturer of complex plastic and metal products used in the medical, biomedical, semiconductor, data communication and food processing equipment industries, for $17.6 million with an additional potential earn-out payment of $1.5 million due in March 2017 if certain financial targets are met. The Company does not believe these financial targets will be met. Pursuant to the purchase agreement, $1.3 million was placed in escrow for working capital adjustments and is reflected in the accompanying consolidated balance sheet at September 23, 2016 as restricted cash. The Company has submitted working capital claims to the Ajax sellers and believes a substantial portion of the amount in escrow will be returned to the Company.
The total preliminary purchase price of $17.6 million was allocated to the underlying assets acquired and liabilities assumed based on their fair values. The allocation of purchase price to goodwill and identifiable assets and liabilities is subject to the final determination of purchase price, as the purchase price and asset values are subject to valuation and contractual adjustments of working capital, which has not been settled.
The following table presents the preliminary allocation and measurement period adjustments of the purchase price of $17.6 million to the assets acquired and liabilities assumed based on their fair values. Measurement period adjustments are primarily related to finalization of the valuation of deferred tax liabilities and intangible assets acquired:
Preliminary
Allocation 4/12/2016 |
Measurement
Period Adjustment |
Preliminary
Allocation 9/23/2016 |
||||||||||
Cash acquired |
$ | 188 | $ | | $ | 188 | ||||||
Accounts receivable, net |
1,245 | 5 | 1,250 | |||||||||
Inventories |
3,236 | | 3,236 | |||||||||
Prepaid expenses and other current assets |
77 | | 77 | |||||||||
Property and equipment, net |
1,545 | | 1,545 | |||||||||
Other noncurrent assets |
2,948 | | 2,948 | |||||||||
Intangible assets, net |
8,130 | (100 | ) | 8,030 | ||||||||
Goodwill |
4,629 | 2,449 | 7,078 | |||||||||
Accounts payable and other accrued liabilities |
(4,404 | ) | (83 | ) | (4,487 | ) | ||||||
Deferred tax liabilities |
| (2,271 | ) | (2,271 | ) | |||||||
|
|
|
|
|
|
|||||||
Total acquisition consideration |
$ | 17,594 | $ | | $ | 17,594 | ||||||
|
|
|
|
|
|
The acquisition is expected to allow us to manufacture and assemble the complex plastic and metal products required by the medical, biomedical, semiconductor and data communication equipment industries. The Company has preliminarily allocated approximately
F-17
$7.1 million of the purchase price to goodwill. Goodwill was primarily attributed to assembled workforce and expected synergies resulting from the acquisition. Goodwill is not deductible for tax purposes.
As a result of the acquisition, the Company has preliminarily recorded approximately $17.3 million of net identifiable assets including $8.0 million of identifiable intangible assets and $6.7 million of identifiable liabilities. The acquired intangible assets consist primarily of $8.0 million of customer relationship and will be amortized over their useful lives of ten years.
In 2016, the Company also incurred approximately $1.5 million in acquisition-related costs which are included in selling, service and administration expenses in the Consolidated Statements of Operations. The operating results of this acquisition are included in the Companys results of operations since the date of acquisition. Since the date of acquisition, Ajax contributed $13.4 million in sales and $0.2 million of operating income. Pro forma financial information has not been provided for the acquisition of Ajax as it was not material to the Companys current year operations and overall financial position.
(3) Inventory
Inventory consists of the following:
December 26,
2014 |
December 25,
2015 |
September 23,
2016 |
||||||||||
(Unaudited) | ||||||||||||
Raw materials |
$ | 34,851 | $ | 27,349 | $ | 34,205 | ||||||
Work in process |
15,625 | 11,958 | 14,932 | |||||||||
Finished goods |
2,560 | 4,619 | 8,261 | |||||||||
|
|
|
|
|
|
|||||||
Inventory |
$ | 53,036 | $ | 43,926 | $ | 57,398 | ||||||
|
|
|
|
|
|
(4) Property and Equipment
Property and equipment consist of the following:
December 26,
2014 |
December 25,
2015 |
September 23,
2016 |
||||||||||
(Unaudited) | ||||||||||||
Machinery |
$ | 3,484 | $ | 3,693 | $ | 9,321 | ||||||
Leasehold improvements |
10,574 | 8,607 | 10,542 | |||||||||
Computer software, hardware and equipment |
2,338 | 2,313 | 2,981 | |||||||||
Construction-in-process |
816 | 179 | 1,780 | |||||||||
Office furniture, fixtures and equipment |
362 | 216 | 328 | |||||||||
Vehicles |
21 | 8 | 127 | |||||||||
|
|
|
|
|
|
|||||||
17,595 | 15,016 | 25,079 | ||||||||||
Less accumulated depreciation |
(6,736 | ) | (7,251 | ) | (15,410 | ) | ||||||
|
|
|
|
|
|
|||||||
Property and equipment, net |
$ | 10,859 | $ | 7,765 | $ | 9,669 | ||||||
|
|
|
|
|
|
Depreciation expense for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016 was $2,742, $3,050, $2,289 (unaudited) and $1,838 (unaudited), respectively.
During the nine months ended September 23, 2016, we sold property and equipment related to discontinued operations for proceeds of $243 (unaudited).
F-18
(5) Goodwill and Intangible Assets
Definite-lived intangible assets consist of the following:
December 26, 2014 | ||||||||||||||||||||
Remaining
weighted average useful life (years) |
Gross
value |
Accumulated
amortization |
Accumulated
impairment charges |
Carrying
amount |
||||||||||||||||
Trademarks |
7 | $ | 9,690 | $ | (2,907 | ) | $ | | $ | 6,783 | ||||||||||
Customer relationships |
7 | 42,557 | (10,450 | ) | (9,816 | ) | 22,291 | |||||||||||||
Developed technology |
4 | 28,100 | (9,512 | ) | (7,590 | ) | 10,998 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 80,347 | $ | (22,869 | ) | $ | (17,406 | ) | $ | 40,072 | |||||||||||
|
|
|
|
|
|
|
|
December 25, 2015 | ||||||||||||||||||||
Remaining
weighted average useful life (years) |
Gross
value |
Accumulated
amortization |
Accumulated
impairment charges |
Carrying
amount |
||||||||||||||||
Trademarks |
6 | $ | 9,690 | $ | (3,876 | ) | $ | | $ | 5,814 | ||||||||||
Customer relationships |
6 | 42,557 | (13,618 | ) | (11,076 | ) | 17,863 | |||||||||||||
Developed technology |
3 | 28,100 | (12,261 | ) | (8,155 | ) | 7,684 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 80,347 | $ | (29,755 | ) | $ | (19,231 | ) | $ | 31,361 | |||||||||||
|
|
|
|
|
|
|
|
September 23, 2016 (unaudited) | ||||||||||||||||||||
Remaining
weighted average useful life (years) |
Gross
value |
Accumulated
amortization |
Accumulated
impairment charges |
Carrying
amount |
||||||||||||||||
Trademarks |
6 | $ | 9,690 | $ | (4,603 | ) | $ | | $ | 5,087 | ||||||||||
Customer relationships |
6 | 50,557 | (16,208 | ) | (11,076 | ) | 23,273 | |||||||||||||
Developed technology |
3 | 28,100 | (14,355 | ) | (8,155 | ) | 5,590 | |||||||||||||
Order backlog |
| 30 | (30 | ) | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 88,377 | $ | (35,196 | ) | $ | (19,231 | ) | $ | 33,950 | |||||||||||
|
|
|
|
|
|
|
|
Amortization expense totaled $6,886, $6,886, $5,164 (unaudited) and $5,211 (unaudited) during the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively.
During the nine months ended September 23, 2016, we sold intangible assets related to discontinued operations for proceeds of $230 (unaudited).
F-19
The weighted average amortization period for all intangible assets as of December 25, 2015 was 5.3 years. Future projected annual amortization expense consists of the following for each of the next five fiscal years and thereafter:
2016 |
$ | 6,641 | ||
2017 |
6,411 | |||
2018 |
6,411 | |||
2019 |
3,927 | |||
2020 |
3,927 | |||
Thereafter |
4,044 | |||
|
|
|||
$ | 31,361 | |||
|
|
The following tables present the changes to goodwill during the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 23, 2016:
Balance,
December 27, 2013 |
Acquisitions | Impairment |
Tax
adjustment |
Balance,
December 26, 2014 |
||||||||||||||||
Goodwill |
$ | 70,015 | | | | $ | 70,015 |
Balance,
December 26, 2014 |
Acquisitions | Impairment |
Tax
adjustment |
Balance,
December 25, 2015 |
||||||||||||||||
Goodwill |
$ | 70,015 | | | | $ | 70,015 |
Balance,
December 25, 2015 |
Acquisitions | Impairment |
Tax
adjustment |
Balance,
September 23, 2016 |
||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Goodwill |
$ | 70,015 | $ | 7,078 | | | $ | 77,093 |
(6) Commitments and Contingencies
(a) Operating Leases
The Company leases offices under various operating leases expiring through 2024. The Company is responsible for utilities and its proportionate share of operating expenses under the facilities leases. The Company recognizes escalating lease payments on a straight-line basis over the lease term. Rent expense for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016 was $3,146, $2,988, $2,292 (unaudited) and $2,216 (unaudited), respectively. Future minimum lease payments for non-cancelable operating leases as of December 25, 2015 are as follows:
2016 |
$ | 3,155 | ||
2017 |
3,063 | |||
2018 |
970 | |||
2019 |
329 | |||
2020 |
280 | |||
Thereafter |
933 | |||
|
|
|||
$ | 8,730 | |||
|
|
(b) Litigation
The Company is periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The ultimate resolution of these actions is
F-20
not expected to have a material adverse effect on the Companys financial position or results of operations.
(c) Purchase Commitments (unaudited)
At September 23, 2016, the Company has purchase orders outstanding for raw materials and component parts totaling $55,240.
(7) Income Taxes
Income from continuing operations before tax was as follows:
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
Nine Months Ended
September 25, 2015 |
Nine Months Ended
September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
United States |
$ | (13,841 | ) | $ | (15,319 | ) | $ | (10,276 | ) | $ | (10,883 | ) | ||||
Foreign |
14,019 | 24,135 | 19,144 | 22,244 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from continuing operations before tax |
$ | 178 | $ | 8,816 | $ | 8,868 | $ | 11,361 | ||||||||
|
|
|
|
|
|
|
|
Significant components of income tax benefit from continuing operations consist of the following:
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
Nine Months Ended
September 25, 2015 |
Nine Months Ended
September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Current: |
||||||||||||||||
Federal |
$ | | $ | (1,001 | ) | $ | (1,003 | ) | $ | (27 | ) | |||||
State |
95 | 65 | 43 | (87 | ) | |||||||||||
Foreign |
786 | 1,816 | 1,332 | 1,113 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current tax expense |
881 | 880 | 372 | 999 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Deferred: |
||||||||||||||||
Federal |
(5,704 | ) | (4,296 | ) | (3,746 | ) | (2,257 | ) | ||||||||
State |
(701 | ) | (203 | ) | (330 | ) | (14 | ) | ||||||||
Foreign |
(80 | ) | (372 | ) | (220 | ) | (155 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total deferred tax benefit |
(6,485 | ) | (4,871 | ) | (4,296 | ) | (2,426 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total income tax benefit from continuing operations |
$ | (5,604 | ) | $ | (3,991 | ) | $ | (3,924 | ) | $ | (1,427 | ) | ||||
|
|
|
|
|
|
|
|
F-21
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax benefit from continuing operations consist of the following:
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
Nine Months Ended
September 25, 2015 |
Nine Months Ended
September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Effective rate reconciliation: |
||||||||||||||||
U.S. federal tax expense |
$ | 62 | $ | 3,084 | $ | 3,102 | $ | 3,976 | ||||||||
State income taxes, net |
(320 | ) | (383 | ) | (218 | ) | (186 | ) | ||||||||
Permanent items |
76 | 114 | 98 | 530 | ||||||||||||
Foreign rate differential |
(2,491 | ) | (4,259 | ) | (3,390 | ) | (4,008 | ) | ||||||||
Tax holidays |
(2,279 | ) | (3,872 | ) | (3,075 | ) | (3,878 | ) | ||||||||
Credits |
(986 | ) | (691 | ) | (367 | ) | (548 | ) | ||||||||
Tax contingencies |
170 | (835 | ) | (866 | ) | 30 | ||||||||||
Withholding tax |
465 | 925 | 683 | 984 | ||||||||||||
Other, net |
(301 | ) | (71 | ) | 109 | (22 | ) | |||||||||
Valuation allowance |
| 1,997 | | 1,695 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax benefit from continuing operations |
$ | (5,604 | ) | $ | (3,991 | ) | $ | (3,924 | ) | $ | (1,427 | ) | ||||
|
|
|
|
|
|
|
|
Deferred income tax assets and liabilities from continuing operations consist of the following as of:
December 26,
2014 |
December 25,
2015 |
September 23,
2016 |
||||||||||
(Unaudited) | ||||||||||||
Deferred tax assets: |
||||||||||||
Inventory |
$ | 1,387 | $ | 1,443 | $ | 1,521 | ||||||
Stock compensation |
374 | 683 | 976 | |||||||||
Accrued payroll |
398 | 563 | 747 | |||||||||
Net operating loss carryforwards |
2,987 | 5,174 | 6,663 | |||||||||
Transaction costs |
350 | 206 | 195 | |||||||||
Tax credits |
2,302 | 2,838 | 3,366 | |||||||||
Other assets |
395 | 1,606 | 2,089 | |||||||||
|
|
|
|
|
|
|||||||
Deferred tax assets |
8,193 | 12,513 | 15,557 | |||||||||
Valuation allowance |
| (1,997 | ) | (3,692 | ) | |||||||
|
|
|
|
|
|
|||||||
Total deferred tax assets |
8,193 | 10,516 | 11,865 | |||||||||
Deferred tax liabilities: |
||||||||||||
Intangible assets |
(12,460 | ) | (10,228 | ) | (11,500 | ) | ||||||
Property, plant and equipment |
(38 | ) | | | ||||||||
Other liabilities |
(765 | ) | (487 | ) | (347 | ) | ||||||
|
|
|
|
|
|
|||||||
Total deferred tax liabilities |
(13,263 | ) | (10,715 | ) | (11,847 | ) | ||||||
|
|
|
|
|
|
|||||||
Net deferred tax asset (liability) |
$ | (5,070 | ) | $ | (199 | ) | $ | 18 | ||||
|
|
|
|
|
|
We adopted ASU 2015-17 in the current year and have applied the standard retrospectively. With this adoption, our deferred tax assets and liabilities are no longer classified between current and non-current. All deferred tax assets and liabilities are now classified as non-current, regardless of the timing of their anticipated reversal.
At September 23, 2016, the Company had federal and state net operating loss carryforwards of $23,848 (unaudited) and $14,709 (unaudited), respectively. The federal and state net operating
F-22
loss carryforwards, if not utilized, will begin to expire in 2031 and 2016, respectively. At September 23, 2016, the Company had federal and state research and development credits of $1,059 (unaudited) and $264 (unaudited), respectively. The federal and state research and development credits, if not utilized, will begin to expire in 2032 and 2018, respectively. Additionally, the Company had foreign tax credits of $537 (unaudited), which if not utilized, will begin to expire in 2022.
At September 23, 2016, the Company did not recognize a deferred tax asset on the undistributed earnings of the Companys foreign subsidiaries that are not considered to be indefinitely reinvested, due to limitations on benefit recognition.
We have determined the amounts of our valuation allowances based on our estimates of taxable income by jurisdiction in which we operate over the periods in which the related deferred tax assets will be recoverable. We determined it is not more-likely-than-not that our U.S. entities will generate sufficient taxable income to offset reversing deductible timing differences and to fully utilize carryforward tax attributes. Accordingly, we recorded a valuation allowance against those deferred tax assets for which realization does not meet the more-likely-than-not standard. Similarly, there is a valuation allowance on our state deferred tax assets due to the same uncertainties regarding future taxable U.S. income.
The Company was granted a tax holiday for its Singapore operations effective 2011 through 2019. The tax holiday is subject to certain conditions, which are required to be met by March 31, 2017. As of December 25, 2015, the Company is in compliance with certain conditions, with the exception of the headcount requirement, which the Singapore taxing authority granted a waiver. For the remaining conditions, the Company intends to be in compliance with the conditions specified by March 31, 2017. The net impact of the tax holiday in Singapore as compared to the Singapore statutory rate was a benefit of $2,279, $3,872, $3,075 (unaudited) and $3,878 (unaudited), for the years ending December 26, 2014 and December 25, 2015 and the nine months ending September 25, 2015 and September 23, 2016, respectively. The Companys income tax fluctuates based on the geographic mix of earnings and is calculated quarterly based on actual results as per ASC 740-270.
As of September 23, 2016, the Company has recognized $413 (unaudited) of unrecognized tax benefits in long-term liabilities and $132 (unaudited) of unrecognized tax benefits in noncurrent deferred tax liabilities on the accompanying consolidated balance sheet. If recognized, $443 (unaudited) of this amount would impact the Companys effective tax rate. The Company does not expect a significant decrease to the total amount of unrecognized tax benefits within the next twelve months.
F-23
The following table summarizes the activity related to the Companys unrecognized tax benefits:
Balance at December 27, 2013 |
$ | 1,775 | ||
Increase in tax positions for current year |
111 | |||
Increase in tax positions for prior period |
132 | |||
Decrease in tax positions for prior period |
(633 | ) | ||
|
|
|||
Balance at December 26, 2014 |
1,385 | |||
Increase in tax positions for current year |
85 | |||
Decrease in tax positions for prior period |
(912 | ) | ||
|
|
|||
Balance at December 25, 2015 |
558 | |||
Increase in tax positions for current year (Unaudited) |
87 | |||
Decrease in tax positions for prior period (Unaudited) |
(100 | ) | ||
Balance at September 23, 2016 (Unaudited) |
$ | 545 | ||
|
|
The Company recognizes interest and penalties relating to unrecognized tax benefits as part of its income tax expense. The Companys three major filing jurisdictions are the United States, Singapore and Malaysia. The Company is no longer subject to US Federal examination for tax years ending before 2013, to state examinations before 2012, or to foreign examinations before 2011.
(8) Employee Benefit Programs
(a) 401(k) Plan
The Company sponsors a 401(k) plan available to employees of its United States-based subsidiaries. Participants may make salary deferral contributions not to exceed 50% of a participants compensation in a plan year or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50% of each participants deferral, up to an annual maximum of two thousand five hundred dollars. For the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, matching contributions were made totaling $321, $370, $301 (unaudited) and $274 (unaudited), respectively.
(b) Medical Insurance
The Company sponsors a self-insured group medical insurance plan for its U.S. employees and their dependents. The self-insured plan is designed to provide a specified level of coverage, with stop-loss coverage provided by a commercial insurer, in order to limit the Companys exposure. For the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, expense incurred related to this plan was $1,894, $2,829, $1,768 (unaudited) and $1,807 (unaudited), respectively.
(9) Credit Facilities
(a) Credit Facility
On December 30, 2011, the Company and its subsidiaries executed a $75,000 senior secured credit facility, as amended (the Facility), with a syndicate of lenders. The Facility consists of two term loans and a revolving commitment with a letter of credit subfacility. The Company must pay a commitment fee equal to 0.375% per annum on the unused portion of the Facility. The Company recorded $1,332 in debt financing fees associated with the Facility, and is amortizing this balance over the term of the Facility to interest expense. The Facility is secured by all tangible and intangible assets of the Company.
F-24
The Facility contains prepayment provisions in the event of certain actions, including but not limited to, a qualifying initial public offering, new indebtedness, and proceeds from asset sales and upon earning excess cash flows, as defined in the Facility agreement. The Facility contains customary representations, warranties and covenants. The components and terms of this Facility, which was replaced on August 11, 2015, are as follows:
(b) Term Loan A
The Company may borrow up to $15,000 under Term Loan A. Interest is charged at either the ABR rate or the Eurodollar rate at the option of the Company, plus an applicable margin. The ABR rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Effective rate plus 0.5%, or iii) 4.0%. The applicable margin on ABR rate loans and Eurodollar rate loans is 2.5% and 5.0%, per annum, respectively. Interest payments on the outstanding principal balance are due monthly if borrowings are under the ABR rate. Interest payments are due on the last day of the applicable interest period under Eurodollar rate loans. The Company borrowed the full amount of Term Loan A on December 30, 2011 under the Eurodollar rate.
Term Loan A is due in quarterly installments beginning on June 30, 2012, and each calendar quarter thereafter. Quarterly payments in 2013 and each year thereafter total $375 with a maturity date of December 30, 2016 at which time all unpaid principal and interest is due. The Company may prepay at any time Term Loan A, in whole or in part, without a prepayment premium.
(c) Term Loan B
The Company may borrow up to $35,000 under Term Loan B. Interest is charged at either the ABR rate or the Eurodollar rate at the option of the Company, plus an applicable margin. The ABR rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Effective rate plus 0.5%, or iii) 4.0%. The applicable margin on ABR rate loans and Eurodollar rate loans is 0.5% and 3.0%, per annum, respectively. Interest payments on the outstanding principal balance are due monthly if borrowings are under the ABR rate. Interest payments are due on the last day of the applicable interest period under Eurodollar rate loans. The Company borrowed the full amount of Term Loan B on December 30, 2011 under the Eurodollar rate. Francisco Partners, a majority member of the Company, has provided a limited guarantee for the full amount of the Term Loan B.
Term Loan B is due in quarterly installments of $438 beginning March 31, 2013, and each calendar quarter thereafter. The maturity date of Term Loan B is December 30, 2016, at which time any unpaid principal and interest on Term Loan B is due. The Company may prepay at any time Term Loan B, in whole or in part, without a prepayment premium.
(d) Revolving Commitment
The Company may borrow up to $25,000 under a revolving commitment, with a maturity date of December 30, 2016. The Facility allows for letters of credit to be issued as a sublimit under the revolving commitment. Borrowings under the revolving commitment cannot exceed the lesser of i) the total revolving commitment of $25,000 or ii) the borrowing base in effect at such time. The revolving commitment bears interest at either the ABR rate or Eurodollar rate at the option of the Company, plus an applicable margin. The applicable margin on ABR rate loans and Eurodollar rate loans is 0.5% and 3.0%, per annum, respectively. Interest payments on the outstanding principal balance are due monthly if borrowings are under the ABR rate. Interest payments are due on the last day of the applicable interest period under Eurodollar rate loans.
F-25
The Company has borrowings outstanding at December 26, 2014 totaling $12,000 under the weighted Eurodollar rate.
The maximum borrowing base under the revolving commitment is based on eligible accounts receivable and eligible inventory, as defined in the agreement. Under the Facility, the Company is able to borrow a maximum of $3,000 under a swingline loan. The borrowing availability under the swingline loan is a sublimit to the revolving commitment. Swingline loans bear interest at the ABR Rate plus 0.5%, per annum. The Company had $0 outstanding under the swingline loan at December 26, 2014. The Company had $7,027 available under the Revolving Commitment at December 26, 2014 based on the calculated borrowing base.
(e) Refinancing Transaction
On August 11, 2015, the Company and its subsidiaries entered into a new $55,000 term loan facility and $20,000 revolving credit facility (Refinancing Transaction) with a syndicate of lenders and repaid all outstanding indebtedness under the prior $50,000 term loan facility and $25,000 revolving credit facility discussed above. The Refinancing Transaction also includes a letter of credit subfacility under the revolving credit facility.
The Company recorded $2,631 in debt financing fees associated with the Refinancing Transaction and is amortizing this balance over the term of the facility to interest expense. The company wrote off previously existing debt costs related to the old facility resulting in an extinguishment loss of $470 which is included within interest expense in the accompanying financial statements. The facility is secured by all tangible and intangible assets of the Company.
The Refinancing Transaction includes customary representations, warranties and covenants. Additionally, the Company is required to maintain a fixed charge coverage ratio of 1.25:1.00 measured quarterly, and a consolidated leverage ratio as noted below:
Four (4) Fiscal Quarters Ending |
Maximum
Consolidated Leverage Ratio |
|||
December 31, 2015 through September 30, 2016 |
3.00:1.00 | |||
December 31, 2016 through September 30, 2017 |
2.50:1.00 | |||
December 31, 2017 through September 30, 2018 |
2.25:1.00 | |||
December 31, 2018 through June 30, 2020 |
2.00:1.00 |
Term Loan Facility
The Company may borrow up to $55,000 under the new term loan facility. Interest is charged at either the Base Rate or the Eurodollar rate at the option of the Company, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Effective rate plus 0.5%, or iii) the Eurodollar Rate plus 1.00%. The applicable margin on Base Rate and Eurodollar Rate loans is 3.0% and 4.0%, per annum, respectively. Interest payments on the outstanding principal balance are due quarterly if loans are made under the Base Rate. Interest payments are due on the last day of the applicable interest period under Eurodollar Rate loans. The Company borrowed the full amount of the term loan facility under the Base rate on August 11, 2015 (6.25% per annum at September 25, 2015 (unaudited)). The Base rate loan was converted to a Eurodollar rate loan on September 28, 2015 which carried an interest rate of 4.25% per annum (4.89% at September 23, 2016 (unaudited)).
Principal payments are due under the term loan facility on a quarterly basis, beginning at December 31, 2015. Quarterly principal payments for the first three years are set at $1,138 per
F-26
quarter, decreasing to $813 per quarter for the next two years at which time a balloon payment totaling approximately $35,663 will be due in August 2020.
Revolving Credit Facility
The Company may borrow up to $20,000 under the revolving commitment, with a maturity date of August 11, 2020 unless the maturity date is extended under the terms of the Revolving Credit Facility. The revolving credit facility allows for letters of credit to be issued as a sublimit under the revolving commitment up to $5,000. The Company must pay a commitment fee equal to 0.50% per annum on the unused revolving credit facility.
Interest is charged at either the Base Rate or the Eurodollar rate at the option of the Company, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Effective rate plus 0.5%, or iii) the Eurodollar Rate plus 1.00%. The applicable margin on Base Rate and Eurodollar Rate loans is 3.0% and 4.0%, per annum, respectively (4.89% at September 23, 2016 (unaudited)).
Under the revolving credit facility, the Company is able to borrow an amount equal to the lesser of i) $5,000 and ii) the revolving credit facility under a swingline loan. The borrowing availability under the swingline loan is a sublimit to the revolving commitment. There were no borrowings outstanding under swingline loans at December 25, 2015. The Company had $10,000 outstanding under the revolving credit facility at December 25, 2015 bearing interest at 4.25% per annum.
The following table summarizes the aggregate maturities under the Facility as of December 25, 2015:
2016 |
$ | 4,550 | ||
2017 |
4,550 | |||
2018 |
4,550 | |||
2019 |
3,252 | |||
2020 |
48,098 | |||
|
|
|||
$ | 65,000 | |||
|
|
(10) Shareholders Equity
In connection with the legal reorganization in March 2012 (the Reorganization), the Company is now governed under its adopted memorandum and articles of association. In connection with the acquisition on December 30, 2011, the Companys equity holders contributed $142,728 to Icicle Acquisition Holding Coöperatief U.A. (Co-op) and in connection with the Reorganization, the Companys equity holders exchanged their interests in the Co-op for a total of 142,728,221 shares of preferred stock in the Company, with an original issuance price of $1.00 per share.
At December 25, 2015, the Company has authorized 250,000,000 shares of common stock with a par value of $0.0001 per share. There are 150,000,000 shares of preferred stock authorized with a par value of $0.0001 per share.
The preferred stock maintains the following characteristics:
Conversion The holders of preferred stock may convert to common stock at any time at the option of the holder, and the preferred stock will automatically convert to common stock
F-27
upon a majority vote of the holders of preferred stock. The conversion price is equal to the ratio of the original issuance price ($1.00 at December 25, 2015) divided by the conversion price. The original issuance price is equal to the conversion price at December 25, 2015, and therefore, the preferred stock converts to common stock on a one-for-one basis.
Liquidation preference In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the preferred stock holders are entitled to receive an amount per share equal to the greater of (i) The original issuance price plus any dividends declared but unpaid or (ii) an amount per share that would have been payable assuming conversion to common stock immediately prior to a liquidation event. Any remaining assets of the Company after the initial liquidation preference will be made to the common stock holders on a pro rata basis. If the assets of the Company are not sufficient for the full liquidation preference, the holders will share in any distribution on a pro rata basis.
Voting Preferred shareholders have voting rights based on the number of shares of common stock into which the preferred shares can convert.
Dividends Preferred shareholders are entitled to receive dividends when and if declared by the Board of Directors. In August 2015, the Board of Directors approved and paid a cash dividend totaling $22,127 to the preferred shareholders. Management does not expect to pay dividends of this nature in future periods.
(11) Related-Party Transactions
On January 10, 2011, PFT entered into a sublease agreement with Precision Flow Inc., which is majority owned by a member of the board of directors of the Company. During the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, PFT paid $975, $1,155, $489 (unaudited) and $694 (unaudited), respectively, in sublease rent to Precision Flow Inc. The sublease agreement between PFT and Precision Flow Inc. expires February 28, 2018. The Company has ceased operations in this facility as of May 2016 but has not completed a lease termination agreement with Precision Flow Inc.
The Company had purchases totaling $1,556, $841, $667 (unaudited) and $126 (unaudited) from Ceres, an entity owned by a member of the board of directors of the Company, during the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively. Outstanding accounts payable to Ceres at December 26, 2014, December 25, 2015, and September 23, 2016 totaled $111, $153 and $0 (unaudited), respectively. The Company had sales totaling $206 (unaudited) during the nine months ended September 23, 2016. Outstanding accounts receivable at September 23, 2016 were $98 (unaudited).
The Company has received engineering services from Vignani. Vignani is a subsidiary of Foliage Inc. The Chairman of the Companys board of directors is on the board of directors of Foliage, Inc. Fees incurred for the services were $889, $1,298, $846 (unaudited) and $871 (unaudited) during the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively. Outstanding accounts payable to Vignani at December 26, 2014 and December 25, 2015, and September 23, 2016 totaled $146, $336 and $172 (unaudited), respectively.
The Company received consulting services from Francisco Partners Consulting, LLC totaling $580, $342, $148 (unaudited) and $262 (unaudited) during the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23,
F-28
2016, respectively, and had a total of $0, $305 and $0 (unaudited) outstanding in accounts payable to Francisco Partners Consulting, LLC at December 26, 2014, December 25, 2015, and September 23, 2016, respectively.
The Company also received consulting and advisory services from Francisco Partners Management, L.P. pursuant to a Master Services Agreement (MSA). This MSA provides that the Company will reimburse Francisco Partners Management, L.P. for reasonable out-of-pocket expenses incurred in connection with providing the Company consulting and advisory services and pay an annual advisory fee equal to $1,500 per fiscal year. However, Francisco Partners Management, L.P. has waived payment of all such out-of-pocket fees and advisory fees for 2014 and 2015.
On August 26, 2014, the Company entered into a Separation and Release Agreement, or the Separation Agreement, with the former CEO in connection with the termination of his employment with the Company. Pursuant to the terms of the Separation Agreement, (1) the former CEOs employment with the Company was terminated effective as of August 12, 2014, (2) the former CEO did not receive any severance or other benefits from the Company following his termination date, (3) all equity securities of the Company owned, directly or indirectly, by the former CEO, including vested and unvested stock options, were transferred to the Company, (4) the former CEO agreed to reimburse the Company $1,254, (5) the former CEO agreed to a three-year noncompetition covenant and a three-year nonsolicitation covenant covering employees, contractors, customers, vendors and other business relations, (6) the former CEO agreed to continue complying with the confidentiality and intellectual property assignment agreement previously entered into in connection with his employment, (7) the former CEO agreed to a general release of claims against the Company and (8) the parties agreed to a mutual nondisparagement covenant.
In fiscal 2014, the Company paid two entities owned by the Companys former chief executive officer for various services performed at the direction of the former CEO. The Company included the amounts paid of $173, in selling, general and administrative expenses on the accompanying consolidated statements of operations, associated with these entities in 2014, respectively. No payments were made to these entities after June 30, 2014, and the Companys relationship with these entities has terminated.
Certain travel and entertainment expenses were reimbursed to our former chief executive officer in contravention of our travel reimbursement policy. We paid $324 to the former chief executive officer in fiscal 2014, respectively. These amounts were repaid to the Company in the third fiscal quarter of 2014 as part of the reimbursement of $1,254.
(12) Share-Based Compensation
On March 16, 2012, the Company adopted the Ichor Holdings Ltd. 2012 Equity Incentive Plan (Incentive Plan). Under the Incentive Plan, the Company can grant either restricted stock awards or stock options to employees, directors and consultants. The Board of Directors initially authorized the issuance of 21,000,000 stock options or restricted stock awards under the Incentive Plan. On October 25, 2013, the Board of Directors authorized the issuance of an additional 4,000,000 stock options or restricted stock awards under the Incentive Plan. Canceled or expired stock options or restricted stock awards are returned to the Incentive Plan pool for future grants.
Stock options granted under the Incentive Plan have a term of seven years. Vesting generally occurs 25% on the first anniversary of the date of grant, and quarterly thereafter.
F-29
Share-based compensation for stock options recorded under the Incentive Plan totaled $853, $864, $616 (unaudited), and $836 (unaudited) for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively. Approximately $2,147 in share-based compensation costs related to stock option awards outstanding at December 25, 2015 is expected to be recognized over a weighted average period of 2.9 years, and will be adjusted for subsequent changes in forfeitures.
In 2014, the Company granted 1,738,787 stock options to an executive that vest upon the sale of the Company or completion of an initial public offering. No stock-based compensation has been recognized for these options as the performance condition has not been met. If the performance conditions are met, we would immediately recognize $637 in share-based compensation costs.
In 2014, the Company granted 3,288,181 stock options to certain executives that vest ratably over a four year term. The grants include a special vesting provision that provides that 50% of unvested options vest in the event of a sale of the Company, defined as either a transaction or series of related transactions in which a person, or a group of related persons, acquires through sale, merger, joint venture or otherwise, whether effected in a single transaction or a series of related transactions, (i) more than 50 % of either (a) the voting power or (b) right to elect the directors of (1) the surviving or resulting company or (2) if the surviving or resulting company is a wholly owned subsidiary of another company immediately following such merger or consolidation, the parent company of such surviving or resulting company or (ii) all or substantially all, including via license, transfer, lease or leaseback of the business or assets of the Company. If a sale of the Company occurs, depending on the timing of such sale, the Company would accelerate the recognition of up to $408 in share-based compensation costs.
In 2015, the Company granted 1,775,000 stock options to an executive that are subject to vesting in increments of 25% upon the Company achieving specific performance targets as mutually agreed between the Board and the executive. The achievement of each of the performance targets shall be determined by the Board in its sole discretion and must be completed by December 2018. The grants also include a special vesting provision that in the event of a sale of the Company, if during the Protected Period either (I) Optionee is terminated other than for cause by the Company (or its successor), or (II) Optionee resigns within thirty days of Optionees job responsibilities being materially diminished by the Company (or its successor), the lesser of (x) 50% of the unvested options and (y) all remaining unvested options as of the date of the consummation of a sale of the Company shall immediately become vested options. For purposes of the agreement, Protected Period is defined as the period commencing on the date of the consummation of a sale of the Company and ending on the date that is 90 days following such sale of the Company.
During the period ended June 24, 2016, 332,813 of these stock options vested based on achievement of certain of the defined performance metrics. Accordingly, $173 of share-based compensation was recognized during the period ended June 24, 2016. In July 2016, the employee was terminated and accordingly no further compensation expense will be recorded for the unvested options.
The Company used the Black-Scholes option-pricing model to value the awards on the date of grant. The Company uses the simplified method to estimate the expected term of its share-based awards for all periods, as the Company did not have sufficient history to estimate the weighted average expected term. The risk-free interest rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Estimated volatility for the years ended December 26, 2014 and December 25, 2015 is based on historical volatility of similar entities whose share prices are publicly traded.
F-30
The table below sets forth the assumptions used on the date of grant for estimating the fair values of options during the years ended December 26, 2014 and December 25, 2015:
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
|||||||
Weighted average expected term (years) |
5 | 5 | ||||||
Risk-free interest rate |
1.30 | % | 1.41 | % | ||||
Dividend yield |
| | ||||||
Volatility |
60.6 | % | 50.0 | % |
The following table summarizes the Companys stock option activity for the years ended December 26, 2014 and December 25, 2015, and the nine months ended September 23, 2016:
Options outstanding |
Options |
Weighted
average exercise price |
Weighted
average remaining contractual term |
|||||||||
Balance at December 27, 2013 |
21,064,705 | $ | 1.33 | 5.58 | ||||||||
Granted |
5,441,900 | 1.00 | ||||||||||
Canceled |
(6,784,134 | ) | 1.74 | |||||||||
|
|
|||||||||||
Balance at December 26, 2014 |
19,722,471 | 1.10 | 5.21 | |||||||||
Granted |
3,517,714 | 1.17 | ||||||||||
Canceled |
(2,136,899 | ) | 1.18 | |||||||||
|
|
|||||||||||
Balance at December 25, 2015 |
21,103,286 | 1.11 | 4.94 | |||||||||
Granted (unaudited) |
746,877 | 1.17 | ||||||||||
Canceled (unaudited) |
(3,117,190 | ) | 1.10 | |||||||||
|
|
|||||||||||
Balance at September 23, 2016 (unaudited) |
18,732,973 | $ | 1.10 | 3.82 | ||||||||
|
|
A summary of the status of the Companys unvested options for the years ended December 26, 2014 and December 25, 2015, and the nine months ended September 23, 2016 is presented below:
Options |
Weighted
average grant date fair value |
|||||||
Nonvested at December 27, 2013 |
13,943,438 | $ | 0.17 | |||||
Granted |
5,441,900 | 0.36 | ||||||
Vested |
(2,188,766 | ) | 0.37 | |||||
Forfeited |
(6,784,134 | ) | 0.11 | |||||
|
|
|||||||
Nonvested at December 26, 2014 |
10,412,438 | 0.28 | ||||||
Granted |
3,517,714 | 0.52 | ||||||
Vested |
(4,255,381 | ) | 0.21 | |||||
Forfeited |
(119,293 | ) | 0.11 | |||||
|
|
|||||||
Nonvested at December 25, 2015 |
9,555,478 | 0.40 | ||||||
Granted (unaudited) |
746,877 | 0.52 | ||||||
Vested (unaudited) |
(2,080,644 | ) | 0.30 | |||||
Forfeited (unaudited) |
(2,785,244 | ) | 0.46 | |||||
|
|
|||||||
Nonvested at September 23, 2016 (unaudited) |
5,436,467 | $ | 0.42 | |||||
|
|
The Company had 9,310,033, 11,547,808 and 13,296,506 (unaudited) options exercisable as of December 26, 2014, December 25, 2015, and September 23, 2016, respectively. As of
F-31
September 23, 2016, these options had a weighted average remaining contractual life of 3.20 (unaudited) years and a weighted average exercise price of $1.11 (unaudited) per share.
The Company granted restricted share awards to two executives during 2013 and 2014. The restricted stock awards have been valued as of the date of grant, and the Company is recognizing compensation expense for the fair value of the award over the related vesting period. In 2014, the Company granted 968,451 restricted stock awards that vest upon sale of the Company or completion of an initial public offering. No share-based compensation costs have been recognized for these restricted shares as the performance conditions have not been met. If the restricted share performance conditions are met, the Company would immediately recognize $891 in share-based compensation costs.
In 2014, the Company granted 724,509 restricted share awards that vest ratably over a four year term. The grant includes a special vesting provision that provides that 50% of the unvested grant vests in the event of a sale of the Company, defined as either a transaction or series of related transactions in which a person, or a group of related persons, acquires through sale, merger, joint venture or otherwise, whether effected in a single transaction or a series of related transactions, (i) more than 50 % of either (a) the voting power or (b) right to elect the directors of (1) the surviving or resulting company or (2) if the surviving or resulting company is a wholly owned subsidiary of another company immediately following such merger or consolidation, the parent company of such surviving or resulting company or (ii) all or substantially all, including via license, transfer, lease or leaseback of the business or assets of the Company. If a sale of the Company occurs, depending on the timing of such sale, the Company would accelerate the recognition of up to $167 in share-based compensation costs.
In February 2016, the Company granted 724,509 restricted share awards to an executive that vest ratably over a two year term. In the event of a sale of the Company, any unvested shares of the award will become immediately vested. If a sale of the Company occurs, depending on the timing of such sale, the Company would accelerate the recognition of up to $530 in share-based compensation.
A summary of the status of the Companys unvested restricted shares for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 23, 2016 is presented below:
Restricted
stock |
Weighted
average grant date fair value |
|||||||
Nonvested at December 27, 2013 |
480,566 | $ | 0.73 | |||||
Granted |
1,692,960 | 0.92 | ||||||
Vested |
(180,212 | ) | 0.73 | |||||
Forfeited |
| | ||||||
|
|
|||||||
Nonvested at December 26, 2014 |
1,993,314 | 0.89 | ||||||
Granted |
| | ||||||
Vested |
(346,551 | ) | 0.85 | |||||
Forfeited |
| | ||||||
|
|
|||||||
Nonvested at December 25, 2015 |
1,646,763 | 0.90 | ||||||
Granted (unaudited) |
724,509 | 1.17 | ||||||
Vested (unaudited) |
(497,642 | ) | 1.02 | |||||
Forfeited (unaudited) |
| | ||||||
|
|
|||||||
Nonvested at September 23, 2016 (unaudited) |
1,873,630 | $ | 0.97 | |||||
|
|
F-32
Share-based compensation related to restricted shares totaled $158, $254, $191 (unaudited) and $509 (unaudited) for the years ended December 26, 2014 and December 25, 2015 and the nine months ended September 25, 2015 and September 23, 2016, respectively. Approximately $583 in share-based compensation costs related to restricted shares outstanding at December 25, 2015 is expected to be recognized over a weighted average period of 2.3 years, and will be adjusted for subsequent changes in forfeitures.
(13) Segment Information
The Companys Chief Operating Decision Maker (CODM), the Chief Executive Officer, reviews the Companys results of operations on a consolidated level and executive staff is structured by function rather than by product category. Therefore, the Company operates in one operating segment. Key resources, decisions, and assessment of performance are also analyzed on a company-wide level.
The Companys foreign operations are conducted primarily through its wholly owned subsidiaries in Singapore and Malaysia. The Companys principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.
All information on revenue by geographic area is based upon the location to which the products were shipped. The following table sets forth revenue by geographic area (including revenue from discontinued operations):
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
Nine Months
Ended September 25, 2015 |
Nine Months
Ended September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
United States |
$ | 225,891 | $ | 238,470 | $ | 191,626 | $ | 177,977 | ||||||||
Singapore |
55,977 | 96,141 | 69,259 | 105,337 | ||||||||||||
Europe |
16,882 | 22,938 | 18,494 | 11,898 | ||||||||||||
Other |
15,383 | 13,840 | 12,813 | 5,697 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Revenue |
$ | 314,133 | $ | 371,389 | $ | 292,192 | $ | 300,909 | ||||||||
|
|
|
|
|
|
|
|
(14) Net Income and Unaudited Pro Forma Net Income Per Share Attributable to Common Shareholders
Basic and diluted net income per share attributable to common shareholders is presented in conformity with the two-class method required for participating securities. The Company considers its convertible preferred stock to be a participating security as the convertible preferred stock participates in dividends with the common shareholders, when and if declared by the board of directors. In the event a dividend is paid on common stock, the holders of preferred stock are entitled to a proportionate share of any such dividend as if they were holders of common stock (on an as-if converted basis). The convertible preferred stock does not participate in losses incurred by the Company. In accordance with the two-class method, earnings allocated to these participating securities and the related number of outstanding shares of the participating securities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and diluted net income per share attributable to common shareholders.
Under the two-class method, net income attributable to common shareholders after deduction of preferred stock dividends, if any, is determined by allocating undistributed earnings
F-33
between the common stock and the participating securities based on their respective rights to receive dividends. In computing diluted net income attributable to common shareholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. Basic net income per share attributable to common shareholders is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted-average common shares outstanding. Diluted net income per share attributable to common shareholders is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding, including all potentially dilutive common shares, if the effect of each class of potential shares of common stock is dilutive.
F-34
The following table sets forth the computation of the Companys basic and diluted net income per share attributable to common shareholders and a reconciliation of the numerator and denominator used in the calculation:
Year Ended | Nine Months Ended | |||||||||||||||
December 26,
2014 |
December 25,
2015 |
September 25,
2015 |
September 23,
2016 |
|||||||||||||
(Unaudited) | ||||||||||||||||
Numerator: |
||||||||||||||||
Net income from continuing operations |
$ | 5,782 | $ | 12,807 | $ | 12,792 | $ | 12,788 | ||||||||
Preferred stock dividend |
| (22,127 | ) | | | |||||||||||
Undistributed net income attributed to preferred stockholders |
(5,779 | ) | | (12,773 | ) | (12,663 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) from continuing operations, attributable to common stockholders |
3 | (9,320 | ) | 19 | 125 | |||||||||||
Net income (loss) from discontinued operations |
386 | (7,181 | ) | (392 | ) | (4,039 | ) | |||||||||
Undistributed net income attributed to preferred stockholders |
(386 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss from discontinued operations, attributable to common stockholders |
$ | | $ | (7,181 | ) | $ | (392 | ) | $ | (4,039 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted average common shares outstanding for continuing operations |
67,663 | 256,701 | 213,935 | 790,678 | ||||||||||||
Dilutive effect of restricted stock awards |
80,694 | | 200,093 | 191,356 | ||||||||||||
Dilutive effect of common stock options |
| | | 1,410,120 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of shares used in diluted per share calculation for continuing operations |
148,357 | 256,701 | 414,028 | 2,392,154 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding for discontinued operations |
67,663 | 256,701 | 213,935 | 790,678 | ||||||||||||
Dilutive effect of restricted stock awards |
80,694 | | | | ||||||||||||
Dilutive effect of common stock options |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of shares used in diluted per share calculation for discontinued operations |
148,357 | 256,701 | 213,935 | 790,678 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) per common share: |
||||||||||||||||
Continuing operations: |
||||||||||||||||
Basic |
$ | 0.04 | $ | (36.31 | ) | $ | 0.09 | $ | 0.16 | |||||||
Diluted |
$ | 0.02 | $ | (36.31 | ) | $ | 0.05 | $ | 0.05 | |||||||
Discontinued operations: |
||||||||||||||||
Basic |
$ | | $ | (27.97 | ) | $ | (1.83 | ) | $ | (5.11 | ) | |||||
Diluted |
$ | | $ | (27.97 | ) | $ | (1.83 | ) | $ | (5.11 | ) | |||||
Preferred shares considered participating securities |
142,728,221 | 142,728,221 | 142,728,221 | 142,728,221 | ||||||||||||
|
|
|
|
|
|
|
|
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share attributable to common shareholders for the periods presented because including them would have been antidilutive:
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
Nine Months
Ended September 25, 2015 |
Nine Months
Ended September 23, 2016 |
|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Stock options to purchase common stock |
19,722,471 | 19,867,604 | 16,070,457 | 2,407,472 |
F-35
The following table sets forth the computation of the Companys unaudited pro forma basic and diluted net income per share attributable to common shareholders for the year ended December 25, 2015 and the nine months ended September 23, 2016:
Pro forma net income per share is presented assuming the conversion of preferred shares to ordinary shares, the vesting of restricted shares and options, reverse share split of 1 for 8.053363 ordinary shares as well as the use of 3.1 million shares from our assumed IPO for the repayment of $40 million of borrowings under the Credit Facilities.
As adjusted | ||||||||
Year Ended
December 25, 2015 |
Nine Months Ended
September 23, 2016 |
|||||||
(Unaudited) |
||||||||
Net income from continuing operations |
$ | 12,807 | $ | 12,788 | ||||
Plus interest expense, net of tax |
1,536 | 1,545 | ||||||
|
|
|
|
|||||
Pro forma net income |
14,343 | 14,333 | ||||||
Weighted average common stock outstanding |
31,875 | 98,180 | ||||||
Assumed vesting of restricted stock |
120,254 | 120,254 | ||||||
Assumed conversion of convertible preferred stock |
17,722,808 | 17,722,808 | ||||||
Assumed shares sold at offering price to extinguish debt |
3,076,923 | 3,076,923 | ||||||
|
|
|
|
|||||
Weighted average number of shares used in computing pro forma net income per sharebasic |
20,951,860 | 21,018,165 | ||||||
Dilutive effect of restricted share awards |
| 23,761 | ||||||
Dilutive effect of common stock options |
| 175,097 | ||||||
|
|
|
|
|||||
Weighted average number of shares used in computing pro forma net income per sharediluted |
20,951,860 | 21,217,023 | ||||||
Basic |
$ | 0.68 | $ | 0.68 | ||||
Diluted |
$ | 0.68 | $ | 0.68 |
(15) Discontinued Operations
In January 2016, we made the decision to shut down our Kingston, New York facility as this location consumed a significant amount of resources while contributing very little income. We completed the shutdown of the operations of the New York facility in May 2016 through abandonment as a buyer for the facility and operation was not found. We recognized additional expense consisting of fixed asset and long-lived asset impairments totaling $3,160 in the fourth quarter of 2015 related to this decision. The impairments related to fixed assets and long lived assets were based on the estimated fair value of such assets over their remaining expected lives through May 2016. No further revenues are being generated from the customer that this location serviced after May 2016.
The Company ceased operations at this facility in May 2016. As this was our cease use date, the Company recorded lease abandonment and inventory charges of approximately $612 and $2,000, respectively, in the second quarter of 2016. At September 23, 2016 future minimum lease payments of $489 are reflected in accrued liabilities of discontinued operations.
F-36
The carrying amounts of the major classes of assets and liabilities of the Kingston, New York facility are reflected in the following table as of December 26, 2014, December 25, 2015, and September 23, 2016 (unaudited):
December 26,
2014 |
December 25,
2015 |
September 23,
2016 |
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(Unaudited) | ||||||||||||
Assets | ||||||||||||
Current assets: |
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Accounts receivable, net |
$ | 4,534 | $ | 3,750 | $ | 114 | ||||||
Inventories |
22,233 | 12,639 | | |||||||||
Prepaid expenses and other current assets |
135 | 150 | 81 | |||||||||
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Total current assets |
26,902 | 16,539 | 195 | |||||||||
Property and equipment, net |
1,859 | 283 | | |||||||||
Intangible assets, net |
2,531 | 230 | | |||||||||
Other noncurrent assets |
8 | 8 | 8 | |||||||||
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Total non-current assets |
4,398 | 521 | 8 | |||||||||
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Total assets |
31,300 | 17,060 | 203 | |||||||||
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Liabilities | ||||||||||||
Current liabilities: |
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Accounts payable |
12,568 | 5,702 | 112 | |||||||||
Accrued liabilities |
653 | 590 | 517 | |||||||||
Customer deposits |
6,964 | 3,510 | | |||||||||
Other current liabilities |
173 | 53 | 52 | |||||||||
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Total current liabilities |
20,358 | 9,855 | 681 | |||||||||
Deferred tax liabilities |
81 | 25 | 28 | |||||||||
Other long-term liabilities |
114 | 61 | 22 | |||||||||
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Total non-current liabilities |
195 | 86 | 50 | |||||||||
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Total liabilities |
$ | 20,553 | $ | 9,941 | $ | 731 | ||||||
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F-37
The results of the discontinued operation for the years ended December 26, 2014, December 25, 2015 and the nine months ended September 25, 2015 (unaudited) and September 23, 2016 (unaudited) were as follows:
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
Nine Months
Ended September 25, 2015 |
Nine Months
Ended September 23, 2016 |
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(Unaudited) | (Unaudited) | |||||||||||||||
Revenues |
$ | 65,046 | $ | 80,748 | $ | 65,910 | $ | 26,570 | ||||||||
Cost of sales |
61,404 | 80,840 | 63,661 | 28,046 | ||||||||||||
Operating expenses: |
| | | | ||||||||||||
Research and development |
577 | 954 | 709 | 262 | ||||||||||||
Selling, general and administrative |
2,507 | 2,765 | 1,935 | 2,276 | ||||||||||||
Amortization of intangible assets |
475 | 475 | 356 | | ||||||||||||
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Total operating expenses |
3,559 | 4,194 | 3,000 | 2,538 | ||||||||||||
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Operating income (loss) |
83 | (4,286 | ) | (751 | ) | (4,014 | ) | |||||||||
Interest expense, net |
(3 | ) | (16 | ) | (13 | ) | | |||||||||
Other expense (income), net |
(46 | ) | 3,136 | (20 | ) | (1 | ) | |||||||||
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Income (loss) from discontinued operations before income taxes |
132 | (7,406 | ) | (718 | ) | (4,013 | ) | |||||||||
Income tax expense (benefit) |
(254 | ) | (225 | ) | (326 | ) | 26 | |||||||||
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Income (loss) from discontinued operations |
$ | 386 | $ | (7,181 | ) | $ | (392 | ) | $ | (4,039 | ) | |||||
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Supplemental information related to the discontinued operation is as follows for the periods presented:
Year ended
December 26, 2014 |
Year ended
December 25, 2015 |
Nine Months
Ended September 25, 2015 |
Nine Months
Ended September 23, 2016 |
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(Unaudited) | (Unaudited) | |||||||||||||||
Depreciation and amortization |
$ | 1,147 | $ | 1,143 | $ | 861 | $ | | ||||||||
Capital expenditures |
535 | 427 | 472 | | ||||||||||||
Impairment of property, plant and equipment |
| 1,335 | | | ||||||||||||
Impairment of intangible assets |
$ | | $ | 1,825 | $ | | $ | |
(16) Subsequent Events (unaudited)
In April 2016, the Company acquired Ajax-United Patterns & Molds, Inc. (Note 2). To fund the acquisition, the Company amended their existing credit facility and increased the Term A loan commitment by $15,000 and drew an additional $4,000 on the revolving credit facility.
F-38
As part of the amendment, the Companys aggregate maturities were changed to the following as of September 23, 2016:
2016 |
$ | 1,448 | ||
2017 |
5,791 | |||
2018 |
5,791 | |||
2019 |
4,136 | |||
2020 |
64,111 | |||
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$ | 81,277 | |||
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Additionally, certain modifications were made to covenants. For the second and third quarters of fiscal 2016 the consolidated leverage ratio was reduced from a maximum of 3.00:1 to 2.50:1. Beginning with the fourth quarter of fiscal 2016 and thereafter, the maximum consolidated leverage ratio follows the original agreement. There was no change to the fixed charge ratio.
F-39
Through and including , (the 25 th day after the date of this prospectus), all dealers that effect transactions in these securities may be required to deliver a prospectus.
5,750,000 Shares
ICHOR HOLDINGS, LTD.
Ordinary Shares
PRELIMINARY PROSPECTUS
Deutsche Bank Securities
Stifel
RBC Capital Markets
Cowen and Company
Needham & Company
, 2016
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all costs and expenses, other than the underwriting discounts and commissions payable by us, in connection with the offer and sale of the securities being registered. All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee.
Amount | ||||
SEC registration fee |
$ | 10,730 | ||
FINRA filing fee |
14,386 | |||
Exchange listing fee |
150,000 | |||
Legal fees and expenses |
1,184,000 | |||
Accounting fees and expenses |
947,418 | |||
Printing expenses |
180,000 | |||
Miscellaneous expenses |
40,000 | |||
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Total |
$ | 2,526,534 | ||
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Item 14. Indemnification of Directors and Officers
Cayman Islands law does not limit the extent to which a companys articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences or committing a crime. Our amended and restated articles of association provide for indemnification of officers and directors to the maximum extent permitted by law for losses, damages, costs and expenses incurred in their capacities as such, except through their own actual fraud and dishonesty or willful default.
We intend to enter into indemnification agreements with each of our directors and officers pursuant to which we will agree to indemnify our directors and officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or officer.
We also expect to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.
The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement will also provide for indemnification of us and our officers and directors in certain instances.
Item 15. Recent Sales of Unregistered Securities
The Registrant has not issued and sold any unregistered securities within the past three years other than:
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on November 15, 2013, the Registrant granted to the Registrants Vice Chairman 480,566 shares of restricted stock; |
II-1
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on September 19, 2014, the Registrant granted to the Registrants Vice Chairman 243,943 shares of restricted stock; |
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on September 19, 2014, the Registrant granted to the Registrants President 1,449,017 shares of restricted stock; and |
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on February 10, 2016, the Registrant granted to one of the Registrants executive officers 724,509 shares of restricted stock. |
In addition, on October 25, 2013, September 19, 2014, October 13, 2014, December 15, 2014, October 9, 2015, March 17, 2016 and June 27, 2016, the Registrant granted an aggregate of 14,547,362 stock options to certain of its or its subsidiaries executives and other employees, which options had exercise prices ranging from $1.00 to $2.00 per share.
The foregoing share amounts do not give effect to the reverse stock split that will be effected prior to the consummation of the offering to which this registration statement relates.
The grants of restricted stock and options described above were made in the ordinary course of business and did not involve any cash payments from the recipients. The restricted stock and options did not involve a sale of securities for purposes of Section 2(3) of the Securities Act and were otherwise made in reliance upon Section 4(2) of the Securities Act and Rule 701 under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
The list of exhibits is set forth under Exhibit Index at the end of this registration statement and is incorporated herein by reference.
Certain of the agreements included as exhibits to this prospectus contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
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should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
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have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
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may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and |
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were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
The registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this registration statement not misleading.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
II-2
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(i) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and
(ii) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on November 29, 2016.
ICHOR HOLDINGS, LTD. | ||
By: /s/ Thomas M. Rohrs |
||
Name: |
Thomas M. Rohrs | |
Title: |
Executive Chairman and Chief Executive Officer |
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
* The undersigned by signing his name hereto, signs and executes this Amendment No. 2 to Registration Statement pursuant to the Powers of Attorney executed by the above named signatories and previously filed with the Securities and Exchange Commission on November 14, 2016.
By: | /s/ Thomas M. Rohrs | |
Attorney-in-Fact |
II-4
EXHIBIT INDEX
Exhibit Number |
Description of Exhibit |
|
1.1 | Form of Underwriting Agreement. | |
3.1 | Amended and Restated Articles of Association Memorandum and Articles of Association dated as of March 16, 2012. | |
3.2 | Form of Amended and Restated Memorandum and Articles of Association of Ichor Holdings, Ltd. to be effective prior to the completion of this offering. | |
4.1 | Specimen Stock Certificate. | |
5.1** | Maples and Calder opinion. | |
10.1** | Credit Agreement, dated as of August 11, 2015, by and among Ichor Holdings, LLC, Precision Flow Technologies, Inc. and Ichor Systems, Inc., as borrowers, Icicle Acquisition Holding B.V. and certain of its other subsidiaries as guarantors, Bank of America, N.A. as administrative agent, L/C issuer, and swingline lender, and the lenders from time to time party thereto, or the Credit Agreement. | |
10.2** | First Amendment to Credit Agreement, dated as of April 12, 2016, by and among Ichor Holdings, LLC, Ichor Systems, Inc. and Precision Flow Technologies, Inc., as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions party thereto, as lenders. | |
10.3** | Investor Rights Agreement, dated as of March 16, 2012, by and among Ichor Holdings, Ltd. and certain of its shareholders. | |
10.4** | Members Agreement, dated as of March 16, 2012, by and among Ichor Holdings, Ltd. and certain of its shareholders. | |
10.5** | Management Services Agreement, dated as of December 30, 2011, between Icicle Acquisition Holding, LLC and Francisco Partners Management, LLC. | |
10.6** | Amended and Restated Master Consulting Services Agreement, effective as of January 1, 2015, by and between Ichor Systems, Inc. and Francisco Partners Consulting, LLC. | |
10.7** | Employment Agreement, dated as of September 19, 2014, by and among Ichor Systems, Inc., Thomas Rohrs and, with respect to Sections 1.2 and 3.4 therein only, Ichor Holdings, Ltd. | |
10.8** | Employment Agreement, dated as of September 19, 2014, by and among Ichor Systems, Inc., Maurice Carson and, with respect to Sections 1.2 and 3.3 therein only, Ichor Systems, Ltd. | |
10.9** | Ichor Holdings, Ltd. 2012 Equity Incentive Plan. | |
10.10** | Form of Ichor Holdings, Ltd. 2012 Equity Incentive Plan Grant Agreement. | |
10.11 | Ichor Holdings, Ltd. 2016 Omnibus Incentive Plan. | |
10.12 | Form of Incentive Stock Option Agreement. | |
10.13 | Form of Restricted Stock Agreement. | |
10.14 | Form of Nonqualified Stock Option Agreement. | |
10.15 | Form of Director and Officer Indemnification Agreement. | |
10.16** | Offer Letter, dated as of January 8, 2013, by and between Ichor Systems, Inc. and Philip Barros. | |
10.17** | Offer Letter, dated as of September 30, 2015, by and between Ichor Systems, Inc. and Philip Barros. |
Exhibit Number |
Description of Exhibit |
|
21.1** | List of subsidiaries. | |
23.1 | Consent of KPMG LLP. | |
23.2** | Consent of Maples and Calder (included in Exhibit 5.1). | |
24.1** | Power of Attorney (previously included on the signature page of this Form S-1 filed on November 14, 2016, registration no. 333-214588). |
** | Previously filed. |
Exhibit 1.1
[] Shares
Ichor Holdings, Ltd.
Ordinary Shares
($0.0001 Par Value)
EQUITY UNDERWRITING AGREEMENT
December [], 2016
Deutsche Bank Securities Inc.
As Representative of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
60 Wall Street, 4th Floor
New York, New York 10005
Ladies and Gentlemen:
Ichor Holdings, Ltd., a Cayman Islands exempt limited company (the Company ), proposes to sell to the several underwriters (the Underwriters ) named on Schedule I hereto for whom you are acting as representative (the Representative ) an aggregate of [] shares (the Firm Shares ) of the Companys ordinary shares, $0.0001 par value (the Ordinary Shares ). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names on Schedule I hereto Certain shareholders of the Company (the Selling Shareholders ) propose to sell at the Underwriters option an aggregate of up to [] additional shares of the Companys Ordinary Shares (the Option Shares ) as set forth below. The Company and the Selling Shareholders are sometimes referred to herein collectively as the Sellers .
As the Representative, you have advised the Company and the Selling Shareholders that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names on Schedule I hereto, plus their pro rata portion of the Option Shares if you elect to exercise the option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the Shares .
In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows:
1. R EPRESENTATIONS AND W ARRANTIES OF THE C OMPANY AND THE S ELLING S HAREHOLDERS .
(a) The Company represents and warrants to each of the Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-214588) with respect to the Shares has been prepared by the Company in conformity in all material respects with the requirements of the Securities Act of 1933, as amended (the Act ), and the rules and regulations (the Rules and Regulations ) of the Securities and Exchange Commission (the Commission ) thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been made available by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462(b) under the Act, is herein referred to as the Registration Statement , which shall be deemed to include all information omitted therefrom in reliance upon Rules 430A under the Act and contained in the Prospectus referred to below, and has become effective under the Act. No post-effective amendment to the Registration Statement has been filed as of the date of this equity underwriting agreement (this Agreement ). Prospectus means the form of prospectus first filed with the Commission pursuant to and within the time limits described in Rule 424(b) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a Preliminary Prospectus .
(ii) As of the Applicable Time (as defined below) and as of the Closing Date or the Option Closing Date, as the case may be, none of (i) the General Use Free Writing Prospectus(es) (as defined below) issued at or prior to the Applicable Time, the Statutory Prospectus (as defined below) and the information included on Schedule III hereto, all considered together (collectively, the General Disclosure Package ), (ii) any individual Limited Use Free Writing Prospectus (as defined below), when considered together with the General Disclosure Package, or (iii) any individual Written Testing-the-Waters Communication (as defined below), when considered together with the General Disclosure Package, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Company makes no representations or warranties as to information contained in or omitted from the General Disclosure Package or any Issuer Free Writing Prospectus, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representative, specifically for use therein, it being understood and agreed that the only such information is that described in Section 13 hereof.
2
As used in this subsection and elsewhere in this Agreement:
Applicable Time means [:] [a/p].m. (New York time) on the date of this Agreement or such other time as agreed to by the Company and the Representative.
General Use Free Writing Prospectus means any Issuer Free Writing Prospectus (other than a bona fide electronic road show, as defined in Rule 433 (the Bona Fide Electronic Road Show ) that is identified on Schedule IV hereto.
Issuer Free Writing Prospectus means any issuer free writing prospectus, as defined in Rule 433 under the Act, including without limitation any free writing prospectus (as defined in Rule 405 of the Rules and Regulations of the Act ( Rule 405 )) relating to the Shares that is (i) required to be filed with the Commission by the Company, (ii) a road show that is a written communication within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission or (iii) excepted from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Shares or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Companys records pursuant to Rule 433(g).
Limited Use Free Writing Prospectus means any Issuer Free Writing Prospectus that is not a General Use Free Writing Prospectus.
Statutory Prospectus means the Preliminary Prospectus dated [], 2016.
(iii) The Company has been duly organized and is validly existing as an exempt limited company in good standing under the laws of the Cayman Islands, with requisite power and authority to own or lease its properties and conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus. Each of the subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the Subsidiaries ) has been duly organized and is validly existing as a corporation, limited liability company or similar entity in good standing under the laws of the jurisdiction of its organization with requisite power and authority to own or lease its properties and conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus. The Subsidiaries listed in Exhibit D hereto are the only significant subsidiaries of the Company (as such term is defined in Rule 1-02 of Regulation S-X). The Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification except where the failure to be so qualified would not (i) have, individually or in the aggregate, a material adverse effect on the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or (ii) prevent the consummation of the transactions contemplated hereby (the occurrence of any such effect or any such prevention described in the foregoing clauses (i) and (ii) being referred to as a Material Adverse Effect ). The outstanding shares of capital stock or other ownership interests of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and, with respect to shares of capital stock, non-assessable and, other than as described in the Registration Statement, the General Disclosure Package or the Prospectus, are owned by the Company or another Subsidiary free and clear of all
liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding.
3
(iv) From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Act (an Emerging Growth Company ). Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act.
(v) The outstanding Ordinary Shares, including all shares to be sold by the Selling Shareholders, have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive or similar rights of shareholders exist with respect to any of the Shares or the issuance and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any Ordinary Shares.
(vi) The information with respect to the Companys authorized, issued and outstanding capitalization set forth under the caption Capitalization in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) is (or, upon the consummation of the transactions described therein, will be) true and correct in all material respects. All of the Shares conform to the description thereof contained in the Registration Statement, the General Disclosure Package and the Prospectus. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Companys incorporation and to any requirements of the Companys organizational documents. Subsequent to the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus, except as otherwise specifically stated therein or in this Agreement, the Company has not: (i) issued any securities (other than grants or exercises of equity-based awards pursuant to the Companys equity incentive and employee benefit plans (including employee stock purchase plans) described in the Registration Statement, the General Disclosure Package and the Prospectus); (ii) incurred any material liability or obligation, direct or contingent, for borrowed money; or (iii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
(vii) The Commission has not issued an order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus relating to the proposed offering of the Shares, and no proceeding for that purpose or pursuant to Section 8A of the Act has been instituted or, to the Companys knowledge, threatened by the Commission. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform to, the
4
requirements of the Act and the Rules and Regulations, in each case in all material respects. The Registration Statement and any amendments thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of a material fact; and do not omit, and will not omit, to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of (x) any Underwriter through the Representative, specifically for use therein, it being understood and agreed that the only such information is that described in Section 13 hereof, or (y) any Selling Shareholder specifically for use therein, it being understood and agreed that the only such information is the Selling Shareholder Information (as defined below).
(viii) No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) such that no filing of any road show (as defined in Rule 433(h)) is required in connection with the offering of the Shares.
(ix) The Company (a) has not alone engaged in any Testing-the-Waters Communication and (b) has not authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company reconfirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act.
(x) Any individual Written Testing-the-Waters Communication complied in all material respects with the Act and, when considered together with the Pricing Disclosure Package as of the Applicable Time, did not and as of the Closing Date and any additional Closing Date, as the case may be, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Company makes no representations or warranties as to information contained in or omitted from any individual Written Testing-the-Waters Communication in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of (x) any Underwriter through the Representative, specifically for use therein, it being understood and agreed that the only such information is that described in Section 13 hereof, or (y) any Selling Shareholder specifically for use therein, it being understood and agreed that the only such information is the Selling Shareholder Information (as defined below).
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(xi) The Company has not, directly or indirectly, distributed and will not distribute any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectus, the Prospectus and other materials, if any, permitted under the Act and consistent with Section 4(a)(ii) hereof. The Company will file with the Commission all Issuer Free Writing Prospectuses in the time required under Rule 433(d) under the Act.
(xii) (i) At the time of filing the Registration Statement and (ii) as of the date hereof (with such date being used as the determination date for purposes of this clause (ii)), the Company was not and is not an ineligible issuer (as defined in Rule 405 under the Act, without taking into account any determination by the Commission pursuant to Rule 405 under the Act that it is not necessary that the Company be considered an ineligible issuer), including, without limitation, for purposes of Rules 164 and 433 under the Act with respect to the offering of the Shares as contemplated by the Registration Statement.
(xiii) The consolidated financial statements of the Company and the consolidated Subsidiaries, together with related notes and schedules as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, comply in all material respects with the applicable requirements of the Act and present fairly in all material respects the financial position and the results of operations and cash flows of the Company and the consolidated Subsidiaries, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with United States generally accepted principles of accounting ( GAAP ), consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary and selected consolidated financial and statistical data included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly in all material respects the information shown therein and such data have been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. All disclosures contained in the Registration Statement, the General Disclosure Package and the Prospectus regarding non-GAAP financial measures (as such term is defined by the Rules and Regulations) comply in all material respects with Regulation G of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and Item 10 of Regulation S-K under the Act, to the extent applicable. The Company and the Subsidiaries do not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations or any variable interest entities within the meaning of Financial Accounting Standards Board Interpretation No. 46), not disclosed in the Registration Statement, the General Disclosure Package and the Prospectus. There are no financial statements (historical or pro forma) that are required to be included in the Registration Statement, the General Disclosure Package or the Prospectus that are not included as required.
(xiv) KPMG LLP, who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, the General Disclosure Package and the Prospectus, is an independent registered public accounting firm with respect to the Company and the Subsidiaries within the meaning of the Act and the applicable Rules and Regulations and the Public Company Accounting Oversight Board (United States) (the PCAOB ) as required by the Act.
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(xv) The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it is in compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated by the Commission thereunder (collectively, the Sarbanes-Oxley Act ) that are in effect and with which the Company is required to comply (including Section 402 related to loans) and is actively taking steps to ensure that it will be in compliance in all material respects with other provisions of the Sarbanes-Oxley Act not currently in effect or which will become applicable to the Company. As of the date of the initial filing of the registration statement referred to in Section 1(a)(i) hereof, there were no outstanding personal loans made, directly or indirectly, by the Company to any director or executive officer of the Company.
(xvi) There is no legal, governmental, administrative or regulatory investigation, action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries, or to which any property of the Company or the Subsidiaries is, or to the knowledge of the Company, would reasonably be expected to be, subject, before any court or regulatory or administrative agency or otherwise which if determined adversely to the Company or any of the Subsidiaries would, individually or in the aggregate, have a Material Adverse Effect. There are no current or pending legal, governmental, administrative or regulatory investigations, actions, suits, claims or proceedings that are required under the Act to be described in the Registration Statement, the General Disclosure Package or the Prospectus that are not so described in the Registration Statement, the General Disclosure Package or the Prospectus. There are no contracts or other documents that are required under the Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the General Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the General Disclosure Package or the Prospectus.
(xvii) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in the consolidated financial statements hereinabove described or described in the Registration Statement, the General Disclosure Package and the Prospectus, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements or described in the Registration Statement, the General Disclosure Package and the Prospectus or which, in either case, (i) do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries or (ii) would not, individually or in the aggregate, have a Material Adverse Effect. The Company and the Subsidiaries occupy their leased properties under valid and binding leases, conforming in all material respects to the description thereof set forth in the Registration Statement, the General Disclosure Package and the Prospectus, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles.
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(xviii) The Company and the Subsidiaries have filed all material U.S. federal, state, local and foreign tax returns which have been required to be filed and have paid all taxes indicated by such returns and all assessments received by them or any of them to the extent that such taxes have become due, except for any such taxes being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP or where the failure to file or pay would not, individually or in the aggregate, have a Material Adverse Effect.
(xix) Since the date of the most recent financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, (i) there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company and the Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business, other than as described in the Registration Statement, the General Disclosure Package and the Prospectus, as each may be amended or supplemented, (ii) there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, the General Disclosure Package and the Prospectus, as each may be amended or supplemented, and (iii) neither the Company nor any of the Subsidiaries has sustained any loss or interference with its business that is material to the Company and the Subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus.
(xx) Neither the Company nor any of the Subsidiaries is or, with respect to clause (ii) only, with the giving of notice or lapse of time or both, will be, (i) in violation of its memorandum and articles of association, certificate or articles of incorporation, charter, by-laws, certificate of formation, limited liability company agreement, partnership agreement or other organizational documents, as applicable, (ii) in violation of or in default under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound or (iii) in violation of any law, order, rule or regulation judgment, order, writ or decree applicable to the Company or any Subsidiary of any court or of any government, regulatory body or administrative agency or other governmental body having jurisdiction over the Company or any Subsidiary, or any of their properties or assets, except in the case of clauses (ii) and (iii), for such violations or defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, (A) any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties is bound, or (B) the memorandum and articles of association, certificate of incorporation or formation, articles of incorporation or association, charter, by-laws or other organizational documents, as applicable, of the Company or (C) any law, order, rule or regulation, judgment, order,
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writ or decree applicable to the Company or any Subsidiary of any court or of any government, regulatory body or administrative agency or other governmental body having jurisdiction over the Company or any Subsidiary, or any of their properties or assets, except in the case of clauses (A) and (C), as would not have a Material Adverse Effect.
(xxi) The execution and delivery of, and the performance by the Company of its obligations under, this Agreement has been duly and validly authorized by all necessary corporate, limited liability company or similar applicable action on the part of the Company, and this Agreement has been duly executed and delivered by the Company.
(xxii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated has been obtained or made and is in full force and effect (except such additional steps as may be required by the Commission, the Financial Industry Regulatory Authority, Inc. ( FINRA ) or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws).
(xxiii) Except as would not, individually or in the aggregate, have a Material Adverse Effect, the Company and the Subsidiaries (i) hold all licenses, registrations, certificates and permits from governmental authorities (collectively, Governmental Licenses ) which are necessary to the conduct of their business, (ii) are in compliance with the terms and conditions of all Governmental Licenses, and all Governmental Licenses are valid and in full force and effect, and (iii) have not received any written notice of proceedings relating to the revocation or modification of any Governmental License.
(xxiv) The Company and the Subsidiaries own or possess or can obtain on reasonable terms the right to use all patents, inventions, trademarks, trade names, service marks, logos, trade dress, designs, data, database rights, Internet domain names, rights of privacy, rights of publicity, copyrights, works of authorship, license rights, trade secrets, know-how and proprietary information (including unpatented and unpatentable proprietary or confidential information, inventions, systems or procedures) and other intellectual property rights, as well as related rights, such as the right to sue for all past, present and future infringements or misappropriations of any of the foregoing, and registrations and applications for registration of any of the foregoing (collectively, Intellectual Property ) necessary to conduct their business as presently conducted and currently contemplated to be conducted in the future, except as would not have a Material Adverse Effect. Neither the Company nor any of the Subsidiaries, whether through their respective products and services or the conduct of their respective businesses, has materially infringed, misappropriated, conflicted with or otherwise violated, or is currently materially infringing, misappropriating, conflicting with or otherwise violating, and none of the Company or the Subsidiaries have received any written communication or notice of infringement of, misappropriation of, conflict with or violation of, any Intellectual Property of any other person or entity. The Company knows of no infringement, misappropriation or violation by others of Intellectual Property owned by or licensed to the Company or the Subsidiaries. The Company and the Subsidiaries have taken all reasonable steps necessary to secure their interests in such Intellectual Property from their employees and contractors and to protect the confidentiality of all of their confidential information and trade secrets.
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(xxv) None of the Intellectual Property employed by the Company or the Subsidiaries has been obtained or is being used by the Company or the Subsidiaries in material violation of any contractual obligation binding on the Company or any of the Subsidiaries or any of their respective officers, directors or employees or otherwise in material violation of the rights of any persons. The Company and the Subsidiaries own or have a valid right to access and use all material computer systems, networks, hardware, software, databases, websites, and equipment used to process, store, maintain and operate data, information, and functions used in connection with the business of the Company and the Subsidiaries (the Company IT Systems ). The Company IT Systems are adequate for, and operate and perform in all material respects as required in connection with, the operation of the business of the Company and the Subsidiaries as currently conducted, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company and the Subsidiaries have implemented commercially reasonable backup, security and disaster recovery technology consistent in all material respects with applicable regulatory standards and customary industry practices.
(xxvi) Neither the Company nor, to the Companys knowledge, any of its affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Ordinary Shares to facilitate the sale or resale of the Shares.
(xxvii) Neither the Company nor any Subsidiary is or, after giving effect to the offering and sale of the Shares contemplated hereunder and the application of the net proceeds from such sale as described in the Registration Statement, the General Disclosure Package and the Prospectus, will be required to register as an investment company or an entity controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder.
(xxviii) The Company and the Subsidiaries maintain systems of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have been designed by, or under the supervision of, the Companys principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with managements general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect
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to any differences. There are no material weaknesses in the Companys internal control over financial reporting, and there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus. The Companys auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which have adversely affected or are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls over financial reporting.
(xxix) The Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act); the Companys disclosure controls and procedures are reasonably designed to ensure that all information (both financial and non-financial) required to be disclosed by the Company in the reports that it will file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and regulations under the Exchange Act, and that all such information is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the Chief Executive Officer and Chief Financial Officer of the Company required under the Exchange Act with respect to such reports; provided that this subsection does not require that the Company comply with Section 404 of the Sarbanes-Oxley Act as of an earlier date than it would otherwise be required to so comply.
(xxx) Nothing has come to the attention of the Company that has caused the Company to believe that the statistical, industry-related and market-related data included in the Registration Statement, the General Disclosure Package and the Prospectus are based on or derived from sources that are not reliable and accurate in all material respects.
(xxxi) The operations of the Company and the Subsidiaries are and have been conducted at all times in compliance in all material respects with applicable financial record-keeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of jurisdictions where the Company and the Subsidiaries conduct business, the applicable rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Money Laundering Laws ), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of the Subsidiaries with respect to the Money Laundering Laws is pending or, to the Companys knowledge, threatened.
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(xxxii) Neither the Company nor, to the Companys knowledge, any director, officer, agent, employee, affiliate or representative of the Company or any of the Subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (OFAC) or any similar sanctions imposed by any other body, governmental or other, to which the Company or any of the Subsidiaries is subject (collectively, other economic sanctions ); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC or other economic sanctions.
(xxxiii) Neither the Company nor any of the Subsidiaries nor, to the Companys knowledge, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company or any of the Subsidiaries: (i) has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) has made any direct or indirect unlawful contribution or payment to any official of, or candidate for, or any employee of, any federal, state or foreign office from corporate funds; (iii) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment; or (iv) is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the OECD Convention on Bribery of Foreign Public Officials in International Business Transactions ( OECD Convention ), the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (collectively, the FCPA ) or any similar law or regulation to which the Company, any of the Subsidiaries, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company or any of the Subsidiaries is subject. The Company, the Subsidiaries and their affiliates have each conducted their businesses in compliance with the FCPA and any applicable similar law or regulation and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.
(xxxiv) The Company and each of the Subsidiaries carry, or are covered by, insurance, from insurers of recognized financial responsibility, in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is prudent and customary for companies engaged in similar businesses; and the Company and the Subsidiaries have no reason to believe that they will not be able to renew their existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue their respective businesses at a cost that would not, individually or in the aggregate, have a Material Adverse Effect.
(xxxv) Each employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ( ERISA )) for which the Company or any member of its Controlled Group (defined as any organization that is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the Code )) would have liability (each a Plan ) is in compliance in all material respects with all
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presently applicable statutes, rules and regulations, including ERISA and the Code; (ii) with respect to each Plan subject to Title IV of ERISA (a) no reportable event (as defined in Section 4043 of ERISA) has occurred for which the Company or any member of its Controlled Group would have any material liability; and (b) neither the Company nor any member of its Controlled Group has incurred or expects to incur material liability under Title IV of ERISA (other than for contributions to the Plan or premiums payable to the Pension Benefit Guaranty Corporation, in each case in the ordinary course and without default); (iii) no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has failed to satisfy the minimum funding standard within the meaning of such sections of the Code or ERISA; and (iv) each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.
(xxxvi) [Removed and Reserved.]
(xxxvii) Except in each case as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus: (i) the Company and each Subsidiary have complied and are in compliance, in all material respects, with all applicable federal, state, local, foreign and international laws (including the common law), statutes, rules, regulations, orders, judgments, decrees or other legally binding requirements of any court, administrative agency or other governmental authority relating to pollution or to the protection of the environment, natural resources or human health or safety, or to the manufacture, use, generation, treatment, storage, disposal, release or threatened release of hazardous or toxic substances, pollutants, contaminants or wastes, or the arrangement for such activities ( Environmental Laws ); (ii) the Company and each Subsidiary have obtained and are in compliance, in all material respects, with all permits, licenses, authorizations or other approvals required of them under Environmental Laws to conduct their respective businesses and are not subject to any action to revoke, terminate, cancel, limit, amend or appeal any such permits, licenses, authorizations or approvals; (iii) neither the Company nor any Subsidiary is a party to any judicial or administrative proceeding (including a notice of violation) under any Environmental Laws (a) to which a governmental authority is also a party and which involves potential monetary sanctions, unless it could reasonably be expected that such proceeding will result in monetary sanctions of less than $100,000, or (b) which is otherwise material; and no such proceeding has been threatened or is known to be contemplated; (iv) neither the Company nor any Subsidiary has received written notice or is otherwise aware of any pending or threatened material claim or potential liability under Environmental Laws in respect of its past or present business, operations (including the disposal of hazardous substances at any off-site location), facilities or real property (whether owned, leased or operated) or on account of any predecessor or any person whose liability under any Environmental Laws it has agreed to assume; and neither the Company nor any Subsidiary is aware of any facts or conditions that could reasonably be expected to give rise to any such claim or liability; and (v) neither the Company nor any Subsidiary is aware of any matters regarding compliance with existing or reasonably anticipated Environmental Laws, or with any liabilities or other obligations under Environmental Laws (including asset retirement obligations), that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Company and the Subsidiaries.
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(xxxviii) The Shares have been approved for listing subject to notice of issuance on the NASDAQ Global Select Market.
(xil) There are no related-party transactions involving the Company or any of the Subsidiaries or any other person required to be described in the Registration Statement and the Prospectus which have not been described in such documents and the General Disclosure Package as required.
(xl) Except in each case as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no Subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiarys capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiarys property or assets to the Company or any other Subsidiary of the Company.
(xli) No labor disturbance by or dispute with employees of the Company or any of the Subsidiaries exists or, to the knowledge of the Company, is threatened.
(xlii) Neither the Company nor any of the Subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company or any of the Subsidiaries or any Underwriter for a brokerage commission, finders fee or like payment in connection with the offering and sale of the Shares.
(b) Each of the Selling Shareholders severally and not jointly represents and warrants as follows:
(i) Such Selling Shareholder now has, and at the Option Closing Date (as such date is hereinafter defined) will have, valid title to, or a valid security entitlement within the meaning of Section 8-502 of the New York Uniform Commercial Code in respect of, the Option Shares to be sold by such Selling Shareholder, free and clear of any liens, encumbrances, equities and adverse claims, and full right, power and authority to effect the sale and delivery of such Option Shares.
(ii) Such Selling Shareholder has full right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder. The execution and delivery of this Agreement and the consummation by such Selling Shareholder of the transactions herein contemplated and the fulfillment by such Selling Shareholder of the terms hereof will not require any consent, approval, authorization, or other order of any court, regulatory body, administrative agency or other governmental body (except
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as may be required under the Act, state securities laws or Blue Sky laws) and will not result in a breach of any of the terms and provisions of, or constitute a default under, organizational documents of such Selling Shareholder, if not an individual, or any indenture, mortgage, deed of trust or other agreement or instrument to which such Selling Shareholder is a party, or of any order, rule or regulation applicable to such Selling Shareholder of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction, except, in each case, for any consent, approval, authorization, order, breach or default that would not, individually or in the aggregate, have a material adverse effect on the ability of such Selling Shareholder to consummate the transactions contemplated herein.
(iii) Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Ordinary Shares and, other than as permitted by the Act, the Selling Shareholder will not distribute any prospectus or other offering material in connection with the offering of the Shares.
(iv) As of the date hereof, the sale of the Option Shares by such Selling Shareholder pursuant hereto is not prompted by any material information concerning the Company or any of the Subsidiaries which is not set forth in the Registration Statement, the General Disclosure Package and the Prospectus; provided, however, except with respect to the Selling Shareholder Information (as defined herein), that no representation or warranty is being made hereby as to whether the Registration Statement, the General Disclosure Package or the Prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading.
(v) As of the Applicable Time and as of the Option Closing Date, as the case may be, neither (i) the General Disclosure Package nor (ii) any individual Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that such Selling Shareholder makes no representations or warranties as to information contained in or omitted from the General Disclosure Package or any individual Limited Use Free Writing Prospectus, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representative specifically for use therein, it being understood and agreed that the only such information is that described in Section 13 hereof; provided , further , that such representations and warranties set forth in this Section 1(b)(v) apply only to statements or omissions furnished in writing by or on behalf of such Selling Shareholder expressly for use in the General Disclosure Package, it being understood and agreed that for purposes of this Agreement, the only information so furnished consists of the legal name, address and number of shares which appear in the table (and corresponding footnotes) under the caption Principal and Selling Shareholders in the Registration Statement, Preliminary Prospectus and Prospectus (the Selling Shareholder Information ).
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(vi) There are no affiliations or associations between any member of FINRA and such Selling Shareholder or any affiliate of such Selling Shareholder.
(vii) To the knowledge of such Selling Shareholder, such Selling Shareholder is not a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company or any of the Subsidiaries or any Underwriter for a brokerage commission, finders fee or like payment in connection with the offering and sale of the Shares.
(viii) Neither the Selling Shareholder, nor any of its subsidiaries, any director or officer thereof, or, to the Selling Shareholders knowledge, any employee, agent, affiliate or representative of the Selling Shareholder or any of its subsidiaries, is a person that is, or is owned or controlled by a person that is currently subject to any U.S. sanctions administered by OFAC or other economics sanctions; and the Selling Shareholders will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC or other economic sanctions.
(ix) Neither such Selling Shareholder, nor, to the knowledge of such Selling Shareholder, any director, officer, employee, agent or other controlled affiliate or other person acting on behalf of such Selling Shareholder: (i) has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) has made any direct or indirect unlawful contribution or payment to any official of, or candidate for, or any employee of, any federal, state or foreign office from corporate funds; (iii) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment; or (iv) is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the OECD Convention, the FCPA or any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency to which such Selling Shareholder, director, officer, employee, agent, controlled affiliate or other person acting on behalf of such Selling Shareholder is subject.
(x) The operations of the Selling Shareholder and its subsidiaries are and have been conducted at all times in compliance with Money Laundering Laws, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Selling Shareholder or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the Selling Shareholders knowledge, threatened.
2. P URCHASE , S ALE AND D ELIVERY OF THE S HARES .
(a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $[] per share, the number of Firm Shares set forth opposite the name of each Underwriter on Schedule I hereto, subject to adjustments in accordance with Section 9 hereof.
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(b) Payment for the Firm Shares to be sold hereunder is to be made in federal (same day) funds to an account designated by the Company against delivery of book-entry interests therefor to the Representative for the several accounts of the Underwriters. Such payment and delivery are to be made through the facilities of The Depository Trust Company, New York, New York, at 10:00 a.m., New York time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the Closing Date . As used herein, business day means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.
(c) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Selling Shareholders listed on Schedule II hereto hereby grant an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in Section 2(a) hereof. The maximum number of Option Shares to be sold by each Selling Shareholder is set forth opposite such Selling Shareholders name on Schedule II hereto. The option granted hereby may be exercised in whole or in part by giving written notice (i) at any time before the Closing Date and (ii) at any time, from time to time thereafter within 30 days after the date of this Agreement, by you, as Representative of the several Underwriters, to the Company and the Selling Shareholders setting forth the number of Option Shares as to which the several Underwriters are exercising the option and the time and date at which such book-entry interests are to be delivered. If the option granted hereby is exercised in part, the respective number of Option Shares to be sold by each of the Selling Shareholders listed on Schedule II hereto shall be determined on a pro rata basis in accordance with the percentages set forth opposite their names on Schedule II hereto, adjusted by you in such manner as to avoid fractional shares. The time and date at which book-entry interests for Option Shares are to be delivered shall be determined by the Representative but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the Option Closing Date ). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares, adjusted by you in such manner as to avoid fractional shares. You, as Representative of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company and the Selling Shareholders. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in federal (same day) funds to accounts designated by the Selling Shareholders against delivery of book-entry interests therefor through the facilities of The Depository Trust Company, New York, New York.
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(d) If on the Option Closing Date, any Selling Shareholder fails to sell the Option Shares which such Selling Shareholder has agreed to sell on such date as set forth on Schedule II hereto, the Company agrees that it will sell or arrange for the sale of that number of Ordinary Shares to the Underwriters which represents the Option Shares which such Selling Shareholder has failed to so sell, as set forth on Schedule II hereto, or such lesser number as may be requested by the Representative.
3. O FFERING BY THE U NDERWRITERS .
It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representative deems it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representative may from time to time thereafter change the public offering price and other selling terms.
It is further understood that you will act as the Representative for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters.
4. C OVENANTS OF THE C OMPANY AND THE S ELLING S HAREHOLDERS .
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) prepare and timely file with the Commission under Rule 424(b) under the Act a Prospectus in a form approved by the Representative containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rules 430A under the Act, (B) not file any amendment to the Registration Statement or distribute an amendment or supplement to the General Disclosure Package or the Prospectus of which the Representative shall not previously have been advised and furnished with a copy or to which the Representative shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations and (C) file on a timely basis all reports and any definitive proxy or information statements required to be filed by the Company with the Commission subsequent to the date of the Prospectus and prior to the termination of the offering of the Shares by the Underwriters.
(ii) The Company will (i) not make any offer relating to the Shares that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a free writing prospectus (as defined in Rule 405 under the Act) required to be filed by the Company with the Commission under Rule 433 under the Act unless the Representative approves its use in writing prior to first use (such approval not to be unreasonably withheld) (each, a Permitted Free Writing Prospectus ); provided that the prior written consent of the Representative hereto shall be deemed to have been given in respect of the Issuer Free Writing Prospectus(es) included on Schedule IV hereto, (ii) treat each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, (iii) comply with the requirements of Rules 164 and 433 under the Act applicable to any Issuer Free Writing Prospectus, including the requirements relating to timely filing with the
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Commission, legending and record keeping and (iv) not take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Act a free writing prospectus prepared by or on behalf of such Underwriter that such Underwriter otherwise would not have been required to file thereunder. The Company will satisfy the conditions in Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show.
(iii) The Company will promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Securities within the meaning of the Act and (b) completion of the 180-day restricted period referred to in Section 4(a)(xiii) hereof.
(iv) The Company will advise the Representative as promptly as practicable (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) when any supplement to the Prospectus or any Issuer Free Writing Prospectus or any amendment to the Prospectus has been filed, (D) of any request of the Commission for amendment of the Registration Statement or for supplement to the General Disclosure Package or the Prospectus or for any additional information, (E) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus, or of the institution of any proceedings for that purpose or pursuant to Section 8A of the Act, (F) of the occurrence of any event within the Prospectus Delivery Period as a result of which the Prospectus, the General Disclosure Package or any Issuer Free Writing Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the General Disclosure Package or any such Issuer Free Writing Prospectus is delivered to a purchaser, not misleading, and (G) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or, to the knowledge of the Company, threatening of any proceeding for such purpose. The Company will use its reasonable best efforts to prevent the issuance of any order referred to in clause (E) or (G) of this paragraph and to obtain as soon as practicable the lifting thereof, if issued.
(v) The Company will cooperate with the Representative in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representative may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose; provided that the Company shall not be required to (x) qualify as a foreign corporation, (y) file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent, or (z) subject itself to taxation in any such jurisdiction if it is not otherwise so subject. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representative may reasonably request for distribution of the Shares.
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(vi) The Company will deliver to, or upon the order of, the Representative, from time to time, as many copies of any Preliminary Prospectus as the Representative may reasonably request. The Company will deliver to, or upon the order of, the Representative, from time to time, as many copies of any Issuer Free Writing Prospectus as the Representative may reasonably request. The Company will deliver to, or upon the order of, the Representative during the period when delivery of a Prospectus (or, in lieu thereof, the notice referred to under Rule 173(a) under the Act) (the Prospectus Delivery Period ) is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representative may reasonably request. If requested, the Company will deliver to the Representative at or before the Closing Date, two signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representative such number of copies of the Registration Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representative may reasonably request.
(vii) The Company will comply with the Act and the Rules and Regulations, and the Exchange Act, and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus (or, in lieu thereof, the notice referred to under Rule 173(a) under the Act) is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company as promptly as practicable will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law.
(viii) If the General Disclosure Package is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur or condition shall exist as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the General Disclosure Package in order to make the statements therein, in the light of the circumstances, not misleading, or to make the statements therein not conflict with the information contained in the Registration Statement then on file, or if it is necessary at any time to amend or supplement the General Disclosure Package to comply with any law, the Company as promptly as practicable will prepare, file with the Commission (if required) and furnish to the Underwriters and any dealers an appropriate amendment or supplement to the General Disclosure Package so that the General Disclosure Package as so amended or supplemented will not, in the light of the circumstances, be misleading or conflict with the Registration Statement then on file, or so that the General Disclosure Package will comply with law.
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(ix) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) satisfying the requirements of Section 11(a) of the Act and Rule 158 under the Act and will advise you in writing when such statement has been so made available.
(x) If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will as promptly as practicable notify the Representative and will as promptly as practicable amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
(xi) No offering, pledge, sale, contract to sell, short sale or other disposition of any Ordinary Shares or other securities convertible into or exchangeable or exercisable for Ordinary Shares or derivative of Ordinary Shares (or agreement for such) will be made for a period of 180 days after the date of the Prospectus, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of the Representative. The restrictions contained in the foregoing sentence shall not apply to (A) the sale and issuance of the Shares to be sold hereunder, (B) the issuance of Ordinary Shares upon exercise, conversion, settlement or vesting of any outstanding warrants, stock options, restricted stock units or other derivative security or stock-based award granted pursuant to the Companys equity incentive and employee benefit plans (including employee stock purchase plans) disclosed in the Prospectus, (C) the issuance of Ordinary Shares, or options to purchase Ordinary Shares, or the grant of other equity-based awards (including any securities convertible into Ordinary Shares), to employees, officers, directors, advisors or consultants of the Company pursuant to the Companys equity incentive and employee benefit plans (including employee stock purchase plans) disclosed in the Prospectus or (D) the filing of a registration statement on Form S-8 for the registration of Ordinary Shares issued pursuant to the Companys equity incentive and employee benefit plans (including employee stock purchase plans) disclosed in the Prospectus, (E) the issuance of Ordinary Shares or other securities (including securities convertible into or exchangeable or exercisable for Ordinary Shares or other securities) in connection with the acquisition by the Company or any of the Subsidiaries of the securities, business, properties or other assets of another person or entity or pursuant to any employee benefit plan assumed by the Company or any of the Subsidiaries in connection with any such acquisition, or (F) the issuance of Ordinary Shares or other securities (including securities convertible into or exchangeable or exercisable for Ordinary Shares or other securities) in connection with joint ventures, commercial relationships or other strategic transactions; provided that , in the case of clauses (E) and (F), the aggregate number of shares issued in all such acquisitions and transactions does not exceed 10% of the outstanding Ordinary Shares following the issuance and sale of the Shares to be sold hereunder.
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(xii) The Company will use its reasonable best efforts to list the Shares, subject to notice of issuance, for quotation on the NASDAQ Global Select Market and maintain the listing of the Shares on the NASDAQ Global Select Market.
(xiii) The Company has caused each executive officer and director and specific shareholders of the Company to execute and deliver to you, on or prior to the date of this agreement, a letter or letters, substantially in the form attached hereto as Exhibit A (the Lockup Agreement ). If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in a Lockup Agreement for an executive officer or director of the Company and provides the Company with notice of the impending release or waiver, substantially in the form attached as Exhibit B hereto, at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(xiv) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Registration Statement, the General Disclosure Package and the Prospectus and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(xvi) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Ordinary Shares.
(xvii) The Company will not knowingly take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with the several Underwriters that:
(i) In order to document the Underwriters compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with respect to the transactions herein contemplated, each of the Selling Shareholders agrees to deliver to you prior to or at the Option Closing Date a properly completed and executed United States Treasury Department Form W-8 or W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof).
(ii) Such Selling Shareholder will not knowingly take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.
(iii) Such Selling Shareholder agrees that it will not prepare or have prepared on its behalf or use or refer to, any free writing prospectus (as defined in Rule 405 under the Act), and agrees that it will not distribute any written materials in connection with the offer or sale of the Shares.
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(iv) During the Prospectus Delivery Period, such Selling Shareholder will advise the Representative promptly, and will confirm such advice in writing to the Representative, of any change in the Selling Shareholder Information.
5. C OSTS AND E XPENSES .
The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Sellers under this Agreement, including, without limiting the generality of the foregoing, the following: (i) accounting fees of the Company; (ii) the fees and disbursements of counsel for the Company and the Selling Shareholders; (iii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon; (iv) any roadshow expenses (except roadshow expenses incurred by the underwriters); (v) the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Issuer Free Writing Prospectuses, the Prospectus, this Agreement, the listing application, any Blue Sky survey, in each case, any supplements or amendments thereto; (vi) the filing fees of the Commission; (vii) the filing fees and expenses (including reasonable and documented legal fees and disbursements up to $25,000) incident to securing any required review by FINRA of the terms of the sale of the Shares; (viii) all expenses and application fees related to the listing of the Shares on the NASDAQ Global Select Market; (ix) the cost of printing certificates, if any, representing the Shares; (x) the costs and charges of any transfer agent, registrar or depositary; and (xi) the expenses incurred in connection with the qualification of the Shares under foreign or state securities or Blue Sky laws and the preparation, printing and distribution of a Blue Sky memorandum (including the reasonable and documented related fees and expenses of counsel for the Underwriters up to $15,000). The provisions of this Section shall not supersede or otherwise affect any agreement that the Sellers may otherwise have for the allocation of such expenses among themselves. Any transfer taxes imposed on the sale of the Shares to the several Underwriters will be paid by the Sellers selling such Shares. The Sellers shall not, however, be required to pay for any of the Underwriters costs or expenses (other than those related to qualification under FINRA regulation and state securities or Blue Sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 7 hereof are not satisfied, or because this Agreement is terminated by the Representative pursuant to Section 12 hereof, or by reason of any failure, refusal or inability on the part of the Company or the Selling Shareholders to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on their part to be performed, unless such failure, refusal or inability is due primarily to the default or omission of any Underwriter, the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including reasonable and documented fees and disbursements of one counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company and the Selling Shareholders shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. Notwithstanding anything to the contrary in this Section 5 , the Company, on the one hand, and the Underwriters, on the other hand, shall share equally any third party costs of private aircraft incurred by or on behalf of the Company in connection with the roadshow.
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6. C ERTAIN A GREEMENTS OF THE U NDERWRITERS . Each Underwriter hereby represents to and agrees with the Company and the Selling Shareholders that:
(a) It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any free writing prospectus, as defined in Rule 405 under the Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no issuer information (as defined in Rule 433(h)(2) under the Act) that was not included in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Schedule IV hereto (including any electronic road show), or (iii) any free writing prospectus prepared by such Underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an Underwriter Free Writing Prospectus ).
(b) It has not and will not distribute any Underwriter Free Writing Prospectus referred to in clause (a)(i) in a manner reasonably designed to lead to its broad unrestricted dissemination.
(c) It has not and will not, without the prior written consent of the Company (such consent not to be unreasonably withheld), use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission.
(d) It is not subject to any pending proceeding under Section 8A of the Act with respect to the offering (and will promptly notify the Company and the Selling Shareholders if any such proceeding against it is initiated during the Prospectus Delivery Period).
7. C ONDITIONS OF O BLIGATIONS OF THE U NDERWRITERS .
The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Applicable Time, the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company and the Selling Shareholders contained herein, and to the performance by the Company and the Selling Shareholders of their covenants and obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto shall have become effective and the Prospectus and each Issuer Free Writing Prospectus required shall have been filed as required by Rules 424, 430A or 433 under the Act, as applicable, within the time
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period prescribed by, and in compliance with, the Rules and Regulations, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representative and complied with to its reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose or pursuant to Section 8A under the Act shall have been taken or, to the knowledge of the Company or the Selling Shareholders, shall be contemplated or threatened by the Commission and no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representative shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Kirkland & Ellis LLP, counsel for the Company and the Selling Shareholders, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters substantially in the forms of Annex A and Annex B hereto.
(c) The Representative shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Maples and Calder, Cayman Islands counsel for the Company and certain of the Selling Shareholders, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters substantially in the forms of Annex C and Annex D hereto.
(d) The Representative shall have received from Latham & Watkins LLP, counsel for the Underwriters, an opinion and negative assurance letter, dated the Closing Date or the Option Closing Date, as the case may be, with respect to such matters as the Representative may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(e) The Representative shall have received, on each of the date hereof, the Closing Date and, if applicable, the Option Closing Date, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of KPMG LLP, containing such statements and information as is ordinarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(f) The Representative shall have received on the Closing Date and, if applicable, the Option Closing Date, as the case may be, a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company, which shall be delivered on behalf of the Company and not the signatory in his or her personal capacity, certifying as follows, as of the Closing Date or the Option Closing Date, as the case may be:
(i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement or no order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus has been issued, and no proceedings for such purpose or pursuant to Section 8A of the Act have been taken or are, to his or her knowledge, contemplated or threatened by the Commission;
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(ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be;
(iii) Since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and Prospectus, there has not been a Material Adverse Effect; and
(iv) The Company has complied in all material respects with all of the agreements and satisfied in all material respects all of the conditions on its part to be performed or satisfied hereunder on or prior to such date.
(g) The Representative shall have received on the Option Closing Date a certificate of the Selling Shareholders to the effect that, as of the Option Closing Date, each of them severally and not jointly represents as follows:
(i) The representations and warranties of such Selling Shareholder contained in Section 1 hereof are true and correct as of the Option Closing Date; and
(ii) Such Selling Shareholder has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or prior to such date.
(h) The Company and the Selling Shareholders shall have furnished to the Representative such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representative may reasonably have requested.
(j) The Firm Shares and Option Shares, if any, have been approved for quotation upon notice of issuance on the NASDAQ Global Select Market.
(k) The Lockup Agreements described in Section 4(a)(xiii) hereof are in full force and effect.
(l) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Option Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company or the sale of the Shares by the Selling Shareholders; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Option Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company or the sale of the Shares by the Selling Shareholders.
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If any of the conditions hereinabove provided for in this Section 7 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representative by notifying the Company and the Selling Shareholders of such termination in writing at or prior to the Closing Date or the Option Closing Date, as the case may be.
In such event, the Selling Shareholders, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof).
8. I NDEMNIFICATION .
(a) The Company agrees:
(i) to indemnify and hold harmless each Underwriter, the directors and officers of each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Prospectus or any amendment or supplement thereto, (ii) with respect to the Registration Statement or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) with respect to any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Prospectus or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; provided , however , that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representative specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 13 hereof; and
(ii) to reimburse each Underwriter, each Underwriters directors and officers, and each such controlling person upon demand for any legal or other out-of-pocket expenses documented and reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding. In the event that it is finally judicially determined that the Underwriters were not entitled to receive payments for legal and other out-of-pocket expenses pursuant to this subparagraph, the Underwriters will promptly return all sums that had been advanced pursuant hereto.
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(b) Each Selling Shareholder agrees to indemnify the Underwriters, each Underwriters directors and officers and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which such Underwriter or controlling person may become subject under the Act or otherwise to the same extent as indemnity is provided by the Company pursuant to Section 8(a) hereof; provided , however , that such Selling Shareholder shall be liable only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to such Selling Shareholder furnished by or on behalf of such Selling Shareholder to the Company or the Representative, specifically for use therein, it being understood and agreed that for purposes of this Agreement, the only information so furnished by such Selling Shareholder consists of such Selling Shareholders Selling Shareholder Information; provided , further , that the liability under this subsection of each Selling Shareholder shall be limited to an amount equal to the aggregate proceeds after underwriting commissions and discounts, but before deducting expenses, to such Selling Shareholder from the sale of Shares by such Selling Shareholder hereunder. This indemnity obligation will be in addition to any liability which the Company may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, the Selling Shareholders, and each person, if any, who controls the Company or the Selling Shareholders within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer, Selling Shareholder or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Prospectus or any amendment or supplement thereto, (ii) with respect to the Registration Statement or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) with respect to any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Prospectus or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses documented and reasonably incurred by the Company or any such director, officer, Selling Shareholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not the applicable party or controlling
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person is a party to any action or proceeding; provided , however , that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus , the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representative specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 13 hereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8 , such person (the indemnified party ) shall promptly notify the person against whom such indemnity may be sought (the indemnifying party ) in writing. No indemnification provided for in Sections 8(a) , (b) or (c) hereof shall be available to any party who shall fail to give notice as provided in this Section 8(d) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Sections 8(a) , (b) or (c) hereof. In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the documented and reasonably incurred fees and expenses of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the documented and reasonably incurred fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would, based on the advice of outside counsel to the parties, be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel reasonably acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) or (b) hereof and by the Company and the Selling Shareholders in the case of parties indemnified pursuant to Section 8(c) hereof. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment to the extent required under this Section 8 . In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or
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proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party is obligated under this Section 8(d ) to reimburse the indemnified party for such fees and expenses and the indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
(e) To the extent the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) , (b) or (c) hereof in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the net proceeds from the offering (before deducting expenses) received by the Company and the Selling Shareholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Shareholders on the one hand or the Underwriters on the other and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(f) The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(f) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(f) . The amount paid or payable by an indemnified party as a result of the losses,
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claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(f) shall be deemed to include any legal or other out-of-pocket expenses documented and reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(f) , (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation, and (iii) no Selling Shareholder shall be required to contribute any amount in excess of the net proceeds received by such Selling Shareholder from the Underwriters in the offering. The Underwriters obligations in this Section 8(f) to contribute are several in proportion to their respective underwriting obligations and not joint.
(g) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the exclusive jurisdiction of (i) the federal courts of the United States of America located in the City and County of New York, Borough of Manhattan and (ii) the courts of the State of New York located in the City and County of New York, Borough of Manhattan (collectively, the Specified Courts ), agrees that process issuing from such courts may be served upon it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join it as an additional defendant in any such proceeding in which such other contributing party is a party. The Company and the Selling Shareholders irrevocably appoint C T Corporation, 111 Eighth Avenue, New York, New York 10011 as their agent to receive service of process or other legal summons for purposes of any such suit, action or proceeding that may be instituted in any state or federal court in the City and County of New York.
(g) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter, its directors or officers or any person controlling any Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, its directors or officers or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8 .
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9. D EFAULT BY U NDERWRITERS .
If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company or a Selling Shareholder), you, as Representative of the Underwriters, shall use your reasonable best efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company and the Selling Shareholders such amounts as may be agreed upon and upon the terms set forth herein, the Shares which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representative, shall not have procured such other Underwriters, or any others, to purchase the Shares agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of Shares with respect to which such default shall occur does not exceed 10% of the Shares to be purchased on the Closing Date or the Option Closing date, as the case may be, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Shares which they are obligated to purchase hereunder, to purchase the Shares which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of Shares with respect to which such default shall occur exceeds 10% of the Shares to be purchased on the Closing Date or the Option Closing Date, as the case may be, the Company and the Selling Shareholders or you as the Representative of the Underwriters will have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company or of the Selling Shareholders except to the extent provided in Sections 5 and 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9 , the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representative, may determine in order that the required changes in the Registration Statement, the General Disclosure Package or in the Prospectus or in any other documents or arrangements may be effected. The term Underwriter includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
10. N OTICES .
All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities Inc., 60 Wall Street, 4th Floor, New York, New York 10005, Attention: Equity Capital Markets Syndicate Desk, with a copy to Deutsche Bank Securities Inc., 60 Wall Street, 36 th Floor, New York, New York 10005, Attention: General Counsel, fax: (212) 797-4564; if to the Company, to Ichor Holdings, Ltd., 3185 Laurelview Ct., Fremont, California 94538, Attention: Thomas M. Rohrs, Chairman and Chief Executive Officer, fax: (510) 897-5201; or if to the Selling Shareholders, to Francisco Partners, One Letterman Drive, Building C, Suite 410, San Francisco, California 94129, Attention: Andrew Kowal, fax: (415) 418-2999.
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In accordance with the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company and the Selling Shareholders, which information may include the name and address of their respective clients, as well as other reasonable information that will allow the Underwriters to properly identify their respective clients.
11. T ERMINATION .
This Agreement may be terminated by you by notice to the Sellers (a) at any time prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to Option Shares) if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus, a Material Adverse Effect, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis (including, without limitation, an act of terrorism) or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your judgment, materially impair the investment quality of the Shares; (iii) suspension of trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the NASDAQ Global Select Market or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on any such exchange; (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company; (v) the declaration of a banking moratorium by the United States or New York State authorities; (vi) any downgrading, or placement on any watch list for possible downgrading, in the rating of any of the Companys debt securities by any nationally recognized statistical rating organization (within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act) or any public announcement by such organization that it has under surveillance or review, or has changed its outlook with respect to, its rating of any such debt securities (other than an announcement with positive implications of a possible upgrading); (vii) the suspension of trading of the Companys Ordinary Shares by the NASDAQ Global Select Market, the Commission or any other governmental authority; or (viii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the securities markets in the United States; or (b) as provided in Sections 7 and 9 of this Agreement.
12. S UCCESSORS .
This Agreement has been and is made solely for the benefit of the Underwriters, the Company and the Selling Shareholders and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase.
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13. I NFORMATION P ROVIDED BY U NDERWRITERS .
The Company, the Selling Shareholders and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, or the Prospectus consists of the information set forth in the third, ninth, and tenth through fifteenth paragraphs under the caption Underwriting in the Prospectus.
14. M ISCELLANEOUS .
The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers or any Selling Shareholder or controlling person thereof, as the case may be, and (c) delivery of and payment for the Shares under this Agreement.
The Company and the Selling Shareholders acknowledge and agree that each Underwriter in providing investment banking services to the Company and the Selling Shareholders in connection with the offering, including in acting pursuant to the terms of this Agreement, has acted and is acting as an independent contractor and not as a fiduciary and the Company and the Selling Shareholders do not intend such Underwriter to act in any capacity other than as an independent contractor, including as a fiduciary or in any other position of higher trust. Additionally, neither the Representative nor any other Underwriter is advising the Company, the Selling Shareholders or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company and the Selling Shareholders shall consult with their own advisors concerning such matters and shall be responsible for making their own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriters shall have no responsibility or liability to the Company or the Selling Shareholders with respect thereto. Any review by the Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company or the Selling Shareholders.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, including, without limitation, Section 5-1401 of the New York General Obligations Law.
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Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby ( Related Proceedings ) shall be instituted in the Specified Courts, and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a Related Judgment ), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such partys address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. The Company and the Selling Shareholders irrevocably appoint C T Corporation, 111 Eighth Avenue, New York, New York 10011, as their agent to receive service of process or other legal summons for purposes of any such suit, action or proceeding that may be instituted in any state or federal court in the City and County of New York. With respect to any Related Proceeding, each party irrevocably waives, to the fullest extent permitted by applicable law, all immunity (whether on the basis of sovereignty or otherwise) from jurisdiction, service of process, attachment (both before and after judgment) and execution to which it might otherwise be entitled in the Specified Courts, and with respect to any Related Judgment, each party waives any such immunity in the Specified Courts or any other court of competent jurisdiction, and will not raise or claim or cause to be pleaded any such immunity at or in respect of any such Related Proceeding or Related Judgment, including, without limitation, any immunity pursuant to the United States Foreign Sovereign Immunities Act of 1976, as amended.
In respect of any judgment or order given or made for any amount due hereunder that is expressed and paid in a currency (the Judgment Currency ) other than United States dollars, the Company and the Selling Shareholders, as the case may be, will indemnify each Underwriter against any loss incurred by such Underwriter as a result of any variation as between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the rate of exchange at which an Underwriter is able to purchase United States dollars with the amount of the Judgment Currency actually received by such Underwriter; provided that, if the United States dollars so purchased are greater than the sum originally due to such Underwriter, such Underwriter agrees to pay to the Company and the Selling Shareholders, as the case may be, an amount equal to the excess of the dollars so purchased over the sum originally due to such Underwriter hereunder. The foregoing indemnity shall constitute a separate and independent obligation of the Company and the Selling Shareholders and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term rate of exchange shall include any premiums and costs of exchange payable in connection with the purchase of or conversion into United States dollars.
The Underwriters, on the one hand, and the Company (on its own behalf and, to the extent permitted by law, on behalf of its shareholders) and the Selling Shareholders, on the other hand, waive any right to trial by jury in any action, claim, suit or proceeding with respect to your engagement as underwriter or your role in connection herewith.
Any action by the Underwriters hereunder may be taken by the Representative on behalf of the Underwriters, and any such action by the Representative shall be binding upon the Underwriters.
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If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Selling Shareholders, the Company and the several Underwriters in accordance with its terms.
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Very truly yours, | ||
ICHOR HOLDINGS, LTD. | ||
By: |
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Name: | ||
Title: |
Selling Shareholders listed on Schedule II hereto | ||
[ ] | ||
By: |
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The foregoing Underwriting Agreement | ||
is hereby confirmed and accepted asof the date first above written. | ||
DEUTSCHE BANK SECURITIES INC. | ||
As Representative of the several | ||
Underwriters listed on Schedule I hereto | ||
By: Deutsche Bank Securities Inc. | ||
By: |
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Name: | ||
Title: | ||
By: |
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Name: | ||
Title: |
SCHEDULE I
S CHEDULE OF U NDERWRITERS
Underwriter |
Number of Firm Shares
to be Purchased |
|||
Deutsche Bank Securities Inc. |
||||
Stifel, Nicolaus & Company, Incorporated |
||||
RBC Capital Markets, LLC |
||||
Cowen and Company, LLC |
||||
Needham & Company, LLC |
||||
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Total |
||||
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SCHEDULE II
S CHEDULE OF O PTION S HARES
Name of Seller |
Percentage of
Total Number of Option Shares |
|||
[] |
[] | % | ||
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|
|||
Total |
100 | % | ||
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SCHEDULE III
SCHEDULE IV
ANNEX A
ANNEX B
ANNEX C
ANNEX D
EXHIBIT A
LOCK-UP AGREEMENT
[], 2016
Ichor Holdings, Ltd.
Deutsche Bank Securities Inc.
As Representative of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
60 Wall Street, 4 th Floor
New York, New York 10005
Ladies and Gentlemen:
The undersigned understands that Deutsche Bank Securities Inc., as representative (the Representative ) of the several underwriters (the Underwriters ), proposes to enter into an Underwriting Agreement (the Underwriting Agreement ) with Ichor Holdings, Ltd., a Cayman Islands exempt limited company (the Company ), providing for the public offering by the Underwriters, including the Representative, of ordinary shares, par value $0.0001 (the Ordinary Shares ), of the Company (the Public Offering ).
To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned agrees that, without the prior written consent of the Representative, the undersigned will not, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of any Ordinary Shares (including, without limitation, Ordinary Shares of the Company which may be deemed to be beneficially owned by the undersigned currently or hereafter in accordance with the rules and regulations of the Securities and Exchange Commission (the Commission ), Ordinary Shares which may be issued upon exercise of a share option or warrant and any other security convertible into or exchangeable for Ordinary Shares) or enter into any Hedging Transaction (as defined below) relating to the Ordinary Shares (each of the foregoing referred to as a Disposition ) during the period commencing on the date of the first preliminary prospectus relating to the Public Offering circulated to potential investors that includes a bona fide price range and continuing until, and including, the date that is 180 days after the date of the final prospectus relating to the Public Offering (the Lock-Up Period ). The foregoing restriction is expressly intended to preclude the undersigned from engaging in any Hedging Transaction or other
transaction which is designed to or reasonably expected to lead to or result in a Disposition during the Lock-Up Period even if the securities would be disposed of by someone other than the undersigned. Hedging Transaction means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Ordinary Shares.
Notwithstanding the foregoing, the undersigned may transfer any or all of the Ordinary Shares or other Company securities if the transfer does not trigger any filing or reporting requirement or obligation or result in any other voluntary or mandatory public disclosure, including but not limited to Form 4 of Section 16 of the Securities Exchange Act of 1934, as amended, in each case reporting a reduction in beneficial ownership of Ordinary Shares or other Company securities, and is by (i) gift, will or intestacy or for bona fide tax planning purposes, (ii) distribution or transfer to partners, members or shareholders of the undersigned, or if the undersigned is a trust, to a trustor or beneficiary of the trust, (iii) transfer to an immediate family member or any trust, partnership, limited liability company or other entity for the direct or indirect benefit of the undersigned or the immediate family of the undersigned (for purposes of this lock-up agreement, immediate family member means any relationship by blood, marriage, domestic partnership or adoption, not more remote than a first cousin) or (iv) transfer to the undersigneds affiliates or to any investment fund or other entity controlled or managed by the undersigned; provided , however , it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the securities subject to the provisions of this Lock-Up Agreement.
In addition, the restrictions set forth in this Lock-Up Agreement shall not prohibit or restrict the undersigned from (i) establishing a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, provided that no sales of Ordinary Shares shall occur under such plan and no public disclosure of any such action shall be required or shall be made voluntarily by any person prior to the expiration of the 180-day period referred to above, (ii) exercising an option to purchase Ordinary Shares granted under any share-based compensation plan of the Company, provided that the underlying Ordinary Shares shall continue to be subject to the restrictions on transfer set forth in this Lock-Up Agreement, (iii) transfers to the Company for the purpose of satisfying the exercise price and/or tax withholding obligations upon the exercise of an option to purchase Ordinary Shares or the vesting of other equity incentive awards granted under any share-based compensation plan of the Company, (iv) engaging in transactions relating to shares of Ordinary Shares acquired in the Public Offering or in open market transactions after the completion of the date of the Underwriting Agreement, (v) any transfer of Ordinary Shares or other Company securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of Ordinary Shares involving a change of control of the Company, provided that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the Ordinary Shares or other Company securities owned by the undersigned shall remain subject to the terms of this Lock-Up Agreement, or (vi) the conversion of the outstanding preferred stock of the Company into Ordinary Shares, provided that such Ordinary Shares shall remain subject to the terms of this Lock-Up Agreement.
If the undersigned is an officer or director of the Company, (i) the Representative agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Ordinary Shares, it will notify the Company of the impending release or waiver, and (ii) the Company has agreed or will agree in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
Notwithstanding any other provision of this Lock-Up Agreement, the restrictions set forth in this Lock-Up Agreement shall apply to any shares sold to the undersigned, if the undersigned is a director or executive officer of the Company, pursuant to any directed share program provided for in the Underwriting Agreement.
The undersigned agrees that the Company may, and that the undersigned will, (i) with respect to any Ordinary Shares or other Company securities for which the undersigned is the record holder, cause the transfer agent for the Company to note stop transfer instructions with respect to such securities on the transfer books and records of the Company and (ii) with respect to any Ordinary Shares or other Company securities for which the undersigned is the beneficial holder but not the record holder, cause the record holder of such securities to cause the transfer agent for the Company to note stop transfer instructions with respect to such securities on the transfer books and records of the Company.
In addition, the undersigned hereby waives any and all notice requirements and rights with respect to registration of securities pursuant to any agreement, understanding or otherwise setting forth the terms of any security of the Company held by the undersigned, including any registration rights agreement to which the undersigned and the Company may be party; provided that such waiver shall apply only to the proposed Public Offering, and any other action taken by the Company in connection with the proposed Public Offering.
The undersigned hereby agrees that, to the extent that the terms of this Lock-Up Agreement conflict with or are in any way inconsistent with any registration rights agreement to which the undersigned and the Company may be a party, this Lock-Up Agreement supersedes such registration rights agreement.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Agreement. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned.
Notwithstanding anything herein to the contrary, if (i) the closing of the Public Offering has not occurred prior to January 31, 2017, (ii) the Company withdraws the registration statement related to the Public Offering, (iii) the Underwriting Agreement (other than the provisions thereof which survive termination) is terminated prior to payment for and delivery of the Ordinary Shares to be sold thereunder or (iv) the Representative notifies the Company, or the Company notifies the Representative, in writing, prior to the execution of the Underwriting Agreement, that it has determined not to proceed with the Public Offering, this Lock-Up Agreement (and for the avoidance of doubt, the Lock-Up Period described herein) shall automatically terminate and be of no further force or effect as of such time.
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EXHIBIT B
FORM OF WAIVER
Ichor Holdings, Ltd.
Public Offering of Ordinary Shares
[Date]
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Ichor Holdings, Ltd., a Cayman Islands exempt limited company (the Company ) of [ ] Ordinary Shares, $0.0001 par value (the Ordinary Shares ), of the Company and the lock-up letter dated [ ], 20[ ] (the Lock-up Letter ), executed by you in connection with such offering, and your request for a [waiver] [release] dated [ ], 20[ ] , with respect to [ ] Ordinary Shares (the Shares ).
Deutsche Bank Securities Inc. hereby agrees to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective [ ], 20[ ]; provided , however , that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
Yours very truly,
Deutsche Bank Securities Inc.
By: |
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Title: |
By: |
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cc: Company
EXHIBIT C
FORM OF PRESS RELEASE
Ichor Holdings, Ltd.
[Date]
(Ichor Holdings, Ltd.) announced today that Deutsche Bank Securities Inc., the lead book-running manager in the Companys recent public sale of Ordinary Shares, is [waiving] [releasing] a lock-up restriction with respect to shares of the Companys Ordinary Shares held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
EXHIBIT D
SIGNIFICANT SUBSIDIARIES
Exhibit 3.1
THE COMPANIES LAW (2011 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM AND ARTICLES OF ASSOCIATION
OF
ICHOR HOLDINGS, LTD.
(Adopted by special resolution dated March 16, 2012)
THE COMPANIES LAW (2011 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
ICHOR HOLDINGS, LTD.
(Adopted by special resolution dated March 16, 2012)
1. | The name of the Company is Ichor Holdings, Ltd |
2. | The Registered Office of the Company shall be at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other place within the Cayman Islands as the Directors may decide. |
3. | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the laws of the Cayman Islands. |
4. | The liability of each Member is limited to the amount unpaid on such Members shares. |
5. | The share capital of the Company is US$40,000 divided into 250,000,000 common shares of a par value of US$0.0001 each ( Common Stock ) and 150,000,000 series A preferred shares of a par value of US$0.0001 each ( Series A Preferred Stock ). |
6. | The Company has power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
7. | Capitalised terms that are not defined in this Memorandum of Association bear the respective meanings given to them in the Articles of Association of the Company. |
THE COMPANIES LAW (2011 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
ICHOR HOLDINGS, LTD.
(Adopted by special resolution dated March 16, 2012)
Table of Contents
Page | ||||||
PART A |
1 | |||||
1 |
Interpretation |
1 | ||||
2 |
Commencement of Business |
3 | ||||
3 |
Issue of Shares |
4 | ||||
4 |
Register of Members |
4 | ||||
5 |
Closing Register of Members or Fixing Record Date |
4 | ||||
6 |
Certificates for Shares |
4 | ||||
7 |
Transfer of Shares |
5 | ||||
8 |
Redemption, Repurchase and Surrender of Shares |
6 | ||||
9 |
RESERVED |
7 | ||||
10 |
Treasury Shares |
8 | ||||
11 |
Variation of Rights of Shares |
8 | ||||
12 |
Commission on Sale of Shares |
8 | ||||
13 |
Non Recognition of Trusts |
8 | ||||
14 |
Lien on Shares |
9 | ||||
15 |
Call on Shares |
9 | ||||
16 |
Forfeiture of Shares |
10 | ||||
17 |
Transmission of Shares |
11 | ||||
18 |
Amendments of Memorandum and Articles of Association and Alteration of Capital |
11 | ||||
19 |
Offices and Places of Business |
12 | ||||
20 |
General Meetings |
12 | ||||
21 |
Notice of General Meetings |
13 | ||||
22 |
Proceedings at General Meetings |
13 | ||||
23 |
Votes of Members |
15 | ||||
24 |
Proxies |
15 | ||||
25 |
Corporate Members |
16 | ||||
26 |
Shares that May Not be Voted |
16 | ||||
27 |
Directors |
16 | ||||
28 |
Powers of Directors |
16 | ||||
29 |
Appointment and Removal of Directors |
17 | ||||
30 |
Vacation of Office of Director |
17 | ||||
31 |
Proceedings of Directors |
18 | ||||
32 |
Presumption of Assent |
19 | ||||
33 |
Directors Interests |
19 | ||||
34 |
Minutes |
20 | ||||
35 |
Delegation of Directors Powers |
20 | ||||
36 |
Alternate Directors |
21 | ||||
37 |
No Minimum Shareholding |
21 | ||||
38 |
Remuneration of Directors |
21 | ||||
39 |
Seal |
21 | ||||
40 |
Dividends, Distributions and Reserve |
22 | ||||
41 |
Capitalisation |
23 | ||||
42 |
Books of Account |
23 | ||||
43 |
Audit |
24 | ||||
44 |
Notices |
24 | ||||
45 |
Winding Up |
25 | ||||
46 |
Indemnity and Insurance |
25 |
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47 |
Financial Year |
26 | ||||
48 |
Transfer by Way of Continuation |
26 | ||||
49 |
Mergers and Consolidations |
26 | ||||
PART B |
26 | |||||
50 |
Series A Original Issue Price |
26 | ||||
51 |
Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales |
26 | ||||
52 |
Voting |
28 | ||||
53 |
Optional Conversion |
30 | ||||
54 |
Mandatory Conversion |
38 | ||||
55 |
Redeemed or Otherwise Acquired Shares |
39 | ||||
56 |
Waiver |
39 |
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PART A |
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1 |
Interpretation |
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1.1 |
In the Articles Table A in the First Schedule to the Statute does not apply and, unless there is something in the subject or context inconsistent therewith: | |||
Articles | means these articles of association of the Company. | |||
Adoption Agreement | means the adoption agreement forming Exhibit A to the Members Agreement which an incoming shareholder is required to execute prior to the entry of such Persons name of the Register of Members. | |||
Affiliate | of any particular Member means any other Entity controlling, controlled by or under common control with such particular member, where control means the possession, directly or indirectly, of the power to direct the management and policies of an Entity whether through the ownership of voting securities, contract or otherwise; | |||
Auditor | means the person for the time being performing the duties of auditor of the Company (if any). | |||
Common Stock | means share in the Company described as Common Stock and having the rights provided for under these Articles. | |||
Company | means the above named company. | |||
Directors | means the directors for the time being of the Company. | |||
Dividend | means any dividend (whether interim or final) resolved to be paid on Shares pursuant to the Articles. | |||
Electronic Record | has the same meaning as in the Electronic Transactions Law. | |||
Electronic Transactions Law | means the Electronic Transactions Law (2003 Revision) of the Cayman Islands. | |||
Entity | means a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture and a governmental entity or any department, agency or political subdivision thereof. | |||
FP Director | means any Director who has been appointed by the Investors and who has been designated as an FP Director in the registrar of Directors. | |||
Family Group | means in the case of an individual such individuals spouse and descendants (whether natural or adopted) or any trust established solely for the benefit of such individual and/or such individuals spouse and/or descendants, and in the case of a trust, the beneficiaries of such trust or the spouse and descendants (whether natural or adopted) of the beneficiaries of such trust. |
Investor | means each of Francisco Partners III (Cayman), L.P. and Francisco Partners Parallel Fund III (Cayman), L.P., so long as each is a shareholder in the Company. | |||
Member | has the same meaning as in the Statute. | |||
Members Agreement | means the Members Agreement, dated as of March [ ], 2012 by and among the Company, the Investors, Ichor Investments, LLC and David Shimmon, as such agreement is amended from time to time. | |||
Memorandum | means the memorandum of association of the Company. | |||
Ordinary Resolution | means a resolution passed by a simple majority of the Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting, and includes a unanimous written resolution. In computing the majority when a poll is demanded regard shall be had to the number of votes to which each Member is entitled by the Articles. | |||
Person | means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. | |||
Register of Members | means the register of Members maintained in accordance with the Statute and includes (except where otherwise stated) any branch or duplicate register of Members. | |||
Registered Office | means the registered office for the time being of the Company. | |||
Seal | means the common seal of the Company and includes every duplicate seal. | |||
Series A Preferred Stock | means shares in the Company described as Series A Preferred Stock and having the rights provided for under these Articles. | |||
Share | means a share in the Company and includes a fraction of a share in the Company, including, for the avoidance of doubt, a share of Common Stock or a share of Series A Preferred Stock. | |||
Special Resolution | has the same meaning as in the Statute, and includes a unanimous written resolution, save that in respect of a special resolution to amend the Memorandum and Articles or to wind up the Company the required majority shall be two thirds of the Shares of Common Stock and at least fifty percent of the Shares of Series A Preferred Stock. | |||
Statute | means the Companies Law (2011 Revision) of the Cayman Islands. |
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Subscriber | means the subscriber to the Memorandum. | |||
Treasury Share | means a Share held in the name of the Company as a treasury share in accordance with the Statute. |
1.2 | In the Articles: | |||
(a) | words importing the singular number include the plural number and vice versa; | |||
(b) | words importing the masculine gender include the feminine gender; | |||
(c) | words importing persons include companies as well as any other legal or natural person; | |||
(d) | written and in writing include all modes of representing or reproducing words in visible form, including in the form of an Electronic Record; | |||
(e) | shall shall be construed as imperative and may shall be construed as permissive; | |||
(f) | references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced; | |||
(g) | any phrase introduced by the terms including, include, in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms; | |||
(h) | the term and/or is used herein to mean both and as well as or. The use of and/or in certain contexts in no respects qualifies or modifies the use of the terms and or or in others. The term or shall not be interpreted to be exclusive and the term and shall not be interpreted to require the conjunctive (in each case, unless the context otherwise requires); | |||
(i) | headings are inserted for reference only and shall be ignored in construing the Articles; | |||
(j) | sections 8 and 19(3) of the Electronic Transactions Law shall not apply; | |||
(k) | the term clear days in relation to the period of a notice means that period excluding the day when the notice is received or deemed to be received and the day for which it is given or on which it is to take effect; and | |||
(l) | the term holder in relation to a Share means a person whose name is entered in the Register of Members as the holder of such Share. | |||
2 | Commencement of Business | |||
2.1 | The business of the Company may be commenced as soon after incorporation of the Company as the Directors shall see fit. | |||
2.2 | The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company, including the expenses of registration. |
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3 | Issue of Shares | |
3.1 | Subject to the provisions, if any, in the Memorandum or Articles (and to any direction that may be given by the Company in general meeting) and without prejudice to any rights attached to any existing Shares, the Directors may allot, issue, grant options over or otherwise dispose of Shares (including fractions of a Share) with or without preferred, deferred or other rights or restrictions, whether in regard to Dividend or other distribution, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper, and may also (subject to the Statute and the Articles) vary such rights. | |
3.2 | The Company shall not issue Shares to bearer. | |
4 | Register of Members | |
4.1 | The Company shall maintain or cause to be maintained the Register of Members in accordance with the Statute. | |
4.2 | The Directors may determine that the Company shall maintain one or more branch registers of Members in accordance with the Statute. The Directors may also determine which register of Members shall constitute the principal register and which shall constitute the branch register or registers, and to vary such determination from time to time. | |
5 | Closing Register of Members or Fixing Record Date | |
5.1 | For the purpose of determining Members entitled to notice of, or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any Dividend or other distribution, or in order to make a determination of Members for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period which shall not in any case exceed forty days. | |
5.2 | In lieu of, or apart from, closing the Register of Members, the Directors may fix in advance or arrears a date as the record date for any such determination of Members entitled to notice of, or to vote at any meeting of the Members or any adjournment thereof, or for the purpose of determining the Members entitled to receive payment of any Dividend or other distribution, or in order to make a determination of Members for any other purpose. | |
5.3 | If the Register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of, or to vote at, a meeting of Members or Members entitled to receive payment of a Dividend or other distribution, the date on which notice of the meeting is sent or the date on which the resolution of the Directors resolving to pay such Dividend or other distribution is passed, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof. | |
6 | Certificates for Shares | |
6.1 | A Member shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine. Share certificates shall be signed by one or more Directors or other person authorised by the Directors. The Directors may authorise certificates to be issued with the authorised signature(s) affixed by mechanical process. All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate. All certificates surrendered to the Company for transfer shall be cancelled and subject to the Articles no new certificate shall be issued until the former certificate representing a like number of relevant Shares shall have been surrendered and cancelled. |
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6.2 | The Company shall not be bound to issue more than one certificate for Shares held jointly by more than one person and delivery of a certificate to one joint holder shall be a sufficient delivery to all of them. | |
6.3 | If a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably incurred by the Company in investigating evidence, as the Directors may prescribe, and (in the case of defacement or wearing out) upon delivery of the old certificate. | |
6.4 | Every share certificate sent in accordance with the Articles will be sent at the risk of the Member or other person entitled to the certificate. The Company will not be responsible for any share certificate lost or delayed in the course of delivery. | |
7 | Transfer of Shares | |
7.1 | Prior to the consummation of a Sale of the Company (as defined in Article 10.1), no Member other than the Investors shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law or otherwise) any interest in any Shares (a Transfer ), except (i) pursuant to a Sale of the Company (an Exempt Transfer ), (ii) to Permitted Transferees in compliance with the provisions of Article 7.4 below or (iii) in compliance with the provisions of this Article 7 if such Transfer is first approved in writing by the Company and the Investors that hold a majority of the Shares then held by all of the Investors. | |
7.2 | Subject to Article 7.1, prior to making any Transfer other than an Exempt Transfer or a Transfer to a Permitted Transferee, the Member transferring any Shares (a Transferring Member ) shall deliver a written notice (a Sale Notice ) to the Company and the Investors. The Sale Notice shall disclose in reasonable detail the identity of the prospective transferee(s), the number of Shares to be transferred and the terms and conditions of the proposed Transfer. In no event shall any Transfer (other than an Exempt Transfer or a Transfer to a Permitted Transferee) of Shares pursuant to this Article 7 be made by any Member for any consideration other than cash payable upon consummation of such Transfer or in installments over time. No Member shall consummate any Transfer until 45 days after the Sale Notice has been given to the Company and the Investors (the Election Period ), unless the parties to the Transfer have been finally determined pursuant to this Article 7 prior to the expiration of such 45-day period. The date of the first to occur of such events is referred to herein as the Authorization Date . | |
7.3 | Each of the Investors may elect to purchase all or any portion of the Transferring Members Shares to be transferred upon the same terms and conditions as those set forth in the Sale Notice by delivering a written notice of such election to such Transferring Member within 30 days after the Sale Notice has been delivered to the Investors. If the Investors have not elected to purchase all of such Transferring Members Shares to be transferred, the Company may elect to purchase all or any portion of the remaining Shares to be transferred upon the same terms and conditions as those set forth in the Sale Notice by delivering written notice of such election to the Transferring Member within 35 days after the Sale Notice has been given to the Investors. If more than one Investor elects to purchase such Shares, the Shares to be sold to such Investors shall be allocated among the Investors pro rata according to the number of Shares owned by each such Investor. If the Company and the Investors have not elected to purchase all of such Transferring Members Shares specified in the Sale Notice, such Transferring Member may Transfer the Shares specified in the Sale Notice for which no purchase election has been made at a price and on terms no more favorable to the transferee(s) thereof than specified in the Sale Notice (subject to the provisions of Article 7.4) during the 60-day period immediately following the Authorization Date. Any Transferring Members |
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Shares not transferred within such 60-day period shall be subject to the provisions of this Article 7.3 upon subsequent Transfer. If any of the Company or the Investors have elected to purchase any Shares hereunder, the Transfer of such Shares shall be consummated as soon as practical after the delivery of the election notice(s) to the Transferring Member, but in any event within 30 days after the expiration of the Election Period. The Investors may nominate one or more of their affiliated investment funds to receive all or any portion of their repurchase rights under this Article 7.3 by providing written notice to the Company of such nomination. | ||
7.4 | The Transfer restrictions contained in this Article 7 shall not apply with respect to any Transfer of Shares by a Member (i) to an Exempt Transfer, (ii) to an Investor, (iii) pursuant to Article 18 ( Transmission of Shares ), (iv) among such members Family Group or (iv) to an Affiliate of such Member (collectively referred to herein as Permitted Transferees ); provided that the Directors shall not permit any Transfer of Shares unless and until the instrument of transfer if accompanied by a duly executed Adoption Agreement. | |
7.5 | For so long as the Members Agreement remains in force, each certificate representing the Shares shall bear the following legend: | |
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A MEMBERS AGREEMENT, AS MAY BE AMENDED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT MEMBERS AGREEMENT, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER AND OWNERSHIP AS SET FORTH THEREIN. |
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7.6 | No Member shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law or otherwise), other than as required hereunder or with the consent of the Investors that hold a majority of the Shares then held by all of the Investors, (i) any option to purchase Common Stock (ii) any equity security other than Shares or (iii) any security convertible into any equity security of the Company. | |
7.7 | The Company shall not approve or consent to any Transfer of any Shares by any Member (other than an Exempt Transfer or a Transfer to an Investor (or any of its affiliated investment funds) pursuant to Article 7.3 above) unless the Shares subject to such Transfer shall thereafter be subject to the provisions of this Article 7. | |
7.8 | In the event that a Person acquires shares via a Permitted Transfer or the Company enters into an agreement with any Person to issue shares of capital stock to such Person, following which such Person shall hold Shares (including as a result of exercising stock options), then, the Company shall cause such Person, to execute an Adoption Agreement. | |
8 | Redemption, Repurchase and Surrender of Shares | |
8.1 | Subject to the provisions of the Statute the Company may issue Shares that are to be redeemed or are liable to be redeemed at the option of the Member or the Company. The redemption of such Shares shall be effected in such manner and upon such other terms as the board of Directors may determine before the issue of the Shares. |
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11 | Treasury Shares | |
11.1 | The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share. | |
11.2 | The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration). | |
12 | Variation of Rights of Shares | |
12.1 | If at any time the share capital of the Company is divided into different classes of Shares, all or any of the rights attached to any class (unless otherwise provided by the terms of issue of the Shares of that class) may, whether or not the Company is being wound up, be varied without the consent of the holders of the issued Shares of that class where such variation is considered by the Directors not to have a material adverse effect upon such rights; otherwise, any such variation shall be made only with the consent in writing of the holders of not less than two thirds of the issued Shares of that class, or with the sanction of a resolution passed by a majority of not less than two thirds of the votes cast at a separate meeting of the holders of the Shares of that class. For the avoidance of doubt, the Directors reserve the right, notwithstanding that any such variation may not have a material adverse effect, to obtain consent from the holders of Shares of the relevant class. To any such meeting all the provisions of the Articles relating to general meetings shall apply mutatis mutandis , except that the necessary quorum shall be one person holding or representing by proxy at least one third of the issued Shares of the class and that any holder of Shares of the class present in person or by proxy may demand a poll. | |
12.2 | For the purposes of a separate class meeting, the Directors may treat two or more or all the classes of Shares as forming one class of Shares if the Directors consider that such class of Shares would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate classes of Shares. | |
12.3 | The rights conferred upon the holders of the Shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking pari passu therewith. | |
13 | Commission on Sale of Shares | |
The Company may, in so far as the Statute permits, pay a commission to any person in consideration of his subscribing or agreeing to subscribe (whether absolutely or conditionally) or procuring or agreeing to procure subscriptions (whether absolutely or conditionally) for any Shares. Such commissions may be satisfied by the payment of cash and/or the issue of fully or partly paid-up Shares. The Company may also on any issue of Shares pay such brokerage as may be lawful. | ||
14 | Non Recognition of Trusts | |
The Company shall not be bound by or compelled to recognise in any way (even when notified) any equitable, contingent, future or partial interest in any Share, or (except only as is otherwise provided by the Articles or the Statute) any other rights in respect of any Share other than an absolute right to the entirety thereof in the holder. |
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15 | Lien on Shares | |
15.1 | The Company shall have a first and paramount lien on all Shares (whether fully paid-up or not) registered in the name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any Share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such Share shall operate as a waiver of the Companys lien thereon. The Companys lien on a Share shall also extend to any amount payable in respect of that Share. | |
15.2 | The Company may sell, in such manner as the Directors think fit, any Shares on which the Company has a lien, if a sum in respect of which the lien exists is presently payable, and is not paid within fourteen clear days after notice has been received or deemed to have been received by the holder of the Shares, or to the person entitled to it in consequence of the death or bankruptcy of the holder, demanding payment and stating that if the notice is not complied with the Shares may be sold. | |
15.3 | To give effect to any such sale the Directors may authorise any person to execute an instrument of transfer of the Shares sold to, or in accordance with the directions of, the purchaser. The purchaser or his nominee shall be registered as the holder of the Shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the sale or the exercise of the Companys power of sale under the Articles. | |
15.4 | The net proceeds of such sale after payment of costs, shall be applied in payment of such part of the amount in respect of which the lien exists as is presently payable and any balance shall (subject to a like lien for sums not presently payable as existed upon the Shares before the sale) be paid to the person entitled to the Shares at the date of the sale. | |
16 | Call on Shares | |
16.1 | Subject to the terms of the allotment and issue of any Shares, the Directors may make calls upon the Members in respect of any monies unpaid on their Shares (whether in respect of par value or premium), and each Member shall (subject to receiving at least fourteen clear days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on the Shares. A call may be revoked or postponed, in whole or in part, as the Directors may determine. A call may be required to be paid by instalments. A person upon whom a call is made shall remain liable for calls made upon him notwithstanding the subsequent transfer of the Shares in respect of which the call was made. | |
16.2 | A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. | |
16.3 | The joint holders of a Share shall be jointly and severally liable to pay all calls in respect thereof. | |
16.4 | If a call remains unpaid after it has become due and payable, the person from whom it is due shall pay interest on the amount unpaid from the day it became due and payable until it is paid at such rate as the Directors may determine (and in addition all expenses that have been incurred by the Company by reason of such non-payment), but the Directors may waive payment of the interest or expenses wholly or in part. | |
16.5 | An amount payable in respect of a Share on issue or allotment or at any fixed date, whether on account of the par value of the Share or premium or otherwise, shall be deemed to be a call and if it is not paid all the provisions of the Articles shall apply as if that amount had become due and payable by virtue of a call. |
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16.6 | The Directors may issue Shares with different terms as to the amount and times of payment of calls, or the interest to be paid. | |
16.7 | The Directors may, if they think fit, receive an amount from any Member willing to advance all or any part of the monies uncalled and unpaid upon any Shares held by him, and may (until the amount would otherwise become payable) pay interest at such rate as may be agreed upon between the Directors and the Member paying such amount in advance. | |
16.8 | No such amount paid in advance of calls shall entitle the Member paying such amount to any portion of a Dividend or other distribution payable in respect of any period prior to the date upon which such amount would, but for such payment, become payable. | |
17 | Forfeiture of Shares | |
17.1 | If a call or instalment of a call remains unpaid after it has become due and payable the Directors may give to the person from whom it is due not less than fourteen clear days notice requiring payment of the amount unpaid together with any interest which may have accrued and any expenses incurred by the Company by reason of such non-payment. The notice shall specify where payment is to be made and shall state that if the notice is not complied with the Shares in respect of which the call was made will be liable to be forfeited. | |
17.2 | If the notice is not complied with, any Share in respect of which it was given may, before the payment required by the notice has been made, be forfeited by a resolution of the Directors. Such forfeiture shall include all Dividends, other distributions or other monies payable in respect of the forfeited Share and not paid before the forfeiture. | |
17.3 | A forfeited Share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Directors think fit and at any time before a sale, re-allotment or disposition the forfeiture may be cancelled on such terms as the Directors think fit. Where for the purposes of its disposal a forfeited Share is to be transferred to any person the Directors may authorise some person to execute an instrument of transfer of the Share in favour of that person. | |
17.4 | A person any of whose Shares have been forfeited shall cease to be a Member in respect of them and shall surrender to the Company for cancellation the certificate for the Shares forfeited and shall remain liable to pay to the Company all monies which at the date of forfeiture were payable by him to the Company in respect of those Shares together with interest at such rate as the Directors may determine, but his liability shall cease if and when the Company shall have received payment in full of all monies due and payable by him in respect of those Shares. | |
17.5 | A certificate in writing under the hand of one Director or officer of the Company that a Share has been forfeited on a specified date shall be conclusive evidence of the facts stated in it as against all persons claiming to be entitled to the Share. The certificate shall (subject to the execution of an instrument of transfer) constitute a good title to the Share and the person to whom the Share is sold or otherwise disposed of shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the Share. | |
17.6 | The provisions of the Articles as to forfeiture shall apply in the case of non payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the par value of the Share or by way of premium as if it had been payable by virtue of a call duly made and notified. |
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18 | Transmission of Shares | |||
18.1 | If a Member dies the survivor or survivors (where he was a joint holder) or his legal personal representatives (where he was a sole holder), shall be the only persons recognised by the Company as having any title to his Shares. The estate of a deceased Member is not thereby released from any liability in respect of any Share, for which he was a joint or sole holder. | |||
18.2 | Any person becoming entitled to a Share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may be required by the Directors, elect, by a notice in writing sent by him to the Company, either to become the holder of such Share or to have some person nominated by him registered as the holder of such Share. If he elects to have another person registered as the holder of such Share he shall sign an instrument of transfer of that Share to that person. The Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the relevant Member before his death or bankruptcy or liquidation or dissolution, as the case may be. | |||
18.3 | A person becoming entitled to a Share by reason of the death or bankruptcy or liquidation or dissolution of a Member (or in any other case than by transfer) shall be entitled to the same Dividends, other distributions and other advantages to which he would be entitled if he were the holder of such Share. However, he shall not, before becoming a Member in respect of a Share, be entitled in respect of it to exercise any right conferred by membership in relation to general meetings of the Company and the Directors may at any time give notice requiring any such person to elect either to be registered himself or to have some person nominated by him be registered as the holder of the Share (but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the relevant Member before his death or bankruptcy or liquidation or dissolution or any other case than by transfer, as the case may be). If the notice is not complied with within ninety days of being received or deemed to be received (as determined pursuant to the Articles) the Directors may thereafter withhold payment of all Dividends, other distributions, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with. | |||
19 | Amendments of Memorandum and Articles of Association and Alteration of Capital | |||
19.1 | The Company may by resolution approved by the Investors (and Ordinary Resolution in the event such resolution is materially detrimental to the Common Stock): | |||
(a) | increase its share capital by such sum as the resolution (or Ordinary Resolution) shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine; | |||
(b) | consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares; | |||
(c) | convert all or any of its paid-up Shares into stock, and reconvert that stock into paid-up Shares of any denomination; | |||
(d) | by subdivision of its existing Shares or any of them divide the whole or any part of its share capital into Shares of smaller amount than is fixed by the Memorandum or into Shares without par value; and |
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(e) | cancel any Shares that at the date of the passing of the resolution (or Ordinary Resolution) have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the Shares so cancelled. | |||
19.2 | All new Shares created in accordance with the provisions of the preceding Article shall be subject to the same provisions of the Articles with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the Shares in the original share capital. | |||
19.3 | Subject to the provisions of the Statute and the provisions of the Articles as regards the matters to be dealt with by Ordinary Resolution, the Company may by Special Resolution of the Investors: | |||
(a) | change its name; | |||
(b) | alter or add to the Articles; | |||
(c) | alter or add to the Memorandum with respect to any objects, powers or other matters specified therein; and | |||
(d) | reduce its share capital or any capital redemption reserve fund. | |||
20 | Offices and Places of Business | |||
Subject to the provisions of the Statute, the Company may by resolution of the Directors change the location of its Registered Office. The Company may, in addition to its Registered Office, maintain such other offices or places of business as the Directors determine. | ||||
21 | General Meetings | |||
21.1 | All general meetings other than annual general meetings shall be called extraordinary general meetings. | |||
21.2 | The Company may, but shall not (unless required by the Statute) be obliged to, in each year hold a general meeting as its annual general meeting, and shall specify the meeting as such in the notices calling it. Any annual general meeting shall be held at such time and place as the Directors shall appoint and if no other time and place is prescribed by them, it shall be held at the Registered Office on the second Wednesday in December of each year at ten oclock in the morning. At these meetings the report of the Directors (if any) shall be presented. | |||
21.3 | The Directors may call general meetings, and they shall on a Members requisition, made in accordance with Article 19.4 forthwith proceed to convene an extraordinary general meeting of the Company. | |||
21.4 | A Members requisition is a requisition of Members holding at the date of deposit of the requisition not less than ten per cent. in par value of the issued Shares which as at that date carry the right to vote at general meetings of the Company. | |||
21.5 | The Members requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists. | |||
21.6 | If there are no Directors as at the date of the deposit of the Members requisition or if the Directors do not within twenty-one days from the date of the deposit of the Members requisition duly proceed to convene a general meeting to be held within a further twenty-one days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of the requisitionists, may themselves convene a general meeting, but any meeting so convened shall be held no later than the day which falls three months after the expiration of the said twenty-one day period. |
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21.7 | A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. | |||
22 | Notice of General Meetings | |||
22.1 | At least two clear days notice shall be given of any general meeting. Every notice shall specify the place, the day and the hour of the meeting and the general nature of the business to be conducted at the general meeting and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of the Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: | |||
(a) | in the case of an annual general meeting, by all of the Members entitled to attend and vote thereat; and | |||
(b) | in the case of an extraordinary general meeting, by a majority in number of the Members having a right to attend and vote at the meeting, together holding Shares which carry not less than ninety five per cent. of the total votes which may be counted on each resolution to be considered at the meeting. | |||
22.2 | The accidental omission to give notice of a general meeting to, or the non receipt of notice of a general meeting by, any person entitled to receive such notice shall not invalidate the proceedings of that general meeting. | |||
23 | Proceedings at General Meetings | |||
23.1 | No business shall be transacted at any general meeting unless a quorum is present. Two Members (one of which shall be an Investor for such time that any Investor is a Member of the Company) being individuals present in person or by proxy or if a company or other non-natural person by its duly authorised representative or proxy shall be a quorum unless the Company has only one Member entitled to vote at such general meeting in which case the quorum shall be that one Member present in person or by proxy or (in the case of a company or other non-natural person) by its duly authorised representative or proxy, save that where a Special Resolution has been tabled to the meeting, the quorum to proceed to business to pass the Special Resolution shall be two Members (or one Member if there is only one member entitled to vote at such general meeting) and at least one Investor, for such time that any Investor is a Member of the Company. | |||
23.2 | A person may participate at a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting. | |||
23.3 | A resolution (including a Special Resolution) in writing (in one or more counterparts) signed by or on behalf of all of the Members for the time being entitled to receive notice of and to attend and vote at general meetings (or, being companies or other non-natural persons, signed by their duly authorised representatives) shall be as valid and effective as if the resolution had been passed at a general meeting of the Company duly convened and held. |
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23.4 | If a quorum is not present within half an hour from the time appointed for the meeting to commence or if during such a meeting a quorum ceases to be present, the meeting, if convened upon a Members requisition, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week at the same time and/or place or to such other day, time and/or place as the Directors may determine, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting to commence, the Members present shall be a quorum. | |
23.5 | The Directors may, at any time prior to the time appointed for the meeting to commence, appoint any person to act as chairman of a general meeting of the Company or, if the Directors do not make any such appointment, the chairman, if any, of the board of Directors shall preside as chairman at such general meeting. If there is no such chairman, or if he shall not be present within fifteen minutes after the time appointed for the meeting to commence, or is unwilling to act, the Directors present shall elect one of their number to be chairman of the meeting. | |
23.6 | If no Director is willing to act as chairman or if no Director is present within fifteen minutes after the time appointed for the meeting to commence, the Members present shall choose one of their number to be chairman of the meeting. | |
23.7 | The chairman may, with the consent of a meeting at which a quorum is present (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. | |
23.8 | When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Otherwise it shall not be necessary to give any such notice of an adjourned meeting. | |
23.9 | A resolution put to the vote of the meeting shall be decided on a show of hands unless before, or on the declaration of the result of, the show of hands, the chairman demands a poll, or any other Member or Members collectively present in person or by proxy (or in the case of a company or other non-natural person, by its duly authorised representative or proxy) and holding at least ten per cent. in par value of the Shares giving a right to attend and vote at the meeting demand a poll. | |
23.10 | Unless a poll is duly demanded and the demand is not withdrawn a declaration by the chairman that a resolution has been carried or carried unanimously, or by a particular majority, or lost or not carried by a particular majority, an entry to that effect in the minutes of the proceedings of the meeting shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. | |
23.11 | The demand for a poll may be withdrawn. | |
23.12 | Except on a poll demanded on the election of a chairman or on a question of adjournment, a poll shall be taken as the chairman directs, and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. | |
23.13 | A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such date, time and place as the chairman of the general meeting directs, and any business other than that upon which a poll has been demanded or is contingent thereon may proceed pending the taking of the poll. |
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23.14 | In the case of an equality of votes, whether on a show of hands or on a poll, the chairman shall be entitled to a second or casting vote. | |
24 | Votes of Members | |
24.1 | Subject to any rights or restrictions attached to any Shares, on a show of hands every Member who (being an individual) is present in person or by proxy or, if a company or other non-natural person is present by its duly authorised representative or by proxy, shall have one vote and on a poll every Member present in any such manner shall have one vote for every Share of which he is the holder. | |
24.2 | In the case of joint holders the vote of the senior holder who tenders a vote, whether in person or by proxy (or, in the case of a company or other non-natural person, by its duly authorised representative or proxy), shall be accepted to the exclusion of the votes of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the Register of Members. | |
24.3 | A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person on such Members behalf appointed by that court, and any such committee, receiver, curator bonis or other person may vote by proxy. | |
24.4 | No person shall be entitled to vote at any general meeting unless he is registered as a Member on the record date for such meeting nor unless all calls or other monies then payable by him in respect of Shares have been paid. | |
24.5 | No objection shall be raised as to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at the meeting shall be valid. Any objection made in due time in accordance with this Article shall be referred to the chairman whose decision shall be final and conclusive. | |
24.6 | On a poll or on a show of hands votes may be cast either personally or by proxy (or in the case of a company or other non-natural person by its duly authorised representative or proxy). A Member may appoint more than one proxy or the same proxy under one or more instruments to attend and vote at a meeting. Where a Member appoints more than one proxy the instrument of proxy shall state which proxy is entitled to vote on a show of hands and shall specify the number of Shares in respect of which each proxy is entitled to exercise the related votes. | |
24.7 | On a poll, a Member holding more than one Share need not cast the votes in respect of his Shares in the same way on any resolution and therefore may vote a Share or some or all such Shares either for or against a resolution and/or abstain from voting a Share or some or all of the Shares and, subject to the terms of the instrument appointing him, a proxy appointed under one or more instruments may vote a Share or some or all of the Shares in respect of which he is appointed either for or against a resolution and/or abstain from voting a Share or some or all of the Shares in respect of which he is appointed. | |
25 | Proxies | |
25.1 | The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a company or other non natural person, under the hand of its duly authorised representative. A proxy need not be a Member. |
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25.2 | The Directors may, in the notice convening any meeting or adjourned meeting, or in an instrument of proxy sent out by the Company, specify the manner by which the instrument appointing a proxy shall be deposited and the place and the time (being not later than the time appointed for the commencement of the meeting or adjourned meeting to which the proxy relates) at which the instrument appointing a proxy shall be deposited. In the absence of any such direction from the Directors in the notice convening any meeting or adjourned meeting or in an instrument of proxy sent out by the Company, the instrument appointing a proxy shall be deposited physically at the Registered Office not less than 48 hours before the time appointed for the meeting or adjourned meeting to commence at which the person named in the instrument proposes to vote. | |
The chairman may in any event at his discretion declare that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted, or which has not been declared to have been duly deposited by the chairman, shall be invalid. | ||
25.3 | The instrument appointing a proxy may be in any usual or common form (or such other form as the Directors may approve) and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll. | |
25.4 | Votes given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the Company at the Registered Office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy. | |
26 | Corporate Members | |
Any company or other non-natural person which is a Member may in accordance with its constitutional documents, or in the absence of such provision by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members, and the person so authorised shall be entitled to exercise the same powers on behalf of the company which he represents as the company could exercise if it were an individual Member. | ||
27 | Shares that May Not be Voted | |
Shares in the Company that are beneficially owned by the Company shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding Shares at any given time. | ||
28 | Directors | |
There shall be a board of Directors consisting of not less than one person (exclusive of alternate Directors) provided however that the Company may by Ordinary Resolution increase or reduce the limits in the number of Directors. The first Directors of the Company shall be determined in writing by, or appointed by a resolution of, the Subscriber. | ||
29 | Powers of Directors | |
29.1 | Subject to the provisions of the Statute, the Memorandum and the Articles (including without limitation, Article 52.3 and Article 53.2) and to any directions given by Special Resolution, the business of the Company shall be managed by the Directors who may exercise all the powers of the Company. No alteration of the Memorandum or Articles and no such direction shall invalidate any prior act of the Directors which would have been valid if that alteration had not been made or that direction had not been given. A duly convened meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors. |
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29.2 | All cheques, promissory notes, drafts, bills of exchange and other negotiable or transferable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall determine by resolution. | |||
29.3 | The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. | |||
29.4 | The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof and to issue debentures, debenture stock, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of the Company or of any third party. | |||
30 | Appointment and Removal of Directors | |||
30.1 | The Investors may, by written notice to the Company, appoint any person to be a Director or may remove any Director. The Investors may appoint an FP Director if upon appointment of any Director, such Director is designated by the Investors as an FP Director and a note is made in the register of Directors of such designation. | |||
30.2 | The Directors may appoint any person to be a Director, either to fill a vacancy or as an additional Director provided that the appointment does not cause the number of Directors to exceed any number fixed by or in accordance with the Articles as the maximum number of Directors. | |||
31 | Vacation of Office of Director | |||
The office of a Director shall be vacated if: | ||||
(a) | the Director gives notice in writing to the Company that he resigns the office of Director; or | |||
(b) | the Director absents himself (for the avoidance of doubt, without being represented by proxy or an alternate Director appointed by him) from three consecutive meetings of the board of Directors without special leave of absence from the Directors, and the Directors pass a resolution that he has by reason of such absence vacated office; or | |||
(c) | the Director dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; or | |||
(d) | the Director is found to be or becomes of unsound mind; or | |||
(e) | all of the other Directors (being not less than two in number) determine that he should be removed as a Director, either by a resolution passed by all of the other Directors at a meeting of the Directors duly convened and held in accordance with the Articles or by a resolution in writing signed by all of the other Directors. |
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32 | Proceedings of Directors | |
32.1 | The quorum for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed shall be two if there are two or more Directors, and shall be one if there is only one Director, provided always that if at any time there is an FP Director on the Board of Directors, then the quorum shall be two Directors, including the FP Director. A person who holds office as an alternate Director shall, if his appointor is not present, be counted in the quorum. A Director who also acts as an alternate Director shall, if his appointor is not present, count twice towards the quorum. | |
32.2 | Subject to the provisions of the Articles, the Directors may regulate their proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall have a second or casting vote. A Director who is also an alternate Director shall be entitled in the absence of his appointor to a separate vote on behalf of his appointor in addition to his own vote. | |
32.3 | A person may participate in a meeting of the Directors or committee of Directors by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other at the same time. Participation by a person in a meeting in this manner is treated as presence in person at that meeting. Unless otherwise determined by the Directors the meeting shall be deemed to be held at the place where the chairman is located at the start of the meeting. | |
32.4 | A resolution in writing (in one or more counterparts) signed by all the Directors or all the members of a committee of the Directors or, in the case of a resolution in writing relating to the removal of any Director or the vacation of office by any Director, all of the Directors other than the Director who is the subject of such resolution (an alternate Director being entitled to sign such a resolution on behalf of his appointor and if such alternate Director is also a Director, being entitled to sign such resolution both on behalf of his appointer and in his capacity as a Director) shall be as valid and effectual as if it had been passed at a meeting of the Directors, or committee of Directors as the case may be, duly convened and held. | |
32.5 | A Director or alternate Director may, or other officer of the Company on the direction of a Director or alternate Director shall, call a meeting of the Directors by at least two days notice in writing to every Director and alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held. To any such notice of a meeting of the Directors all the provisions of the Articles relating to the giving of notices by the Company to the Members shall apply mutatis mutandis. | |
32.6 | The continuing Directors (or a sole continuing Director, as the case may be) may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles as the necessary quorum of Directors the continuing Directors or Director may act for the purpose of increasing the number of Directors to be equal to such fixed number, or of summoning a general meeting of the Company, but for no other purpose. | |
32.7 | The Directors may elect a chairman of their board and determine the period for which he is to hold office; but if no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for the meeting to commence, the Directors present may choose one of their number to be chairman of the meeting. | |
32.8 | All acts done by any meeting of the Directors or of a committee of the Directors (including any person acting as an alternate Director) shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director, and/or that they or any of them were disqualified, and/or had vacated their office and/or were not entitled to vote, be as valid as if every such person had been duly appointed and/or not disqualified to be a Director or alternate Director and/or had not vacated their office and/or had been entitled to vote, as the case may be. |
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32.9 | A Director but not an alternate Director may be represented at any meetings of the board of Directors by a proxy appointed in writing by him. The proxy shall count towards the quorum and the vote of the proxy shall for all purposes be deemed to be that of the appointing Director. | |
33 | Presumption of Assent | |
A Director or alternate Director who is present at a meeting of the board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director or alternate Director who voted in favour of such action. | ||
34 | Directors Interests | |
34.1 | A Director or alternate Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine. | |
34.2 | A Director or alternate Director may act by himself or by, through or on behalf of his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or alternate Director. | |
34.3 | A Director or alternate Director may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as a shareholder, a contracting party or otherwise, and no such Director or alternate Director shall be accountable to the Company for any remuneration or other benefits received by him as a director or officer of, or from his interest in, such other company. | |
34.4 | No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so interested be liable to account to the Company for any profit realised by or arising in connection with any such contract or transaction by reason of such Director or alternate Director holding office or of the fiduciary relationship thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is interested provided that the nature of the interest of any Director or alternate Director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote thereon. | |
34.5 | A general notice that a Director or alternate Director is a shareholder, director, officer or employee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure for the purposes of voting on a resolution in respect of a contract or transaction in which he has an interest, and after such general notice it shall not be necessary to give special notice relating to any particular transaction. |
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35 | Minutes | |
The Directors shall cause minutes to be made in books kept for the purpose of all appointments of officers made by the Directors, all proceedings at meetings of the Company or the holders of any class of Shares and of the Directors, and of committees of the Directors, including the names of the Directors or alternate Directors present at each meeting. | ||
36 | Delegation of Directors Powers | |
36.1 | The Directors may delegate any of their powers, authorities and discretions, including the power to sub-delegate, to any committee consisting of one or more Directors. They may also delegate to any managing director or any Director holding any other executive office such of their powers, authorities and discretions as they consider desirable to be exercised by him provided that an alternate Director may not act as managing director and the appointment of a managing director shall be revoked forthwith if he ceases to be a Director. Any such delegation may be made subject to any conditions the Directors may impose and either collaterally with or to the exclusion of their own powers and any such delegation may be revoked or altered by the Directors. Subject to any such conditions, the proceedings of a committee of Directors shall be governed by the Articles regulating the proceedings of Directors, so far as they are capable of applying. | |
36.2 | The Directors may establish any committees, local boards or agencies or appoint any person to be a manager or agent for managing the affairs of the Company and may appoint any person to be a member of such committees, local boards or agencies. Any such appointment may be made subject to any conditions the Directors may impose, and either collaterally with or to the exclusion of their own powers and any such appointment may be revoked or altered by the Directors. Subject to any such conditions, the proceedings of any such committee, local board or agency shall be governed by the Articles regulating the proceedings of Directors, so far as they are capable of applying. | |
36.3 | The Directors may by power of attorney or otherwise appoint any person to be the agent of the Company on such conditions as the Directors may determine, provided that the delegation is not to the exclusion of their own powers and may be revoked by the Directors at any time. | |
36.4 | The Directors may by power of attorney or otherwise appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or authorised signatory of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under the Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorneys or authorised signatories as the Directors may think fit and may also authorise any such attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in him. | |
36.5 | The Directors may appoint such officers of the Company (including, for the avoidance of doubt and without limitation, any secretary) as they consider necessary on such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors may think fit. Unless otherwise specified in the terms of his appointment an officer of the Company may be removed by resolution of the Directors or Members. An officer of the Company may vacate his office at any time if he gives notice in writing to the Company that he resigns his office. Each officer of the Company shall perform such duties subject to the supervision and oversight of the Directors and in accordance with the Company business plan and annual budget, as approved by the Directors. An officers authority shall be expressly limited by those matters which, pursuant to these Articles, are subject to a vote or other approval by the Directors or the Members. No officer shall permit the Company or any of its subsidiaries to take any action or engage in any transaction in connection with which any Member has approval rights, including, for the avoidance of doubt, all rights contained in Article 53.2, without the prior approval of such Member(s). |
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37 | Alternate Directors | |
37.1 | Any Director (but not an alternate Director) may by writing appoint any other Director, or any other person willing to act, to be an alternate Director and by writing may remove from office an alternate Director so appointed by him. | |
37.2 | An alternate Director shall be entitled to receive notice of all meetings of Directors and of all meetings of committees of Directors of which his appointor is a member, to attend and vote at every such meeting at which the Director appointing him is not personally present, to sign any written resolution of the Directors, and generally to perform all the functions of his appointor as a Director in his absence. | |
37.3 | An alternate Director shall cease to be an alternate Director if his appointor ceases to be a Director. | |
37.4 | Any appointment or removal of an alternate Director shall be by notice to the Company signed by the Director making or revoking the appointment or in any other manner approved by the Directors. | |
37.5 | Subject to the provisions of the Articles, an alternate Director shall be deemed for all purposes to be a Director and shall alone be responsible for his own acts and defaults and shall not be deemed to be the agent of the Director appointing him. | |
38 | No Minimum Shareholding | |
The Company in general meeting may fix a minimum shareholding required to be held by a Director, but unless and until such a shareholding qualification is fixed a Director is not required to hold Shares. | ||
39 | Remuneration of Directors | |
39.1 | The remuneration to be paid to the Directors, if any, shall be such remuneration as the Directors shall determine. The Directors shall also be entitled to be paid all travelling, hotel and other expenses properly incurred by them in connection with their attendance at meetings of Directors or committees of Directors, or general meetings of the Company, or separate meetings of the holders of any class of Shares or debentures of the Company, or otherwise in connection with the business of the Company or the discharge of their duties as a Director, or to receive a fixed allowance in respect thereof as may be determined by the Directors, or a combination partly of one such method and partly the other. | |
39.2 | The Directors may by resolution approve additional remuneration to any Director for any services which in the opinion of the Directors go beyond his ordinary routine work as a Director. Any fees paid to a Director who is also counsel, attorney or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his remuneration as a Director. | |
40 | Seal | |
40.1 | The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of the Directors authorised by the Directors. Every instrument to which the Seal has been affixed shall be signed by at least one person who shall be either a Director or some officer of the Company or other person appointed by the Directors for the purpose. |
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40.2 | The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile of the common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used. | |
40.3 | A Director or officer, representative or attorney of the Company may without further authority of the Directors affix the Seal over his signature alone to any document of the Company required to be authenticated by him under seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever. | |
41 | Dividends, Distributions and Reserve | |
41.1 | Subject to the Statute and this Article and except as otherwise provided by the rights attached to any Shares, the Directors may resolve to pay Dividends and other distributions on Shares in issue and authorise payment of the Dividends or other distributions out of the funds of the Company lawfully available therefor. A Dividend shall be deemed to be an interim Dividend unless the terms of the resolution pursuant to which the Directors resolve to pay such Dividend specifically state that such Dividend shall be a final Dividend. No Dividend or other distribution shall be paid except out of the realised or unrealised profits of the Company, out of the share premium account or as otherwise permitted by the Statute. | |
41.2 | Except as otherwise provided by the rights attached to any Shares, all Dividends and other distributions shall be paid according to the par value of the Shares that a Member holds. If any Share is issued on terms providing that it shall rank for Dividend as from a particular date, that Share shall rank for Dividend accordingly. | |
41.3 | The Directors may deduct from any Dividend or other distribution payable to any Member all sums of money (if any) then payable by him to the Company on account of calls or otherwise. | |
41.4 | The Directors may resolve that any Dividend or other distribution be paid wholly or partly by the distribution of specific assets and in particular (but without limitation) by the distribution of shares, debentures, or securities of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional Shares and may fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the basis of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees in such manner as may seem expedient to the Directors. | |
41.5 | Except as otherwise provided by the rights attached to any Shares, Dividends and other distributions may be paid in any currency. The Directors may determine the basis of conversion for any currency conversions that may be required and how any costs involved are to be met. | |
41.6 | The Directors may, before resolving to pay any Dividend or other distribution, set aside such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the discretion of the Directors, be employed in the business of the Company. | |
41.7 | Any Dividend, other distribution, interest or other monies payable in cash in respect of Shares may be paid by wire transfer to the holder or by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the registered address of the holder who is first named on the Register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any Dividends, other distributions, bonuses, or other monies payable in respect of the Share held by them as joint holders. |
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41.8 | No Dividend or other distribution shall bear interest against the Company. | |
41.9 | Any Dividend or other distribution which cannot be paid to a Member and/or which remains unclaimed after six months from the date on which such Dividend or other distribution becomes payable may, in the discretion of the Directors, be paid into a separate account in the Companys name, provided that the Company shall not be constituted as a trustee in respect of that account and the Dividend or other distribution shall remain as a debt due to the Member. Any Dividend or other distribution which remains unclaimed after a period of six years from the date on which such Dividend or other distribution becomes payable shall be forfeited and shall revert to the Company. | |
42 | Capitalisation | |
The Directors may at any time capitalise any sum standing to the credit of any of the Companys reserve accounts or funds (including the share premium account and capital redemption reserve fund) or any sum standing to the credit of the profit and loss account or otherwise available for distribution; appropriate such sum to Members in the proportions in which such sum would have been divisible amongst such Members had the same been a distribution of profits by way of Dividend or other distribution; and apply such sum on their behalf in paying up in full unissued Shares for allotment and distribution credited as fully paid-up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalisation, with full power given to the Directors to make such provisions as they think fit in the case of Shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalisation and matters incidental or relating thereto and any agreement made under such authority shall be effective and binding on all such Members and the Company. | ||
43 | Books of Account | |
43.1 | The Directors shall cause proper books of account (including, where applicable, material underlying documentation including contracts and invoices) to be kept with respect to all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place, all sales and purchases of goods by the Company and the assets and liabilities of the Company. Such books of account must be retained for a minimum period of five years from the date on which they are prepared. Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Companys affairs and to explain its transactions. | |
43.2 | The Directors shall determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorised by the Directors or by the Company in general meeting. | |
43.3 | The Directors may cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law. |
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44 | Audit | |
44.1 | The Directors may appoint an Auditor of the Company who shall hold office on such terms as the Directors determine. | |
44.2 | Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the Auditor. | |
44.3 | Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an ordinary company, and at the next extraordinary general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an exempted company, and at any other time during their term of office, upon request of the Directors or any general meeting of the Members. | |
45 | Notices | |
45.1 | Notices shall be in writing and may be given by the Company to any Member either personally or by sending it by courier, post, cable, telex, fax or e-mail to him or to his address as shown in the Register of Members (or where the notice is given by e-mail by sending it to the e-mail address provided by such Member). Any notice, if posted from one country to another, is to be sent by airmail. | |
45.2 | Where a notice is sent by courier, service of the notice shall be deemed to be effected by delivery of the notice to a courier company, and shall be deemed to have been received on the third day (not including Saturdays or Sundays or public holidays) following the day on which the notice was delivered to the courier. Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre paying and posting a letter containing the notice, and shall be deemed to have been received on the fifth day (not including Saturdays or Sundays or public holidays in the Cayman Islands) following the day on which the notice was posted. Where a notice is sent by cable, telex or fax, service of the notice shall be deemed to be effected by properly addressing and sending such notice and shall be deemed to have been received on the same day that it was transmitted. Where a notice is given by e-mail service shall be deemed to be effected by transmitting the e-mail to the e-mail address provided by the intended recipient and shall be deemed to have been received on the same day that it was sent, and it shall not be necessary for the receipt of the e-mail to be acknowledged by the recipient. | |
45.3 | A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a Share or Shares in consequence of the death or bankruptcy of a Member in the same manner as other notices which are required to be given under the Articles and shall be addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. | |
45.4 | Notice of every general meeting shall be given in any manner authorised by the Articles to every holder of Shares carrying an entitlement to receive such notice on the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the Register of Members and every person upon whom the ownership of a Share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Member where the Member but for his death or bankruptcy would be entitled to receive notice of the meeting, and no other person shall be entitled to receive notices of general meetings. |
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46 | Winding Up | |||
46.1 | If the Company shall be wound up the liquidator shall apply the assets of the Company in satisfaction of creditors claims in such manner and order as such liquidator thinks fit. Subject to the rights attaching to any Shares, in a winding up: | |||
(a) | if the assets available for distribution amongst the Members shall be insufficient to repay the whole of the Companys issued share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the Shares held by them; or | |||
(b) | if the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the Companys issued share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. | |||
46.2 | If the Company shall be wound up the liquidator may, subject to the rights attaching to any Shares and with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in kind the whole or any part of the assets of the Company (whether such assets shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability. | |||
47 | Indemnity and Insurance | |||
47.1 | Every Director and officer of the Company (which for the avoidance of doubt, shall not include auditors of the Company), together with every former Director and former officer of the Company (each an Indemnified Person ) shall be indemnified out of the assets of the Company against any liability, action, proceeding, claim, demand, costs, damages or expenses, including legal expenses, whatsoever which they or any of them may incur as a result of any act or failure to act in carrying out their functions other than such liability (if any) that they may incur by reason of their own actual fraud or wilful default. No Indemnified Person shall be liable to the Company for any loss or damage incurred by the Company as a result (whether direct or indirect) of the carrying out of their functions unless that liability arises through the actual fraud or wilful default of such Indemnified Person. No person shall be found to have committed actual fraud or wilful default under this Article unless or until a court of competent jurisdiction shall have made a finding to that effect. | |||
47.2 | The Company shall advance to each Indemnified Person reasonable attorneys fees and other costs and expenses incurred in connection with the defence of any action, suit, proceeding or investigation involving such Indemnified Person for which indemnity will or could be sought. In connection with any advance of any expenses hereunder, the Indemnified Person shall execute an undertaking to repay the advanced amount to the Company if it shall be determined by final judgment or other final adjudication that such Indemnified Person was not entitled to indemnification pursuant to this Article. If it shall be determined by a final judgment or other final adjudication that such Indemnified Person was not entitled to indemnification with respect to such judgment, costs or expenses, then such party shall not be indemnified with respect to such judgment, costs or expenses and any advancement shall be returned to the Company (without interest) by the Indemnified Person. |
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47.3 | The Directors, on behalf of the Company, may purchase and maintain insurance for the benefit of any Director or other officer of the Company against any liability which, by virtue of any rule of law, would otherwise attach to such person in respect of any negligence, default, breach of duty or breach of trust of which such person may be guilty in relation to the Company. | |
48 | Financial Year | |
Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31st December in each year and, following the year of incorporation, shall begin on 1st January in each year. | ||
49 | Transfer by Way of Continuation | |
If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. | ||
50 | Mergers and Consolidations | |
The Company shall, with the approval of a Special Resolution, have the power to merge or consolidate with one or more constituent companies (as defined in the Statute), upon such terms as the Directors may determine. | ||
PART B | ||
51 | Series A Original Issue Price | |
The Series A Original Issue Price shall mean $1.00 per Series A Preferred Stock, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock. | ||
52 | Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales | |
52.1 | Preferential Payments to Holders of Series A Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its Members before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per Share equal to the greater of (i) the Series A Original Issue Price, plus any dividends declared but unpaid thereon on the relevant Share, or (ii) such amount per Share as would have been payable had all Series A Preferred Stock been converted into Common Stock pursuant to Article 54 immediately prior to such liquidation, dissolution or winding up. If upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its Members shall be insufficient to pay the holders of Series A Preferred Stock the full amount to which they shall be entitled under this Article 52.1, the holders of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the Series A Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such Series A Preferred Stock were paid in full. The aggregate amount which a holder of Series A Preferred Stock is entitled to receive under this Article 52.1 is hereinafter referred to as the Series A Liquidation Amount . | |
52.2 | Distribution of Remaining Assets . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment of all preferential amounts required to be paid to the holders of Series A Preferred Stock the remaining assets of the Company available for distribution to its Members shall be distributed among the holders of Common Stock, pro rata based on the number of Common Stock held by each such holder. |
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52.3 | Deemed Liquidation Events . | |||||
(a) | Definition . Each of the following events shall be considered a Deemed Liquidation Event unless the holders of at least a majority of the outstanding Series A Preferred Stock elect otherwise by written notice sent to the Company prior to the effective date of any such event: | |||||
(i) | a merger, reorganization or consolidation in which (i) the Company is a constituent party or (ii) a subsidiary of the Company is a constituent party and the Company issues shares pursuant to such merger or consolidation, except any such merger or consolidation involving the Company or a subsidiary in which the holders of shares of the Company outstanding immediately prior to such merger or consolidation continue to hold, as a result of their holdings immediately prior to the merger or consolidation, shares, stock or other corresponding ownership interests representing a majority of the voting power of (1) the surviving or resulting company or (2) if the surviving or resulting company is a wholly owned subsidiary of another company immediately following such merger or consolidation, the parent company of such surviving or resulting company; | |||||
(ii) | the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Company; or | |||||
(iii) | any sale, transfer or issuance or series of sales, transfers and/or issuances of shares of the Company by the Company or any holders thereof which results in any Person(s) other than the holders of Companys Common Stock immediately prior to the relevant sale, transfer or issuance, owning more than 50% of the Companys Common Stock (assuming conversion of the Series A Preferred Stock) or having the right to elect a majority of the Companys directors at the time of such sale, transfer or issuance or series of sales, transfers and/or issuances. | |||||
(b) | Effecting a Deemed Liquidation Event . The Company shall not effect a Deemed Liquidation Event referred to in Article 52.3(a)(i) or Article 52.3(a)(iii) unless the sale agreement or plan of merger or consolidation for such transaction provides that the consideration payable to the Members of the Company shall be allocated among the holders of Shares of the Company in accordance with Article 52.1 and 52.2. If a Deemed Liquidation Event involves the payment by a successor or purchasing entity to the Companys Members of consideration in whole or in part other than cash, then at the election of the holders of a majority of the outstanding Series A Preferred Stock the amounts payable to the holders of Series A Preferred Stock pursuant to this Article 50 shall be paid in the same form of consideration that is paid to the Companys other Members, and if any of the Companys other Members are given an option as to the form of consideration to be received, then all holders of Series A Preferred Stock shall be given the same option (with it being understood that the value of any such non-cash consideration shall be determined as provided in Article 52.3(d)). |
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affirmative vote of the holders of at least a majority of the then outstanding Series A Preferred Stock shall not be necessary where any FP Director approves, either by written consent or affirmative vote, any matter presented to the Directors of the Company. Each reference to the Company in this Article 53 shall mean the Company and / or each of its direct and indirect subsidiaries. | ||||
(a) | alter the rights, preferences or privileges of any class of shares in the Company; | |||
(b) | dissolve or wind-up the business and affairs of the Company; | |||
(c) | effect any Deemed Liquidation Event; | |||
(d) | increase or decrease the authorized number of shares or create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of shares; | |||
(e) | pay any dividend or other distribution on any shares of the Company; | |||
(f) | purchase or redeem any shares of the Company other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable with respect to previously authorized options, warrants, or convertible securities and pursuant to the terms thereof, or (iii) repurchases of shares from former employees, officers, directors, consultants or other persons who performed services for the Company in connection with the cessation of such employment or service and pursuant to the terms of the governing documents thereof; | |||
(g) | create, or authorize the creation of, or authorize the issuance of any debt security outside the ordinary course of business, unless specifically approved in the Company business plan and / or annual budget; | |||
(h) | enter into, amend, modify or supplement, or waive any provisions of, or permit any subsidiary to enter into, amend, modify or supplement, or waive any provisions of, any agreement, transaction, commitment or arrangement with any of the Companys or any of its subsidiaries or any of its affiliates direct or indirect officers, managers, directors, key employees, members, partners, Members or affiliates or with any individual related by blood, marriage or adoption to any such individual or any entity in which any of the foregoing owns a beneficial interest, except for entering into customary employment arrangements (but not employment agreements) and benefit programs (other than equity or equity-like incentive plans), in each case on reasonable terms as approved by the compensation committee of the board of Directors; | |||
(i) | amend or modify any equity incentive plan, employee equity ownership plan, profit sharing plan, phantom equity plan, equity appreciation rights plan or any similar plan, program or arrangement of the Company or any of its subsidiaries as in existence as of the date hereof (including increasing the number of shares of capital stock available for issuance thereunder or allocating additional aggregate profits interests or profits participation rights to any such plan, program or arrangement); | |||
(j) | materially change the Companys principal business; | |||
(k) | formation of any new subsidiary or the entering into of any joint venture or similar arrangement or commencement of any new line of business; | |||
(l) | merger with, acquisition of or investment in, or loan, advance or other extension of credit to or guarantee of any indebtedness or other obligation of, any third party; |
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54.3 | Mechanics of Conversion . |
(a) | Notice of Conversion . In order for a holder of Series A Preferred Stock to voluntarily convert shares of Series A Preferred Stock into Common Stock, such holder shall surrender the certificate or certificates for such Series A Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Company if the Company serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the Series A Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holders name or the names of the nominees in which such holder wishes the certificate or certificates for Common Stock to be issued. If required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Company if the Company serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice shall be the time of conversion (the Conversion Time ) and the conversion shall be effected by redemption of the relevant Series A Preferred Stock and the issue of the relevant Common Stock. The Company shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Series A Preferred Stock, or to his, her or its nominees, a certificate or certificates for the Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the Series A Preferred Stock represented by the surrendered certificate that was not converted into Common Stock, (ii) pay in cash such amount as provided in Article 54.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the Series A Preferred Stock converted. | |||
(b) | Reservation of Shares . The Company shall at all times when the Series A Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued share capital, for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its duly authorized Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Company shall take such corporate action as may be necessary to increase its authorized but unissued Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite Member approval of any necessary amendment to the Articles. Before taking any action which would cause an adjustment reducing the Series A Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the Company will take any corporate action which may, be necessary in order that the Company may validly and legally issue fully paid and non-assessable Common Stock at such adjusted Series A Conversion Price. | |||
(c) | Effect of Conversion . All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Article 54.4 and to receive payment of any dividends declared but unpaid thereon. Any Series A Preferred Stock so converted shall be cancelled and the authorised share capital reduced by such number of redeemed Series A Preferred Stock and the Company may thereafter take such appropriate action as may be necessary to reduce the authorized number of Series A Preferred Stock accordingly. |
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issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (ii) shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Series A Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date. | ||||||
(iii) | If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series A Conversion Price pursuant to the terms of Article 54.4(d) (either because the consideration per share (determined pursuant to Article 54.4(d)) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Series A Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series A Original Issue Date), are revised after the Series A Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Company upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Article 54.4(c)(i) ) shall be deemed to have been issued effective upon such increase or decrease becoming effective. | |||||
(iv) | Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series A Conversion Price pursuant to the terms of Article 54.4(d), the Series A Conversion Price shall be readjusted to such Series A Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued. | |||||
(v) | If the number of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Company upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series A Conversion Price provided for in this Article 54.4(c) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Article 54.4(c)). If the number of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Company upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Series A Conversion Price that would result under the terms of this Article 54.4(c) at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series A Conversion Price that such issuance or amendment took place at the time such calculation can first be made. |
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(d) | Adjustment of Series A Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event the Company shall at any time after the Series A Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Article 54.4(c)), without consideration or for a consideration per share less than the Series A Conversion Price in effect immediately prior to such issue, then the Series A Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula: | |||||
CP 2 = CP 1 * ((A + B) ÷ (A + C)) | ||||||
For purposes of the foregoing formula, the following definitions shall apply: | ||||||
(i) | CP 2 shall mean the Series A Conversion Price in effect immediately after such issue of Additional Shares of Common Stock | |||||
(ii) | CP 1 shall mean the Series A Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock; | |||||
(iii) | A shall mean the number of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Series A Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue); | |||||
(iv) | B shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Company in respect of such issue by CP 1 ); and | |||||
(v) | C shall mean the number of such Additional Shares of Common Stock issued in such transaction. | |||||
(e) | Determination of Consideration . For purposes of this Article 54.4, the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows: | |||||
(i) | Cash and Property : Such consideration shall: | |||||
(A) | insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company, excluding amounts paid or payable for accrued interest; | |||||
(B) | insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the board of Directors; and | |||||
(C) | in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the board of Directors. |
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54.9 | Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price pursuant to this Article 54, the Company at its expense shall, as promptly as reasonably practicable but in any event not later than 15 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series A Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A Preferred Stock (but in any event not later than 15 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series A Conversion Price then in effect, and (ii) the number of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series A Preferred Stock. | |||
54.10 | Notice of Record Date . In the event: | |||
(a) | the Company shall take a record of the holders of its Common Stock (or other shares or securities at the time issuable upon conversion of the Series A Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other security; or | |||
(b) | of any capital reorganization of the Company, any reclassification of the Common Stock of the Company, or any Deemed Liquidation Event; or | |||
(c) | of the voluntary dissolution, liquidation or winding-up of the Company, | |||
then, and in each such case, the Company will send or cause to be sent to the holders of the Series A Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other shares or securities at the time issuable upon the conversion of the Series A Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Stock and the Common Stock. Such notice shall be sent at least 10 days prior to the record date or effective date for the event specified in such notice. | ||||
55 | Mandatory Conversion | |||
55.1 | Trigger Events . Upon the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding Series A Preferred Stock (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the Mandatory Conversion Time ), (i) all outstanding Series A Preferred Stock shall automatically be converted into Common Stock pursuant to the formula set forth in Article 54.1(a) and (ii) such Series A Preferred Stock may not be reissued by the Company. | |||
55.2 | Procedural Requirements . All holders of record of Series A Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such Series A Preferred Stock pursuant to this Article 55. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of Series A Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate) to the Company at the |
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place designated in such notice. If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in a form satisfactory to the Company, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Series A Preferred Stock converted pursuant to Article 53.1 , including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Article 53.2 . As soon as practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Series A Preferred Stock, the Company shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Article 52.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the Series A Preferred Stock converted. Such converted Series A Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Company may thereafter take such appropriate action (without the need for Member action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly. | ||||
56 | Redeemed or Otherwise Acquired Shares | |||
Any Series A Preferred Stock that are redeemed or otherwise acquired by the Company or any of its subsidiaries shall be cancelled and shall not be reissued, sold or transferred. Neither the Company nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series A Preferred Stock following redemption. | ||||
57 | Waiver | |||
Any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth herein may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote of the holders of at least a majority of the Series A Preferred Stock then outstanding. |
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Exhibit 3.2
THE COMPANIES LAW (2016 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM AND ARTICLES OF ASSOCIATION
OF
ICHOR HOLDINGS, LTD.
(Adopted by Special Resolution passed on [] December 2016)
THE COMPANIES LAW (2016 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
ICHOR HOLDINGS, LTD.
(Adopted by Special Resolution passed on [] December 2016)
1 | The name of the Company is Ichor Holdings, Ltd. |
2 | The Registered Office of the Company shall be at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other place as the Directors may from time to time decide. |
3 | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law (2016 Revision) or as the same may be revised from time to time, or any other law of the Cayman Islands. |
4 | The liability of each Member is limited to the amount from time to time unpaid on such Members shares. |
5 | The authorised share capital of the Company is US$22,000 divided into 200,000,000 Ordinary Shares of a nominal or par value of US$0.0001 each and 20,000,000 Preferred Shares of a nominal or par value of US$0.0001 each. |
6 | The Company has the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
7 | Capitalised terms that are not defined in this Amended and Restated Memorandum of Association bear the same meaning as those given in the Amended and Restated Articles of Association of the Company. |
1
THE COMPANIES LAW (2016 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
ICHOR HOLDINGS, LTD.
(Adopted by Special Resolution passed on [] December 2016)
Table of Contents
1 | Interpretation | 5 | ||||
2 | Preliminary | 9 | ||||
3 | Issue of Shares | 10 | ||||
4 | Ordinary Shares | 10 | ||||
5 | Preferred Shares | 10 | ||||
6 | Register of Members and Share Certificates | 11 | ||||
7 | Transfer of Shares | 12 | ||||
8 | Redemption, Purchase and Surrender of Shares, Treasury Shares | 13 | ||||
9 | Variation of Rights Attaching to Shares | 14 | ||||
10 | Commission on Sale of Shares | 15 | ||||
11 | Non-Recognition of Trusts | 15 | ||||
12 | Transmission of Shares | 15 | ||||
13 | Alteration of Capital | 16 | ||||
14 | Closing Register of Members or Fixing Record Date | 17 |
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15 |
General Meetings | 17 | ||||
16 |
Notice of General Meetings | 18 | ||||
17 |
Proceedings at General Meetings | 24 | ||||
18 |
Votes of Members | 25 | ||||
19 |
Corporations Acting by Representatives at Meeting | 26 | ||||
20 |
Clearing Houses | 26 | ||||
21 |
Directors | 26 | ||||
22 |
Directors Fees and Expenses | 28 | ||||
23 |
Powers and Duties of Directors | 28 | ||||
24 |
Disqualification of Directors | 30 | ||||
25 |
Proceedings of Directors | 30 | ||||
26 |
Presumption of Assent | 33 | ||||
27 |
Dividends, Distributions and Reserve | 33 | ||||
28 |
Book of Accounts | 35 | ||||
29 |
Audit | 35 | ||||
30 |
The Seal | 35 | ||||
31 |
Officers | 36 | ||||
32 |
Register of Directors and Officers | 36 | ||||
33 |
Capitalisation of Profits | 36 | ||||
34 |
Notices | 37 | ||||
35 |
Information | 38 | ||||
36 |
Indemnity | 38 | ||||
37 |
Financial Year | 39 |
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38 | Winding Up | 39 | ||||
39 | Amendment of Memorandum and Articles of Association and Name of Company | 40 | ||||
40 | Registration by Way of Continuation | 40 | ||||
41 | Mergers and Consolidations | 40 |
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1 | Interpretation |
1.1 | In these Articles, unless otherwise defined, the defined terms shall have the meanings assigned to them as follows: |
Affiliate | means (i) in the case of a natural person, such persons parents, parents-in-law, spouse, children or grandchildren, a trust for the benefit of any of the foregoing, a company, partnership or any natural person or entity wholly or jointly owned by such person or any of the foregoing, and (ii) in the case of a corporation, partnership or other entity or any natural person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity. The term control shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, or the partnership or other entity (other than, in the case of a corporation, shares having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity. | |
Articles |
means the Amended and Restated Articles of Association of the Company, as from time to time altered or added to in accordance with the Statute and these Articles. | |
Business Day |
means a day, excluding Saturdays or Sundays, on which banks in New York, New York, United States of America are open for general banking business throughout their normal business hours. | |
Commission |
means the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act. | |
Company |
means Ichor Holdings, Ltd., a Cayman Islands company limited by shares. | |
Companys Website |
means the website of the Company, the address or domain name of which has been notified to Members. | |
Controlled Company |
has the meaning given to it in the rules of the Designated Stock Exchange. |
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Designated Stock Exchange |
means the Nasdaq Global Select Market or any other stock exchange or automated quotation system on which the Companys securities are then traded. | |
Dividend | means any dividend (whether interim or final) resolved to be paid on shares pursuant to these Articles. | |
Directors |
means the directors of the Company for the time being, or as the case may be, the Directors assembled as a board or as a committee thereof. | |
electronic |
has the meaning given to it in the Electronic Transactions Law (2003 Revision) of the Cayman Islands and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor. | |
electronic record |
has the meaning given to it in the Electronic Transactions Law (2003 Revision) of the Cayman Islands and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor. | |
electronic communication |
means electronic transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than a majority vote of the Directors. | |
Exchange Act |
means the United States Securities Exchange Act of 1934, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. | |
Francisco Partners |
means Francisco Partners III (Cayman), L.P., a Cayman Islands exempted limited partnership. | |
Francisco Partners Designee |
means each person whom Francisco Partners shall actually nominate pursuant to Article 16.5 and who is thereafter elected approved and appointed to serve as a Director. | |
Market Price |
means for any given day, the price quoted in respect of the Ordinary Shares on the Designated Stock Exchange of the close of trading on such day, or if such day is not a date on which the Designated Stock Exchange is open, then the close of trading on the previous trading day. |
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Member |
means a person whose name is entered in the Register of Members as the holder of a share or shares. | |
Memorandum of Association |
means the Memorandum of Association of the Company, as amended and restated from time to time. | |
month |
means the calendar month. | |
Nominating Member |
means (i) the Member providing the notice of the nomination proposed to be made at a general meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at any general meeting is made, and (iii) any affiliate or associate of such stockholder or beneficial owner. | |
Ordinary Resolution |
means (i) a resolution passed by a simple majority of votes cast by such Members as, being entitled to do so, vote in person or, in the case of any Member being an organisation, by its duly authorised representative or, where proxies are allowed, by proxy at a general meeting of the Company or (ii) a unanimous written resolution. | |
Ordinary Shares |
means an Ordinary Share in the capital of the Company of US$0.0001 nominal or par value designated as Ordinary Shares, and having the rights provided for in these Articles. | |
Preferred Shares |
means shares in the capital of the Company of US$0.0001 nominal or par value designated as Preferred Shares, and having the rights provided for in these Articles. | |
Register of Members |
means the register maintained by the Company in accordance with section 40 of the Statute or any modification or re-enactment thereof for the time being in force. | |
Registered Office |
means the registered office for the time being of the Company. | |
Seal |
means the common seal of the Company including any facsimile thereof. | |
Securities Act |
means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. |
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share |
means any share in the capital of the Company, including the Ordinary Shares, Preferred Shares and shares of other classes. | |
signed |
means a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a person with the intent to sign the electronic communication. | |
Special Resolution |
means (i) a resolution passed by not less than two-thirds of votes cast by such Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution, has been duly given or (ii) a unanimous written resolution. | |
Statute |
means the Companies Law (2016 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof. | |
Treasury Share | means a share held in the name of the Company as a treasury share in accordance with the Statute. | |
year |
means the calendar year. |
1.2 | In these Articles, save where the context requires otherwise: |
(a) | words importing the singular number shall include the plural number and vice versa; |
(b) | words importing the masculine gender only ( i.e. , he and his) shall include the feminine gender ( i.e. , her, and hers) and shall include references to entities without gender ( i.e. , it and its); |
(c) | words importing persons only shall include companies or associations or bodies of persons, whether corporate or not; |
(d) | may shall be construed as permissive and shall shall be construed as imperative; |
(e) | a reference to a dollar or dollars (or $) is a reference to dollars of the United States of America; |
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(f) | references to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force; |
(g) | any phrase introduced by the terms including, include, in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms; |
(h) | Section 8 and 19(3) of the Electronic Transactions Law (2003 Revision) shall not apply; |
(i) | written and in writing means all modes of representing or reproducing words in visible form, including in the form of an electronic record and any requirements as to delivery under these Articles include delivery in the form of an electronic record; where used in connection with a notice served by the Company on Members or other persons entitled to receive notices hereunder, such writing shall also include a record maintained in an electronic medium which is accessible in visible form so as to be useable for subsequent reference; |
(j) | any requirements as to execution or signature under these Articles can be satisfied in the form of an electronic signature as defined in the Electronic Transactions Law (2003 Revision); |
(k) | the term clear days in relation to the period of a notice means that period excluding the day when the notice is received or deemed to be received and the day for which it is given or on which it is to take effect; and |
(l) | the term holder in relation to a share means a person whose name is entered in the Register of Members as the holder of such share. |
1.3 | Subject to the last two preceding Articles, any words defined in the Statute shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. |
2 | Preliminary |
2.1 | The business of the Company may be commenced as soon after incorporation as the Directors see fit, notwithstanding that only part of the shares may have been allotted or issued. |
2.2 | The registered office of the Company shall be at such address in the Cayman Islands as the Directors shall from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine. |
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3 | Issue of Shares |
3.1 | Subject to the provisions, if any, in the Memorandum (and to any direction that may be given by the Company in general meeting) the Directors may, in their absolute discretion and without approval of the holders of Ordinary Shares, allot, issue, grant options over or otherwise dispose of shares (including fractions of a share) with or without preferred, deferred or other rights or restrictions, whether in regard to Dividend or other distribution, voting, return of capital or otherwise, any or all of which may be greater than the powers and rights associated with the Ordinary Shares, to such persons, at such times and on such other terms as they think proper, which shall be conclusively evidenced by their approval of the terms thereof, and may also (subject to the Statute and these Articles) vary such rights. |
3.2 | The Company shall not issue shares in bearer form and shall only issue shares as fully paid. |
4 | Ordinary Shares |
4.1 | The holders of the Ordinary Shares shall be: |
(a) | entitled to dividends in accordance with the relevant provisions of these Articles; |
(b) | entitled to and are subject to the provisions in relation to winding up of the Company provided for in these Articles; |
(c) | entitled to attend general meetings of the Company and shall be entitled to one vote for each Ordinary Share registered in his name in the Register of Members, both in accordance with the relevant provisions of these Articles. |
4.2 | All Ordinary Shares shall rank pari passu with each other in all respects. |
5 | Preferred Shares |
5.1 | Preferred Shares may be issued from time to time in one or more series, each of such series to have such voting powers (full or limited or without voting powers), designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed, or in any resolution or resolutions providing for the issue of such series adopted by the Directors as hereinafter provided. |
5.2 | Authority is hereby granted to the Directors, subject to the provisions of the Memorandum, these Articles and applicable law, to create one or more series of Preferred Shares and, with respect to each such series, to fix by resolution or resolutions, without any further vote or action by the Members of the Company providing for the issue of such series: |
(a) | the number of Preferred Shares to constitute such series and the distinctive designation thereof; |
(b) | the dividend rate on the Preferred Shares of such series, the dividend payment dates, the periods in respect of which dividends are payable ( Dividend Periods ), whether such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate; |
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(c) | whether the Preferred Shares of such series shall be convertible into, or exchangeable for, Shares of any other class or classes or any other series of the same or any other class or classes of Shares and the conversion price or prices or rate or rates, or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided in such resolution or resolutions; |
(d) | the preferences, if any, and the amounts thereof, which the Preferred Shares of such series shall be entitled to receive upon the winding up of the Company; |
(e) | the voting power, if any, of the Preferred Shares of such series; |
(f) | transfer restrictions and rights of first refusal with respect to the Preferred Shares of such series; and |
(g) | such other terms, conditions, special rights and provisions as may seem advisable to the Directors. |
5.3 | Notwithstanding the fixing of the number of Preferred Shares constituting a particular series upon the issuance thereof, the Directors at any time thereafter may authorise the issuance of additional Preferred Shares of the same series subject always to the Statute and the Memorandum. |
5.4 | No dividend shall be declared and set apart for payment on any series of Preferred Shares in respect of any Dividend Period unless there shall likewise be or have been paid, or declared and set apart for payment, on all Preferred Shares of each other series entitled to cumulative dividends at the time outstanding which rank senior or equally as to dividends with the series in question, dividends rateably in accordance with the sums which would be payable on the said Preferred Shares through the end of the last preceding Dividend Period if all dividends were declared and paid in full. |
5.5 | If, upon the winding up of the Company, the assets of the Company distributable among the holders of any one or more series of Preferred Shares which (a) are entitled to a preference over the holders of the Ordinary Shares upon such winding up; and (b) rank equally in connection with any such distribution, shall be insufficient to pay in full the preferential amount to which the holders of such Preferred Shares shall be entitled, then such assets, or the proceeds thereof, shall be distributed among the holders of each such series of the Preferred Shares rateably in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full. |
6 | Register of Members and Share Certificates |
6.1 | The Company shall maintain or cause to be maintained the Register of Members in accordance with the Statute. |
6.2 | The Directors may determine that the Company shall maintain one or more branch registers of Members in accordance with the Statute. The Directors may also determine which register of Members shall constitute the principal register and which shall constitute the branch register or registers, and to vary such determination from time to time. |
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6.3 | Shares shall be held in uncertificated, book entry form, unless the Directors resolve that share certificates shall be issued. Every person whose name is entered as a Member in the Register of Members and whose shares are to be held in certificated form shall, upon request and without payment, be entitled to a certificate within two months after allotment or transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. |
6.4 | All certificates shall specify the share or shares held by that person and the amount paid up thereon, provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all. In the event that shares are held jointly by several persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders. |
6.5 | If a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably incurred by the Company in investigating evidence, as the Directors may prescribe, and (in the case of defacement or wearing out) upon delivery of the old certificate. |
6.6 | All certificates for shares shall be delivered personally or sent through the post addressed to the member entitled thereto at the Members registered address as appearing in the Register of Members. Every share certificate sent in accordance with these Articles will be sent at the risk of the Member or other person entitled to the certificate. The Company will not be responsible for any share certificate lost or delayed in the course of delivery. |
6.7 | Every share certificate of the Company shall bear any legends required under applicable laws, including the Securities Act. |
7 | Transfer of Shares |
7.1 | Subject to these Articles and the rules or regulations of the Designated Stock Exchange or any relevant securities laws (including, but not limited to the Exchange Act), any Member may transfer all or any of his shares by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange or in any other form approved by the Directors and may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the Directors may approve from time to time. |
7.2 | The instrument of transfer shall be executed by or on behalf of the transferor. Without prejudice to the last preceding Article, the Directors may also resolve, either generally or in any particular case, upon request by the transferor or transferee to accept mechanically executed transfers. The transferor shall be deemed to remain the holder of the share until the name of the transferee in entered into the Register of Members in respect thereof. |
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7.3 | The Directors may, in their absolute discretion, decline to register any transfer of shares, subject to any applicable requirements imposed from time to time by the Commission and the Designated Stock Exchange. |
7.4 | Without limiting the generality of the last preceding Article, the Directors may decline to recognise any instrument of transfer unless: |
(a) | a fee of such maximum sum as the Directors may from time to time require is paid to the Company in respect thereof; |
(b) | the instrument of transfer is in respect of only one class of share; |
(c) | the instrument of transfer is lodged at the Registered Office or such other place as the Register of Members is kept in accordance with the Statute accompanied by the relevant share certificate(s) (if any) or such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do); and |
(d) | the instrument of transfer is duly and properly signed. |
7.5 | If the Directors refuse to register a transfer of any share, the Company shall, within three months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of the refusal. |
7.6 | The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than forty five (45) days in any year. |
7.7 | The Directors in so far as permitted by any applicable law and rules of the Designated Stock Exchange may, in their absolute discretion, at any time and from time to time transfer any share upon the Register of Members to any branch register or any share on any branch register to the Register of Members or any other branch register. In the event of any such transfer, the Member requesting such transfer shall bear the cost of effecting such transfer unless the Directors otherwise determine. |
8 | Redemption, Purchase and Surrender of Shares, Treasury Shares |
8.1 | Subject to the provisions, if any, in these Articles, the Memorandum, applicable law, including the Statute, and the rules of the Designated Stock Exchange, the Company may: |
(a) | issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the Member on such terms and in such manner as the Directors may, before the issue of such shares, determine; and |
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(b) | purchase its own shares (including any redeemable shares) in such manner and on such other terms as the Directors may agree with the relevant Member, provided that the manner of purchase is in accordance with any applicable requirements imposed from time to time by the Commission or the Designated Stock Exchange; |
8.2 | The Company may make a payment in respect of the redemption or purchase of its own shares in any manner permitted by the Statute, including out of capital. |
8.3 | The Directors may accept the surrender for no consideration of any fully paid share. |
8.4 | The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share. |
8.5 | The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration). |
9 | Variation of Rights Attaching to Shares |
9.1 | If at any time the share capital of the Company is divided into different classes of shares, all or any of the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied without the consent of the holders of the issued shares of that class where such variation is considered by the Directors not to have a material adverse effect upon such rights; otherwise, any such variation shall be made only with the consent in writing of the holders of not less than two thirds of the issued shares of that class, or with the sanction of a resolution passed by a majority of not less than two thirds of the votes cast at a separate meeting of the holders of the shares of that class. For the avoidance of doubt, the Directors reserve the right, notwithstanding that any such variation may not have a material adverse effect, to obtain consent from the holders of shares of the relevant class. To any such meeting all the provisions of these Articles relating to general meetings shall apply mutatis mutandis , except that the necessary quorum shall be one person holding or representing by proxy at least one third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. |
9.2 | For the purposes of a separate class meeting, the Directors may treat two or more or all the classes of Shares as forming one class of shares if the Directors consider that such class of Shares would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate classes of shares. |
9.3 | The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking in priority to or pari passu therewith. |
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10 | Commission on Sale of Shares |
10.1 | The Company may, in so far as the Statute permits, pay a commission to any person in consideration of his subscribing or agreeing to subscribe (whether absolutely or conditionally) or procuring or agreeing to procure subscriptions (whether absolutely or conditionally) for any shares. Such commissions may be satisfied by the payment of cash and/or the issue of fully or partly paid-up shares. The Company may also on any issue of shares pay such brokerage as may be lawful. |
11 | Non-Recognition of Trusts |
11.1 | The Company shall not be bound by or compelled to recognise in any way (even when notified) any equitable, contingent, future or partial interest in any share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any share other than an absolute right to the entirety thereof in the holder. |
12 | Transmission of Shares |
12.1 | If a Member dies, the survivor or survivors (where he was a joint holder) or his legal personal representatives (where he was a sole holder), shall be the only persons recognised by the Company as having any title to his shares. The estate of a deceased Member is not thereby released from any liability in respect of any share, for which he was a joint or sole holder. |
12.2 | Any person becoming entitled to a share in consequence of the death or bankruptcy, liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may be required by the Directors, elect, by a notice in writing sent by him to the Company, either to become the holder of such share or to have some person nominated by him registered as the holder of such share. If he elects to have another person registered as the holder of such share he shall sign an instrument of transfer of that share to that person. The Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the relevant Member before his death or bankruptcy, liquidation or dissolution, as the case may be. |
12.3 | A person becoming entitled to a share by reason of the death or bankruptcy or liquidation or dissolution of a Member (or in any other case than by transfer) shall be entitled to the same Dividends, other distributions and other advantages to which he would be entitled if he were the holder of such share. However, he shall not, before becoming a Member in respect of a share, be entitled in respect of it to exercise any right conferred by membership in relation to general meetings of the Company and the Directors may at any time give notice requiring any such person to elect either to be registered himself or to have some person nominated by him be registered as the holder of the share (but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the relevant Member before his death or bankruptcy or liquidation or dissolution or any other case than by transfer, as the case may be). If the notice is not complied with within ninety days of being received or deemed to be received (as determined pursuant to these Articles) the Directors may thereafter withhold payment of all Dividends, other distributions, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with. |
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13 | Alteration of Capital |
13.1 | Subject to these Articles, the Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe. |
13.2 | Subject to these Articles, the Company may by Ordinary Resolution: |
(a) | consolidate and divide all or any of its share capital into shares of larger amount than its existing shares, provided that any fractions of a share that result from such a consolidation or division of its share capital shall be automatically repurchased by the Company at (i) the Market Price on the date of such consolidation or division, in the case of any shares listed on a Designated Stock Exchange and (ii) a price to be agreed between the Company and the applicable Member in the case of any shares not listed on a Designated Stock Exchange; |
(b) | sub-divide its existing shares, or any of them into shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; |
(c) | divide shares into multiple classes; or |
(d) | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. |
13.3 | All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital. |
13.4 | Subject to these Articles, the Company may by Special Resolution: |
(a) | change its name; |
(b) | alter or add to these Articles; |
(c) | alter or add to the Memorandum of Association with respect to any objects, powers or other matters specified therein; or |
(d) | reduce its share capital and any capital redemption reserve in any manner authorised by law. |
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14 | Closing Register of Members or Fixing Record Date |
14.1 | For the purpose of determining Members entitled to notice of, attend or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any Dividend or other distribution, or in order to make a determination of Members for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period which shall not in any case exceed forty days. |
14.2 | If the Register of Members shall be so closed for the purpose of determining those Members that are entitled to receive notice of, attend or vote at a meeting of Members such register shall be so closed for at least ten (10) calendar days (but not more than sixty (60) calendar days) immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members, which such date shall not precede the date upon which the resolution fixing the record date is adopted by the Directors. The Directors shall prepare, or cause to be prepared, at least ten (10) days before every general meeting, a complete list of the Members entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each Member and the number of shares registered in the name of each Member. Such list shall be open to the examination of any Member, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the principal executive office of the Company. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Member who is present. |
14.3 | In lieu of, or apart from, closing the Register of Members, the Directors may fix in advance or arrears a date as the record date for any such determination of Members entitled to notice of, attend or to vote at a meeting of the Members or any adjournment thereof, or for the purpose of determining those Members that are entitled to receive payment of any Dividend or other distribution, or in order to make a determination of Members for any other purpose. |
14.4 | If the Register of Members is not so closed and no record date is fixed for the determination of Members entitled to receive notice of, attend or to vote at a meeting of Members or those Members that are entitled to receive payment of a Dividend or other distribution, the record date for such determination of Members shall be at the close of business on the Business Day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the Business Day next preceding the day on which the meeting is held. When a determination of those Members that are entitled to receive notice of, attend or vote at a meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof. |
15 | General Meetings |
15.1 | All general meetings of the Company other than annual general meetings shall be called extraordinary general meetings. |
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15.2 | For so long as the Companys securities are traded on a Designated Stock Exchange, the Company shall in each year hold a general meeting as its annual general meeting at such time and place as may be determined by the Directors. |
15.3 | Extraordinary general meetings may be called by a majority of the Directors or by the chairman of the board of Directors. If an extraordinary general meeting is called by the Directors, such extraordinary general meeting shall be held at such time and place as may be determined by the Directors, and if an extraordinary general meeting is called by the chairman of the board of Directors, such extraordinary general meeting shall be held at such time and place as may be determined by the chairman of the board of Directors. |
15.4 | A person may participate at a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting. |
16 | Notice of General Meetings |
16.1 | At least ten (10) calendar days notice (but not more than sixty (60) calendar days notice) shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting, the matters that are intended to be presented, and, in the case of annual general meetings, the name of any nominee who the Directors intend to present for election, and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: |
(a) | in the case of an annual general meeting, by all the Members (or their proxies) entitled to attend and vote thereat; and |
(b) | in the case of an extraordinary general meeting, by the Members (or their proxies) having a right to attend and vote at the meeting, together holding not less than a majority of the shares giving that right. |
16.2 | The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a Special Resolution shall specify the intention to propose the resolution as a Special Resolution. Notice of every general meeting shall be given to all Members other than such as, under the provisions hereof or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company. |
16.3 | In cases where instruments of proxy are sent out with a notice of general meeting, the accidental omission to send such instrument of proxy to, or the non-receipt of any such instrument of proxy by, any person entitled to receive notice shall not invalidate any resolution passed or any proceeding at any such meeting. |
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16.4 | No business may be transacted at any general meeting, other than business that is either (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Directors (or any duly authorised committee thereof), (B) otherwise properly brought before an annual general meeting by or at the direction of the Directors (or any duly authorised committee thereof) or (C) otherwise properly brought before an annual general meeting by any Member of the Company who (1) is a Member of record on both (x) the date of the giving of the notice by such Member provided for in this Article and (y) the record date for the determination of Members entitled to vote at such annual general meeting and (2) complies with the notice procedures set forth in this Article. |
(a) | In addition to any other applicable requirements, for business to be brought properly before an annual general meeting by a Member, such Member must have given timely notice thereof in proper written form to the Secretary of the Company and comply with Article 16.4(c) and (f). |
(b) | All notices of general meetings shall be sent or otherwise given in accordance with this Article not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of an extraordinary general meeting, the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual general meeting, those matters which the Directors, at the time of giving the notice, intends to present for action by the members (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which Directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the Directors intend to present for election. |
(c) | For matters other than for the nomination for election of a Director to be made by a Member, to be timely, such Members notice shall be delivered to the Company at the principal executive offices of the Company not less than ninety (90) days and not more than one hundred twenty (120) days prior to the one-year anniversary of the preceding years annual general meeting; provided, however, that if the Companys annual general meeting occurs on a date more than thirty (30) days earlier or later than the Companys prior years annual general meeting, then the Directors shall determine a date a reasonable period prior to the Companys annual general meeting by which date the Members notice must be delivered and publicise such date in a filing pursuant to the Exchange Act, or via press release. Such publication shall occur at least ten (10) days prior to the date set by the Directors. |
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(d) | To be in proper written form, a Members notice to the Company must set forth as to such matter such Member proposes to bring before the annual general meeting: |
(i) | a reasonably brief description of the business desired to be brought before the annual general meeting, including the text of the proposal or business, and the reasons for conducting such business at the annual general meeting; |
(ii) | the name and address, as they appear on the Companys Register of Members, of the Member proposing such business and any Member Associated Person (as defined below); |
(iii) | the class or series and number of shares of the Company that are held of record or are beneficially owned by such Member or any Member Associated Person and any derivative positions held or beneficially held by the Member or any Member Associated Person; |
(iv) | whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such Member or any Member Associated Person with respect to any securities of the Company, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such Member or any Member Associated Person with respect to any securities of the Company; |
(v) | any material interest of the Member or a Member Associated Person in such business, including a reasonably detailed description of all agreements, arrangements and understandings between or among any of such Members or between or among any proposing Members and any other person or entity (including their names) in connection with the proposal of such business by such Member; and |
(vi) | a statement as to whether such Member or any Member Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the Companys voting shares required under applicable law and the rules of the Designated Stock Exchange to carry the proposal. |
For purposes of this Article 16.4(d), a Member Associated Person of any Member shall mean (x) any Affiliate; or person acting in concert with, such Member, (y) any beneficial owner of shares of the Company owned of record or beneficially by such Member and on whose behalf the proposal or nomination, as the case may be, is being made, or (z) any person controlling, controlled by or under common control with such person referred to in the preceding clauses (x) and (y). |
(e) |
In addition to any other applicable requirements and subject to Article 16.5, for a nomination for election of a Director to be made by a Member of the Company (other than Directors to be nominated by any series of Preferred Shares, voting separately as a class), such Member must (A) be a Member of record on both (x) the date of the giving of the notice by such Member provided for in this Article and (y) the record date for the |
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determination of Members entitled to vote at such annual general meeting, and on each such date beneficially own more than 15% of the issued Ordinary Shares (unless otherwise provided in the Exchange Act or the rules and regulations of the Commission) and (B) have given timely notice thereof in proper written form to the Secretary of the Company. If a Member is entitled to vote only for a specific class or category of directors at a meeting of the Members, such Members right to nominate one or more persons for election as a director at the meeting shall be limited to such class or category of directors. |
(f) | To be timely for purposes of Article 16.4(e), a Members notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than ninety (90) nor more than one hundred twenty (120) days prior to the meeting; provided, however, that in the event less than one hundred thirty (130) days notice or prior public disclosure of the date of the meeting is given or made to Members, notice by the Member to be timely must be so received not later than the close of business on the tenth (10 th ) day following the earlier of the day on which such notice of the date of the meeting was mailed or such public disclosure was made. |
(g) | To be in proper written form for purposes of Article 16.4(f), a Nominating Members notice to the Secretary must be set forth: |
(i) | as to each Nominating Member: |
(A) | the information that is requested in Article 16.4(d)(ii)-(vi); and |
(B) | any other information relating to such Member that would be required to be disclosed pursuant to any applicable law and rules of the Commission or of the Designated Stock Exchange. |
(ii) | as to each person whom the Member proposes to nominate for election as a director: |
(A) | all information that would be required by Article 16.4(d)(ii)-(vi) if such nominee was a Nominating Member, except such information shall also include the business address and residence address of the person; |
(B) | the principal occupation or employment of the person; |
(C) | all information relating to such person that is required to be disclosed in solicitations of proxies for appointment of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act or any successor provisions thereto, and any other information relating to the person that would be required to be disclosed pursuant to any applicable law and rules of the Commission or of the Designated Stock Exchange; and |
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(D) | a description of all direct and indirect compensation and other material monetary arrangements and understandings during the past three years, and any other material relationship, between or among any Nominating Member and his Affiliates and associates, on the one hand, and each proposed nominee, his respective Affiliates and associates, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K of the Exchange Act if such Nominating Member were the registrant for purposes of such rule and the proposed nominee were a director or executive officer of such registrant. |
Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. The Company may require any proposed nominee to furnish such other information as may be reasonably required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Company in accordance with the rules of the Designated Stock Exchange. |
(h) | Unless otherwise provided by the terms of these Articles, any series of Preferred Shares or any agreement among Members or other agreement approved by the Directors, only persons who are nominated in accordance with the procedures set forth above shall be eligible to serve as Directors. If the chairman of a general meeting determines that a proposed nomination was not made in compliance with these Articles, he or she shall declare to the general meeting that nomination is defective and such defective nomination shall be disregarded. Notwithstanding the foregoing provisions of these Articles, if the Nominating Member (or a qualified representative of the Nominating Member) does not appear at the general meeting to present the nomination, such nomination shall be disregarded. |
(i) | Notwithstanding anything herein to the contrary, Francisco Partners and its Affiliates who are Members (including Francisco Partners Parallel Fund III (Cayman), L.P. and Ichor Investment Holdings, LLC) shall not be required to comply with the advance notice or 15% ownership threshold requirements, as applicable, set forth in Articles 14.4(c) and 14.4(f) for so long as they beneficially own (directly or indirectly) at least 5% of the total issued Ordinary Shares, but shall provide any such notice to the Company at least forty (40) days prior to the applicable general meeting. |
16.5 |
Notwithstanding any provision of these Articles to the contrary, Francisco Partners shall have the right, but not the obligation, to nominate at any time persons to be appointed as Directors to the board by way of notification of such nomination to the Directors of the Company and such nomination will be included in the notice of general meeting in accordance with Article 16.8 such that, taking into account any Director continuing to serve as such without the need for re-election, the number of Francisco Partners Designees serving as Directors of the Company will be equal to: (i) if Francisco Partners and its Affiliates (including Francisco Partners Parallel Fund III (Cayman), L.P. and Ichor Investment Holdings, LLC) beneficially own (directly or indirectly) 40% or more of the total issued Ordinary Shares as of the record date for such meeting, all of the |
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Directors; (ii) if Francisco Partners and its Affiliates (including Francisco Partners Parallel Fund III (Cayman), L.P. and Ichor Investment Holdings, LLC) beneficially own (directly or indirectly) at least 30% (but less than 40%) of the total issued Ordinary Shares as of the record date for such meeting, the lowest whole number that is greater than 40% of the Total Number of Directors (but in no event fewer than two Directors) ; (iii) if Francisco Partners and its Affiliates (including Francisco Partners Parallel Fund III (Cayman), L.P. and Ichor Investment Holdings, LLC) beneficially own (directly or indirectly) at least 20% (but less than 30%) of the total issued Ordinary Shares as of the record date for such meeting, the lowest whole number that is greater than 30% of the Total Number of Directors (but in no event fewer than two Directors); (iv) if Francisco Partners and its Affiliates (including Francisco Partners Parallel Fund III (Cayman), L.P. and Ichor Investment Holdings, LLC) beneficially own (directly or indirectly) at least 10% (but less than 20%) of the total issued Ordinary Shares as of the record date for such meeting, two Directors; and (v) if the Francisco Partners and its Affiliates (including Francisco Partners Parallel Fund III (Cayman), L.P. and Ichor Investment Holdings, LLC) beneficially own (directly or indirectly) at least 5% (but less than 10%) of the total issued Ordinary Shares as of the record date for such meeting, one Director. Each Francisco Partners Designee shall be an independent director of the Company (as defined in the rules of the Designated Stock Exchange) if required by the applicable rules of the Designated Stock Exchange (subject to any applicable exceptions for Controlled Companies). |
16.6 | Subject to Articles 16.5 and 16.7, the Directors shall have power at any time and from time to time to appoint any person to be a Director, either as a result of a casual vacancy or as an additional Director, subject to the maximum number (if any) imposed by the Directors. |
16.7 | In the event that a vacancy is created at any time by the death, disability, retirement or resignation of any Francisco Partners Designee, the Company shall use its best efforts to cause such vacancy to be filled, as soon as possible, by a new designee of Francisco Partners, and the Company shall take, to the fullest extent permitted by law, at any time and from time to time, all actions necessary to accomplish the same. A Director appointed to fill a vacancy in accordance with this Article shall be of the same Class of Director as the Director he or she replaced and the term of such appointment shall terminate in accordance with that Class of Director. |
16.8 | The Directors will ensure that the Francisco Partners Designees nominated in accordance with Article 16.5 are included in the notice of meeting for the next available annual general meeting, noting that a general meeting will only be the next available annual general meeting if the advance notice requirements of these Articles can be complied with. |
16.9 | Subject to Article 16.5, the Company may by Ordinary Resolution appoint any person to be a Director. |
16.10 | Subject to these Articles, a Director shall hold office until the expiry of his or her term as contemplated by Article 21.2 or, until such time as he or she vacates office in accordance with Article 24.1. |
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16.11 | No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth in this Article. If the chairman of an annual general meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. This Article 16 shall not apply to any nomination of a director in an election in which only the holders of one or more series of Preferred Shares of the Company are entitled to vote (unless otherwise provided in the terms of such series of Preferred Shares). |
16.12 | The accidental omission to give notice of a meeting to or the non receipt of a notice of a meeting by any Member shall not invalidate the proceedings at any meeting. |
17 | Proceedings at General Meetings |
17.1 | No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business. Members holding in aggregate not less than a simple majority of all voting share capital of the Company in issue present in person or by proxy and entitled to vote shall be a quorum, provided that for so long as the Company is a Controlled Company, a general meetings shall not be quorate unless Francisco Partners is in attendance. A person may participate at a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting. If, however, such quorum is not present or represented at any general meeting, then either (i) the chairman of the meeting or (ii) the Members entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting. |
17.2 | When a meeting is adjourned to another time and place, unless these Articles otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Company may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting. |
17.3 | A determination of the Members of record entitled to notice of or to vote at a general meeting shall apply to any adjournment of such meeting unless the Directors fix a new record date for the adjourned meeting, but the Directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. |
17.4 | The chairman of the board of Directors shall preside as chairman at every general meeting of the Company. If at any meeting the chairman of the board of Directors is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, the Directors present shall elect one of their number as chairman of the meeting or if all the Directors present decline to take the chair, the Members present shall choose one of their own number to be the chairman of the meeting. |
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17.5 | At any general meeting a resolution put to the vote of the meeting shall be decided on a poll. |
17.6 | A poll shall be taken in such manner as the chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting. |
17.7 | In the case of an equality of votes, the chairman of the meeting shall not be entitled to a second or casting vote. |
18 | Votes of Members |
18.1 | Subject to any rights and restrictions for the time being attached to any class or classes of shares, every Member present in person and every person representing a Member by proxy at a general meeting of the Company shall have one vote for each share registered in such Members name in the Register of Members. No cumulative voting shall be allowed. |
18.2 | In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. |
18.3 | A Member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote on a poll by his committee, or other person in the nature of a committee appointed by that court, and any such committee or other person, may on a poll, vote by proxy. |
18.4 | No Member shall be entitled to vote at any general meeting unless all sums presently payable by him in respect of shares in the Company have been paid. |
18.5 | On a poll, votes may be given either personally or by proxy. |
18.6 | The instrument appointing a proxy shall be in writing (whether by manual signature, typewriting, telegraphic transmission, telefacsimile or otherwise) under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is an entity, either under seal or under the hand of an officer or attorney duly authorised in that behalf provided however, that a Member may also authorise the casting of a vote by proxy pursuant to telephonic or electronically transmitted instructions (including, without limitation, instructions transmitted over the internet) obtained pursuant to procedures approved by the Directors which are reasonably designed to verify that such instructions have been authorised by such Member. A proxy need not be a Member of the Company. Notwithstanding the foregoing, no proxy shall be voted or acted upon after three (3) years from its date unless the proxy provides for a longer period. |
18.7 | An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. |
18.8 | The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. |
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18.9 | Shares that are beneficially owned by the Company shall not be voted, directly or indirectly, at any general meeting and shall not be counted in determining the total number of issued Shares at any given time. |
19 | Corporations Acting by Representatives at Meeting |
19.1 | Any corporation or other entity which is a Member may, by resolution of its directors, other governing body or authorised individual(s), authorise such person as it thinks fit to act as its representative at any general meeting of the Company or of any class of Members, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Member. |
20 | Clearing Houses |
20.1 | If a clearing house or depository (or its nominee) is a Member it may, by resolution of its directors, other governing body or authorised individual(s) or by power of attorney, authorise such person or persons as it thinks fit to act as its representative or representatives at any general meeting of the Company or at any general meeting of any class of Members; provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person so authorised pursuant to this provision shall be entitled to exercise the same powers on behalf of the clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual member of the Company holding the number and class of shares specified in such authorisation. |
21 | Directors |
21.1 | There shall be a board of Directors consisting of six (6) Directors, unless increased or decreased from time to time by the Directors or the Company in general meeting, provided that, for so long as Francisco Partners has the right to nominate any Director pursuant to Article 16.5, the size of the board of Directors shall not be increased or decreased without the prior written consent of Francisco Partners. So long as Shares are listed on the Designated Stock Exchange, the board of Directors shall include such number of independent directors as the relevant rules applicable to the listing of any Shares on the Designated Stock Exchange require (subject to any applicable exceptions for Controlled Companies). |
21.2 |
The Directors shall be divided into three (3) classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Directors. At the 2017 annual general meeting of Members, the term of office of the Class I Directors shall expire and Class I Directors shall be elected for a full term of three (3) years. At the 2018 annual general meeting of Members, the term of office of the Class II Directors shall expire and Class II Directors shall be elected for a full term of three (3) years. At the 2019 annual general meeting of Members, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three (3) years. At each succeeding annual general meeting of Members, Directors shall be elected for a full term of three (3) years to succeed the Directors of the class whose terms expire at such annual general |
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meeting. Notwithstanding the foregoing provisions of this Article, each Director shall hold office until the expiration of his term, until his successor shall have been duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Directors shall shorten the term of any incumbent Director. |
21.3 | The Directors by the affirmative vote of a simple majority of the remaining Directors present and voting at a meeting of the Directors, even if less than a quorum, shall have the power from time to time and at any time to appoint any person as a Director to fill a casual vacancy on the board of Directors or as an addition to the existing board of Directors, subject to these Articles (including Articles 16.5 and 16.7), applicable law and the listing rules of the Designated Stock Exchange; provided that any vacancy not filled by the Directors may be filled by the Members by Ordinary Resolution at the next annual general meeting or extraordinary general meeting called for that purpose; provided further, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more Directors by the provisions of these Articles, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the Directors elected by such class or classes or series thereof then in office, or by a sole remaining Director so elected or by the Members holding such class or classes of shares or series thereof in accordance with these Articles. Any Director so appointed shall hold office until the expiration of the term of such class of Directors or until his earlier death, resignation or removal. |
21.4 |
A director may be removed from office by the Members by Special Resolution only for cause (cause for removal of a Director shall be deemed to exist only if (a) the Director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (b) such Director has been found by the affirmative vote of a majority of the Directors then in office at any regular or special meeting of the board of Directors called for that purpose, or by a court of competent jurisdiction, to have been guilty of wilful misconduct in the performance of such Directors duties to the Company in a matter of substantial importance to the Company; or (c) such Director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects such directors ability to perform his or her obligations as a Director) at any time before the expiration of his term notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement); provided that, prior to the first date on which Francisco Partners and its Affiliates cease to beneficially own (directly or indirectly) at least 30% of the issued Ordinary Shares, a Director may be removed with or without cause upon the affirmative vote of Francisco Partners and its Affiliates which beneficially own issued Shares. If the board of Directors makes a determination that removal of a Director by the Members by Special Resolution is in the best interests of the Company the above definition of cause shall not apply. A vacancy on the board of Directors created by the removal of a Director under the provisions of these Articles may be filled by the election or appointment by Ordinary Resolution at the general meeting at which such Director is removed or by the affirmative vote of a simple majority of the remaining Directors present and voting at a meeting of the Directors, subject to these Articles, applicable law and the listing rules of the Designated Stock Exchange, provided that if any Director so removed is a Francisco Partners Designee, the Company shall use its best efforts to cause the vacancy |
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caused by such removal to be filled, as soon as possible, by a new designee of Francisco Partners, and the Company shall take, to the fullest extent permitted by law, at any time and from time to time, all actions necessary to accomplish the same. A Director appointed to fill a vacancy in accordance with this Article shall be of the same Class of Director as the Director he or she replaced and the term of such appointment shall terminate in accordance with that Class of Director. |
21.5 | The Directors may, from time to time, and except as required by applicable law or the listing rules of the Designated Stock Exchange, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives, which shall be intended to set forth the policies of the Company and the Directors on various corporate governance related matters, as the Directors shall determine by resolution from time to time. |
21.6 | A Director shall not be required to hold any shares in the Company by way of qualification. A Director who is not a member of the Company shall nevertheless be entitled to receive notice of and to attend and speak at general meetings of the Company and all classes of shares of the Company. |
22 | Directors Fees and Expenses |
22.1 | The Directors may receive such remuneration as the Directors may from time to time determine. The Directors may be entitled to be repaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred by him in attending meetings of the Directors or committees of the Directors or general meetings or separate meetings of any class of securities of the Company or otherwise in connection with the discharge of his duties as a Director. |
22.2 | Any Director who performs services which in the opinion of the Directors go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Directors may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration provided for, by or pursuant to any other Article. |
23 | Powers and Duties of Directors |
23.1 | Subject to the provisions of the Statute, these Articles and to any resolutions made in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution made by the Company in a general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been made. |
23.2 |
The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit, subject to Article 23.3; provided that any committee so formed shall include amongst its members at least two Directors unless otherwise required by applicable law, rules and regulations and the rules of the Designated Stock Exchange; provided further that no committee shall have the power of authority to (a) recommend to the Members an |
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amendment of these Articles (except that a committee may, to the extent authorised in the resolution or resolutions providing for the issuance of shares adopted by the Directors as provided under the laws of the Cayman Islands, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Company or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of shares of the Company); (b) adopt an agreement of merger or consolidation; (c) recommend to the Members the sale, lease or exchange of all or substantially all of the Companys property and assets; (d) recommend to the Members a dissolution of the Company or a revocation of a dissolution; (e) recommend to the Members an amendment of the Memorandum of Association of the Company; or (f) declare a dividend or authorise the issuance of shares unless the resolution establishing such committee (or the charter of such committee approved by the Directors) or the Memorandum of Association or these Articles so provide. Any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. The Directors may also delegate to any Director holding any executive office such of their powers as they consider desirable to be exercised by him or her. Any such delegation may be made subject to any conditions the Directors may impose, and either collaterally with or to the exclusion of their own powers, and may be revoked or altered. |
23.3 | To the extent requested by Francisco Partners, each committee of the board of Directors shall include Francisco Partners Designees as follows: (a) a majority of the members of each committee shall be Francisco Partners Designees for so long as Francisco Partners and its Affiliates hold 40% or more of the total issued Ordinary Shares; (b) one member of each such committee shall be a Francisco Partners Designee for so long as Francisco Partners and its Affiliates hold at least 10% of the total issued Ordinary Shares, in each case, provided that the committee membership of each committee will comply with the applicable rules of the Designated Stock Exchange. |
23.4 | The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to delegate all or any of the powers, authorities and discretion vested in him. |
23.5 | The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the following paragraphs shall be without prejudice to the general powers conferred by this paragraph. |
23.6 | The Directors from time to time and at any time may establish any advisory committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such advisory committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any of the aforesaid. |
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23.7 | The Directors from time to time and at any time may delegate to any such advisory committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. |
23.8 | Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities, and discretions for the time being vested to them. |
23.9 | The Directors may elect, by the affirmative vote of a majority of the Directors then in office, a chairman. The chairman of the board of Directors may be a director or an officer of the Company. Subject to the provisions of these Articles and the direction of the Directors, the chairman of the board of Directors shall perform all duties and have all powers which are commonly incident to the position of chairman of a board or which are delegated to him or her by the Directors, preside at all general meetings and meetings of the Directors at which he or she is present and have such powers and perform such duties as the Directors may from time to time prescribe. |
24 | Disqualification of Directors |
24.1 | Subject to these Articles, the office of Director shall be vacated, if the Director: |
(a) | becomes bankrupt or makes any arrangement or composition with his creditors; |
(b) | dies or is found to be or becomes of unsound mind; |
(c) | resigns his office by notice in writing to the Company; |
(d) | is prohibited by applicable law or the Designated Stock Exchange from being a director; |
(e) | without special leave of absence from the Directors, is absent from meetings of the Directors for six consecutive months and the Directors resolve that his office be vacated; or |
(f) | if he or she shall be removed from office pursuant to these Articles. |
25 | Proceedings of Directors |
25.1 | Subject to these Articles, the Directors may meet together for the dispatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Such meetings may be held at any place within or outside the Cayman Islands that has been designated by the Directors. In the absence of such a designation, meetings of the Directors shall be held at the principal executive office of the Company. Questions arising at any meeting of the Directors shall be decided by the method set forth in Article 25.4. |
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25.2 | The chairman of the board of Directors or the Secretary on request of a Director, may, at any time summon a meeting of the Directors by twenty-four (24) hour notice to each Director in person, by telephone, facsimile, electronic email, or in such other manner as the Directors may from time to time determine, which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors either at, before or after the meeting is held. Notice of a meeting need not be given to any Director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such Directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Directors. |
25.3 | A Director or Directors may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director or Directors are members, by means of telephone or similar communication equipment by way of which all persons participating in such meeting can hear each other and such participation shall be deemed to constitute presence in person at the meeting. |
25.4 | The quorum necessary for the transaction of the business of the Directors shall be a majority of the authorised number of Directors. If at any time there is only a sole Director, the quorum shall be one (1) Director. Every act or decision done or made by a majority of the Directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the Directors, subject to the provisions of these Articles and other applicable law. In the case of an equality of votes, the chairman shall not have an additional tie-breaking vote. |
25.5 | A meeting of the Directors may be held by means of telephone or teleconferencing or any other telecommunications facility provided that all participants are thereby able to communicate immediately by voice with all other participants. |
25.6 | Subject to these Articles, a Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made. A Director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration. |
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25.7 | A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. Any Director who enters into a contract or arrangement or has a relationship that is reasonably likely to be implicated under this Article 25.7 or that would reasonably be likely to affect a Directors status as an Independent Director under applicable law or the rules of the Designated Stock Exchange shall disclose the nature of his or her interest in any such contract or arrangement in which he is interested or any such relationship. |
25.8 | Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to reasonable expense reimbursement consistent with the Companys policies in connection with such Directors service in his official capacity; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company. |
25.9 | The Directors shall cause minutes to be made in books or loose-leaf folders provided for the purpose of recording: |
(a) | all appointments of officers made by the Directors; |
(b) | the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and |
(c) | all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. |
25.10 | When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. |
25.11 | A resolution signed by all the Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors duly called and constituted. When signed, a resolution may consist of several documents each signed by one or more of the Directors. |
25.12 | The continuing Directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. |
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25.13 | A committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the same, the members present may choose one of their number to be chairman of the meeting. |
25.14 | A committee appointed by the Directors may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall not have a second or casting vote. |
25.15 | Meetings and actions of committees of the Directors shall be governed by, and held and taken in accordance with, the provisions of Article 25.1 (place of meetings), Article 25.2 (notice), Article 25.3 (telephonic meetings), and Article 25.4 (quorum), with such changes in the context of these Articles as are necessary to substitute the committee and its members for the Directors; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Articles. |
25.16 | All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. |
26 | Presumption of Assent |
26.1 | A Director of the Company who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the Minutes of the meeting or unless he shall file his written dissent or abstention from such action with the person acting as the chairman or Secretary of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered post to such person immediately after the adjournment of the meeting. Such right to dissent or abstain shall not apply to a Director who voted in favour of such action. |
27 | Dividends, Distributions and Reserve |
27.1 | Subject to any rights and restrictions for the time being attached to any class or classes of shares and these Articles, the Directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor. All dividends unclaimed for one (1) year after having been declared may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed. Subject to any applicable unclaimed property or other laws, any dividend unclaimed after a period of six (6) years from the date of declaration shall be forfeited and shall revert to the Company. The payment by the Directors of any unclaimed dividend or other sums payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof. |
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27.2 | The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds be properly applied and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares of the Company) as the Directors may from time to time think fit. The Directors shall establish an account to be called the Share Premium Account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share in the Company. Unless otherwise provided by the provisions of these Articles, the Directors may apply the share premium account in any manner permitted by the Statute and the rules of the Designated Stock Exchange. The Company shall at all times comply with the provisions of these Articles, the Statute and the rules of the Designated Stock Exchange in relation to the share premium account. |
27.3 | Any dividend may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto, or in the case of joint holders, to any one of such joint holders at his registered address or to such person and such address as the Member or person entitled, or such joint holders as the case may be, may direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to the order of such other person as the Member or person entitled, or such joint holders as the case may be, may direct. Notwithstanding the foregoing, dividends may also be paid electronically to the account of the Members or persons entitled thereto or in such other manner approved by the Directors. |
27.4 | The Directors when paying dividends to the Members in accordance with the foregoing provisions may make such payment either in cash or in specie. |
27.5 | No dividend shall be paid otherwise than out of profits or, subject to the restrictions of the Statute, the share premium account. |
27.6 | Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid or credited as fully paid on the shares, but if and so long as nothing is paid up on any of the shares in the Company dividends may be declared and paid according to the amounts of the shares. No amount paid on a share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the share. |
27.7 | If several persons are registered as joint holders of any share, any of them may give effectual receipts for any dividend or other moneys payable on or in respect of the share. |
27.8 | No dividend shall bear interest against the Company. |
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28 | Book of Accounts |
28.1 | The books of account relating to the Companys affairs shall be kept in such manner as may be determined from time to time by the Directors. |
28.2 | The books of account shall be kept at such place or places as the Directors think fit, and shall always be open to the inspection of the Directors. |
28.3 | Except as provided in Article 14.1, the Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorised by the Directors. |
28.4 | The accounts relating to the Companys affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Directors or failing any determination as aforesaid shall not be audited. |
29 | Audit |
29.1 | The Directors or, if authorised to do so, the audit committee of the Directors, may appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration. |
29.2 | Every auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. |
29.3 | Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an ordinary company, and at the next extraordinary general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an exempted company, and at any other time during their term of office, upon request of the Directors or any general meeting of the Members. |
30 | The Seal |
30.1 | The Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Directors, provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of any one or more persons as the Directors may appoint for the purpose and every person as aforesaid shall sign every instrument to which the Seal of the Company is so affixed in their presence. |
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30.2 | The Company may maintain a facsimile of its Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such person or persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall sign every instrument to which the facsimile Seal of the Company is so affixed in their presence of and the instrument signed by a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more persons as the Directors may appoint for the purpose. |
30.3 | Notwithstanding the foregoing, a Director shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. |
31 | Officers |
31.1 | Subject to these Articles, the Directors may from time to time appoint any person, whether or not a director of the Company, to hold the office of the Chief Executive Officer, the President, the Chief Financial Officer, one or more Vice Presidents or such other officers as the Directors may think necessary for the administration of the Company, for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. |
32 | Register of Directors and Officers |
32.1 | The Company shall cause to be kept in one or more books at its office a Register of Directors and Officers in which there shall be entered the full names and addresses of the Directors and Officers and such other particulars as required by the Statute. The Company shall send to the Registrar of Companies in the Cayman Islands a copy of such register, and shall from time to time notify the said Registrar of any change that takes place in relation to such Directors and Officers as required by the Statute. |
33 | Capitalisation of Profits |
33.1 |
Subject to the Statute and these Articles, the Directors may capitalise any sum standing to the credit of any of the Companys reserve accounts (including a share premium account or a capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalisation, with full power to the Directors to make such provisions as they think fit for the case of shares becoming distributable in fractions (including provisions whereby the benefit of |
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fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. |
34 | Notices |
34.1 | Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the person entitled to give notice to any Member either personally, by facsimile or by sending it through the post in a prepaid letter or via a recognised courier service, fees prepaid, addressed to the Member at his address as appearing in the Register of Members or, to the extent permitted by all applicable laws and regulations, by electronic means by transmitting it to any electronic number or address or website supplied by the Member to the Company or by placing it on the Companys Website, provided that, (i) with respect to notification via electronic means, the Company has obtained the Members prior express positive confirmation in writing to receive or otherwise have made available to him notices in such fashion, and (i) with respect to posting to Companys Website, notification of such posting is provided to such Member. In the case of joint holders of a share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Members in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. |
34.2 | An affidavit of the mailing or other means of giving any notice of any general meeting, executed by the Secretary, Assistant Secretary or any transfer agent of the Company giving the notice, shall be prima facie evidence of the giving of such notice. |
34.3 | Any Member present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened. |
34.4 | Any notice or other document, if served by (a) post, shall be deemed to have been served when the letter containing the same is posted, or (b) facsimile, shall be deemed to have been served upon confirmation of successful transmission, or (c) recognised courier service, shall be deemed to have been served when the letter containing the same is delivered to the courier service and in proving such service it shall be sufficient to provide that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier, or (d) electronic means as provided herein shall be deemed to have been served and delivered on the day on which it is successfully transmitted or at such later time as may be prescribed by any applicable laws or regulations. |
34.5 | Any notice or document delivered or sent to any Member in accordance with the terms of these Articles shall notwithstanding that such Member be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any share registered in the name of such Member as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register of Members as the holder of the share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. |
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34.6 | Notice of every general meeting shall be given to: |
(a) | all Members who have supplied to the Company an address for the giving of notices to them, except that in case of joint holders, the notice shall be sufficient if given to the joint holder first named in the Register of Members; and |
(b) | each Director. |
34.7 | No other person shall be entitled to receive notices of general meetings. |
35 | Information |
35.1 | No Member shall be entitled to require discovery of any information in respect of any detail of the Companys trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors would not be in the interests of the members of the Company to communicate to the public. |
35.2 | The Directors shall be entitled (but not required, except as provided by law) to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the Register of Members and transfer books of the Company. |
36 | Indemnity |
36.1 | The Company shall indemnify every Director and officer of the Company or any predecessor to the Company (which for the avoidance of doubt, shall not include auditors of the Company), together with every former Director and former officer of the Company or any predecessor to the Company, and may indemnify any person (other than current and former Directors and officers) (any such Director, officer or other person, an Indemnified Person ), out of the assets of the Company against any liability, action, proceeding, claim, demand, costs, damages or expenses, including legal expenses, whatsoever which they or any of them may incur as a result of any act or failure to act in carrying out their functions in connection with the Company other than such liability (if any) that they may incur by reason of their own actual fraud or wilful default. No Indemnified Person shall be liable to the Company for any loss or damage incurred by the Company as a result (whether direct or indirect) of the carrying out of their functions unless that liability arises through the actual fraud or wilful default of such Indemnified Person. No person shall be found to have committed actual fraud or wilful default under this Article unless or until a court of competent jurisdiction shall have made a finding to that effect. Each Member agrees to waive any claim or right of action he or she might have, whether individually or by or in the right of the Company, against any Director on account of any action taken by such Director, or the failure of such Director to take any action in the performance of his duties with or for the Company; provided that such waiver shall not extend to any matter in respect of any actual fraud or wilful default which may attach to such Director. |
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36.2 | The Company shall advance to each Indemnified Person reasonable attorneys fees and other costs and expenses incurred in connection with the defence of any action, suit, proceeding or investigation involving such Indemnified Person for which indemnity will or could be sought. In connection with any advance of any expenses hereunder, the Indemnified Person shall execute an undertaking to repay the advanced amount to the Company if it shall be determined by final judgment or other final adjudication that such Indemnified Person was not entitled to indemnification pursuant to this Article. If it shall be determined by a final judgment or other final adjudication that such Indemnified Person was not entitled to indemnification with respect to such judgment, costs or expenses, then such party shall not be indemnified with respect to such judgment, costs or expenses and any advancement shall be returned to the Company (without interest) by the Indemnified Person. |
36.3 | The Directors, on behalf of the Company, may purchase and maintain insurance for the benefit of any Director or other officer of the Company against any liability which, by virtue of any rule of law, would otherwise attach to such person in respect of any negligence, default, breach of duty or breach of trust of which such person may be guilty in relation to the Company. |
36.4 | Neither any amendment nor repeal of these Articles set forth under this heading of Indemnity (the Indemnification Articles ), nor the adoption of any provision of the Companys Articles or Memorandum of Association inconsistent with the Indemnification Articles, shall eliminate or reduce the effect of the Indemnification Articles, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for these Indemnification Articles, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. |
37 | Financial Year |
37.1 | Unless the Directors otherwise prescribe, the financial year of the Company shall end on the last Friday of December in each year and shall begin on the day following. |
38 | Winding Up |
38.1 | If the Company shall be wound up the liquidator shall apply the assets of the Company in satisfaction of creditors claims in such manner and order as such liquidator thinks fit. Subject to the rights attaching to any shares, in a winding up: |
(a) | if the assets available for distribution amongst the Members shall be insufficient to repay the whole of the Companys issued share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the shares held by them; or |
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(b) | if the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the Companys issued share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the shares held by them at the commencement of the winding up subject to a deduction from those shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. |
38.2 | If the Company shall be wound up the liquidator may, subject to the rights attaching to any shares and with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in kind the whole or any part of the assets of the Company (whether such assets shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability. |
39 | Amendment of Memorandum and Articles of Association and Name of Company |
39.1 | Subject to the provisions of the Statute and the provisions of these Articles as regards the matters to be dealt with by Ordinary Resolution, the Company may by Special Resolution: |
(a) | change its name; |
(b) | alter or add to these Articles; |
(c) | alter or add to the Memorandum with respect to any objects, powers or other matters specified therein; and |
(d) | reduce its share capital or any capital redemption reserve fund. |
40 | Registration by Way of Continuation |
40.1 | Subject to these Articles, the Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. |
41 | Mergers and Consolidations |
41.1 | The Company shall, with the approval of a Special Resolution, have the power to merge or consolidate with one or more constituent companies (as defined in the Statute), upon such terms as the Directors may determine. |
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Exhibit 4.1
SPECIMEN Ichor holdIngs, ltd. INCORPORATED UNDER THE LAWS OF THE CAYMAN ISLANDS SEE REVERSE FOR CERTAIN DEFINITIONS SHARES This CerTifies ThaT: SPECIMEN is The owner of FULLY PAID AND NON-ASSESSABLE ORDINARY SHARES OF THE PAR VALUE OF $0.0001 EACH OF Ichor holdIngs, ltd. (The Company) transferable on the books of the Company in person or by attorney upon surrender of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to the laws of the Cayman Islands, and to the Memorandum and Articles of Association of the Company, as now or hereafter amended. This certificate is not valid unless countersigned by the Transfer Agent. Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. COUNTERSIGNED: BROADRIDGE CORPORATE ISSUER SOLUTIONS, INC. 1717 ARCH ST., STE. 1300, PHILADELPHIA, PA 19103 TRANSFER AGENT BY: AUTHORIZED SIGNATURE CHIEF EXECUTIVE OFFICER PRESIDENT, CFO & SECRETARY
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT MIN ACT.Custodian
TEN ENTas tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with
right of under Uniform Gifts to Minors survivorship and not as tenants Act in common (State)
Additional abbreviations may also be used though not in the above
list.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT
SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney
to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE Signature(s) Guaranteed OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
By
The Signature(s) must be
guaranteed by an eligible guarantor institution (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with membership in an approved Signature Guarantee Medallion Program), pursuant to SEC Rule 17Ad-15.
Exhibit 10.11
ICHOR HOLDINGS, LTD.
2016 OMNIBUS INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of this Ichor Holdings, Ltd. 2016 Omnibus Incentive Plan is to enhance the profitability and value of the Company for the benefit of its shareholders by enabling the Company to offer Eligible Individuals cash and share-based incentives in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Companys shareholders. The Plan is effective as of the date set forth in Article XV.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms shall have the following meanings:
2.1 Affiliate means each of the following: (a) any Subsidiary; (b) any Parent; (c) any corporation, trade or business (including, without limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company or one of its Affiliates; (d) any trade or business (including, without limitation, a partnership or limited liability company) which directly or indirectly controls 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) of the Company; and (e) any other entity in which the Company or any of its Affiliates has a material equity interest and which is designated as an Affiliate by resolution of the Committee; provided that, unless otherwise determined by the Committee, the Ordinary Shares subject to any Award constitutes service recipient stock for purposes of Section 409A of the Code or otherwise does not subject the Award to Section 409A of the Code.
2.2 Award means any award under the Plan of any Stock Option, Stock Appreciation Right, Restricted Stock Award, Performance Award, Other Share-Based Award or Other Cash-Based Award. All Awards shall be granted by, confirmed by, and subject to the terms of, a written agreement executed by the Company and the Participant.
2.3 Award Agreement means the written or electronic agreement setting forth the terms and conditions applicable to an Award.
2.4 Board means the Board of Directors of the Company.
2.5 Cause means, unless otherwise determined by the Committee in the applicable Award Agreement, with respect to a Participants Termination of Employment or Termination of Consultancy, the following: (a) in the case where there is no employment agreement, consulting
agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award (or where there is such an agreement but it does not define cause (or words of like import)), termination due to a Participants insubordination, dishonesty, fraud, incompetence, moral turpitude, willful misconduct, refusal to perform the Participants duties or responsibilities for any reason other than illness or incapacity or materially unsatisfactory performance of the Participants duties for the Company or an Affiliate, as determined by the Committee in its good faith discretion; or (b) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines cause (or words of like import), cause as defined under such agreement; provided, however, that with regard to any agreement under which the definition of cause only applies on occurrence of a change in control, such definition of cause shall not apply until a change in control actually takes place and then only with regard to a termination thereafter. With respect to a Participants Termination of Directorship, cause means an act or failure to act that constitutes cause for removal of a director under applicable Cayman Islands law.
2.6 Change in Control has the meaning set forth in 11.2.
2.7 Change in Control Price has the meaning set forth in Section 11.1.
2.8 Code means the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision and any treasury regulation promulgated thereunder.
2.9 Committee means the Compensation, Nominating and Corporate Governance Committee of the Board duly authorized by the Board to administer the Plan. If no committee is duly authorized by the Board to administer the Plan, the term Committee shall be deemed to refer to the Board for all purposes under the Plan.
2.10 Company means Ichor Holdings, Ltd., a Cayman Islands exempted company, and its successors by operation of law.
2.11 Consultant means any Person who is an advisor or consultant to the Company or its Affiliates.
2.12 Disability means, unless otherwise determined by the Committee in the applicable Award Agreement, with respect to a Participants Termination, a permanent and total disability as defined in Section 22(e)(3) of the Code. A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability. Notwithstanding the foregoing, for Awards that are subject to Section 409A of the Code, Disability shall mean that a Participant is disabled under Section 409A(a)(2)(C)(i) or (ii) of the Code.
2.13 Effective Date means the effective date of the Plan as defined in Article XV.
2.14 Eligible Employees means each employee of the Company or an Affiliate.
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2.15 Eligible Individual means an Eligible Employee, Non-Employee Director or Consultant who is designated by the Committee in its discretion as eligible to receive Awards subject to the conditions set forth herein.
2.16 Exchange Act means the Securities Exchange Act of 1934, as amended. Reference to a specific section of the Exchange Act or regulation thereunder shall include such section or regulation, any valid regulation or interpretation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
2.17 Fair Market Value means, for purposes of the Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date and except as provided below, the last sales price reported for the Ordinary Shares on the applicable date: (a) as reported on the principal national securities exchange in the United States on which it is then traded or (b) if the Ordinary Shares are not traded, listed or otherwise reported or quoted, the Committee shall determine in good faith the Fair Market Value in whatever manner it considers appropriate taking into account the requirements of Section 409A of the Code. For purposes of any Award granted in connection with the Registration Date, the Fair Market Value shall be the price as determined by the Committee. For purposes of the exercise of any Award, the applicable date shall be the date a notice of exercise is received by the Committee or, if not a day on which the applicable market is open, the next day that it is open.
2.18 Family Member means family member as defined in Section A.1.(a)(5) of the general instructions of Form S-8.
2.19 Incentive Stock Option means any Stock Option awarded to an Eligible Employee of the Company, its Subsidiaries and its Parents (if any) under the Plan intended to be and designated as an Incentive Stock Option within the meaning of Section 422 of the Code.
2.20 Lead Underwriter has the meaning set forth in Section 14.20.
2.21 Lock-Up Period has the meaning set forth in Section 14.20.
2.22 Non-Employee Director means a director or a member of the Board of the Company or any Affiliate who is not an active employee of the Company or any Affiliate.
2.23 Non-Qualified Stock Option means any Stock Option awarded under the Plan that is not an Incentive Stock Option.
2.24 Non-Tandem Stock Appreciation Right means the right to receive an amount in cash and/or stock equal to the difference between (x) the Fair Market Value of an Ordinary Share on the date such right is exercised, and (y) the aggregate exercise price of such right, otherwise than on surrender of a Stock Option.
2.25 Ordinary Shares means ordinary shares, $0.0001 par value per share, of the Company, and other securities as may be substituted for Ordinary Shares.
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2.26 Other Cash-Based Award means an Award granted pursuant to Section 10.3 of the Plan and payable in cash at such time or times and subject to such terms and conditions as determined by the Committee in its sole discretion.
2.27 Other Share-Based Award means an Award under Article X of the Plan that is valued in whole or in part by reference to, or is payable in or otherwise based on, Ordinary Shares, including, without limitation, an Award valued by reference to an Affiliate.
2.28 Parent means any parent corporation of the Company within the meaning of Section 424(e) of the Code.
2.29 Participant means an Eligible Individual to whom an Award has been granted pursuant to the Plan.
2.30 Performance Award means an Award granted to a Participant pursuant to Article IX hereof contingent upon achieving certain Performance Goals.
2.31 Performance Goals means goals established by the Committee as contingencies for Awards to vest and/or become exercisable or distributable based on one or more of the performance goals set forth in Exhibit A hereto.
2.32 Performance Period means the designated period during which the Performance Goals must be satisfied with respect to the Award to which the Performance Goals relate.
2.33 Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a government or any branch, department, agency, political subdivision or official thereof.
2.34 Plan means this Ichor Holdings, Ltd. 2016 Omnibus Incentive Plan, as amended from time to time.
2.35 Proceeding has the meaning set forth in Section 14.9.
2.36 Reference Stock Option has the meaning set forth in Section 7.1.
2.37 Registration Date means the date on which the Company sells its Ordinary Shares in a bona fide, firm commitment underwriting pursuant to a registration statement under the Securities Act.
2.38 Reorganization has the meaning set forth in Section 4.2(b)(ii).
2.39 Restricted Stock means an Award of Ordinary Shares under the Plan that is subject to restrictions under Article VIII.
2.40 Restriction Period has the meaning set forth in Section 8.3(a) with respect to Restricted Stock.
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2.41 Rule 16b-3 means Rule 16b-3 under Section 16(b) of the Exchange Act as then in effect or any successor provision.
2.42 Section 162(m) of the Code means the exception for performance-based compensation under Section 162(m) of the Code and any applicable treasury regulations thereunder.
2.43 Section 409A of the Code means the nonqualified deferred compensation rules under Section 409A of the Code and any applicable treasury regulations and other official guidance thereunder.
2.44 Securities Act means the Securities Act of 1933, as amended and all rules and regulations promulgated thereunder. Reference to a specific section of the Securities Act or regulation thereunder shall include such section or regulation, any valid regulation or interpretation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
2.45 Stock Appreciation Right means the right pursuant to an Award granted under Article VII.
2.46 Stock Option or Option means any option to purchase Ordinary Shares granted to Eligible Individuals granted pursuant to Article VI.
2.47 Subsidiary means any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code.
2.48 Tandem Stock Appreciation Right means the right to surrender to the Company all (or a portion) of a Stock Option in exchange for an amount in cash and/or stock equal to the difference between (i) the Fair Market Value on the date such Stock Option (or such portion thereof) is surrendered, of the Ordinary Shares covered by such Stock Option (or such portion thereof), and (ii) the aggregate exercise price of such Stock Option (or such portion thereof).
2.49 Ten Percent Shareholder means a Person owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company, its Subsidiaries or its Parent.
2.50 Termination means a Termination of Consultancy, Termination of Directorship or Termination of Employment, as applicable.
2.51 Termination of Consultancy means: (a) that the Consultant is no longer acting as a consultant to the Company or an Affiliate; or (b) when an entity which is retaining a Participant as a Consultant ceases to be an Affiliate unless the Participant otherwise is, or thereupon becomes, a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that a Consultant becomes an Eligible Employee or a Non-Employee Director upon the termination of such Consultants consultancy, unless otherwise determined by the Committee, in its sole discretion, no Termination of Consultancy shall be deemed to occur until such time as such Consultant is no longer a Consultant, an Eligible
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Employee or a Non-Employee Director. Notwithstanding the foregoing, the Committee may otherwise define Termination of Consultancy in the Award Agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Consultancy thereafter, provided that any such change to the definition of the term Termination of Consultancy does not subject the applicable Award to Section 409A of the Code.
2.52 Termination of Directorship means that the Non-Employee Director has ceased to be a director of the Company; except that if a Non-Employee Director becomes an Eligible Employee or a Consultant upon the termination of such Non-Employee Directors directorship, such Non-Employee Directors ceasing to be a director of the Company shall not be treated as a Termination of Directorship unless and until the Participant has a Termination of Employment or Termination of Consultancy, as the case may be.
2.53 Termination of Employment means: (a) a termination of employment (for reasons other than a military or personal leave of absence granted by the Company) of a Participant from the Company and its Affiliates; or (b) when an entity which is employing a Participant ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that an Eligible Employee becomes a Consultant or a Non-Employee Director upon the termination of such Eligible Employees employment, unless otherwise determined by the Committee, in its sole discretion, no Termination of Employment shall be deemed to occur until such time as such Eligible Employee is no longer an Eligible Employee, a Consultant or a Non-Employee Director. Notwithstanding the foregoing, the Committee may otherwise define Termination of Employment in the Award Agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Employment thereafter, provided that any such change to the definition of the term Termination of Employment does not subject the applicable Award to Section 409A of the Code.
2.54 Transfer means: (a) when used as a noun, any direct or indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or other disposition (including the issuance of equity in any entity), whether for value or no value and whether voluntary or involuntary (including by operation of law), and (b) when used as a verb, to directly or indirectly transfer, sell, assign, pledge, encumber, charge, hypothecate or otherwise dispose of (including the issuance of equity in any entity) whether for value or for no value and whether voluntarily or involuntarily (including by operation of law). Transferred and Transferable shall have a correlative meaning.
2.55 Transition Period means the period beginning with the Registration Date and ending as of the earlier of: (i) the date of the first annual meeting of shareholders of the Company at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Registration Date occurs; and (ii) the expiration of the reliance period under Treasury Regulation Section 1.162-27(f)(2).
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ARTICLE III
ADMINISTRATION
3.1 The Committee . The Plan shall be administered and interpreted by the Committee. To the extent required by applicable law, rule or regulation, it is intended that each member of the Committee shall qualify as (a) a non-employee director under Rule 16b-3, (b) an outside director under Section 162(m) of the Code and (c) an independent director under the rules of any national securities exchange or national securities association, as applicable. If it is later determined that one or more members of the Committee do not so qualify, actions taken by the Committee prior to such determination shall be valid despite such failure to qualify.
3.2 Grants of Awards . The Committee shall have full authority to grant, pursuant to the terms of the Plan, to Eligible Individuals: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock Awards, (iv) Performance Awards; (v) Other Share-Based Awards; and (vi) Other Cash-Based Awards. In particular, the Committee shall have the authority:
(a) to select the Eligible Individuals to whom Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Awards, or any combination thereof, are to be granted hereunder to one or more Eligible Individuals;
(c) to determine the number of Ordinary Shares to be covered by each Award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the Ordinary Shares relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion);
(e) to determine the amount of cash to be covered by each Award granted hereunder;
(f) to determine whether, to what extent and under what circumstances grants of Options and other Awards under the Plan are to operate on a tandem basis and/or in conjunction with or apart from other awards made by the Company outside of the Plan;
(g) to determine whether and under what circumstances a Stock Option may be settled in cash, Ordinary Shares and/or Restricted Stock under Section 6.4(d);
(h) to determine whether a Stock Option is an Incentive Stock Option or Non-Qualified Stock Option;
(i) to determine whether to require a Participant, as a condition of the granting of any Award, to not sell or otherwise dispose of shares acquired pursuant to the exercise of an Award for a period of time as determined by the Committee, in its sole discretion, following the date of the acquisition of such Award;
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(j) to modify, extend or renew an Award, subject to Article XII and Section 6.4(l), provided, however, that such action does not subject the Award to Section 409A of the Code without the consent of the Participant; and
(k) solely to the extent permitted by applicable law, to determine whether, to what extent and under what circumstances to provide loans (which may be on a recourse basis and shall bear interest at the rate the Committee shall provide) to Participants in order to exercise Options under the Plan.
3.3 Guidelines . Subject to Article XII hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and perform all acts, including the delegation of its responsibilities (to the extent permitted by applicable law and applicable stock exchange rules), as it shall, from time to time, deem advisable; to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of the Plan. The Committee may adopt special guidelines and provisions for Persons who are residing in or employed in, or subject to, the taxes of, any domestic or foreign jurisdictions to comply with applicable tax and securities laws of such domestic or foreign jurisdictions. Notwithstanding the foregoing, no action of the Committee under this Section 3.3 shall impair the rights of any Participant without the Participants consent. To the extent applicable, the Plan is intended to comply with the applicable requirements of Rule 16b-3, and with respect to Awards intended to be performance-based, the applicable provisions of Section 162(m) of the Code, and the Plan shall be limited, construed and interpreted in a manner so as to comply therewith.
3.4 Decisions Final . Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board or the Committee (or any of its members) arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns.
3.5 Procedures . If the Committee is appointed, the Board shall designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the Articles of Association of the Company, at such times and places as it shall deem advisable, including, without limitation, by telephone conference or by written consent to the extent permitted by applicable law. A majority of the Committee members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all of the Committee members in accordance with the Articles of Association of the Company, shall be fully effective as if it had been made by a vote at a meeting duly called and held. The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
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3.6 Designation of Consultants/Liability .
(a) The Committee may designate employees of the Company and professional advisors to assist the Committee in the administration of the Plan and (to the extent permitted by applicable law and applicable exchange rules) may grant authority to officers to grant Awards and/or execute agreements or other documents on behalf of the Committee. In the event of any designation of authority hereunder, subject to applicable law, applicable stock exchange rules and any limitations imposed by the Committee in connection with such designation, such designee or designees shall have the power and authority to take such actions, exercise such powers and make such determinations that are otherwise specifically designated to the Committee hereunder.
(b) The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee or the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any Person designated pursuant to Section 3.6(a) shall not be liable for any action or determination made in good faith with respect to the Plan. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under it.
3.7 Indemnification . To the maximum extent permitted by applicable law and the Certificate of Incorporation and Articles of Association of the Company and to the extent not covered by insurance directly insuring such Person, each officer or employee of the Company or any Affiliate and member or former member of the Committee or the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Committee) or liability (including any sum paid in settlement of a claim with the approval of the Committee), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the administration of the Plan, except to the extent arising out of such officers, employees, members or former members own fraud or bad faith. Such indemnification shall be in addition to any right of indemnification the employees, officers, directors or members or former officers, directors or members may have under applicable law or under the Certificate of Incorporation or Articles of Association of the Company or any Affiliate. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Awards granted to such individual under the Plan.
ARTICLE IV
SHARE LIMITATION
4.1 Shares . (a) The aggregate number of Ordinary Shares that may be issued or used for reference purposes or with respect to which Awards may be granted under the Plan shall not exceed 1,888,000 shares (subject to any increase or decrease pursuant to Section 4.2), which may be either authorized and unissued Ordinary Shares or Ordinary Shares held in or acquired for the treasury of the Company or both. The maximum number of Ordinary Shares with respect to
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which Incentive Stock Options may be granted under the Plan shall be 1,888,000 shares. With respect to Stock Appreciation Rights settled in Ordinary Shares, upon settlement, only the number of Ordinary Shares delivered to a Participant (based on the difference between the Fair Market Value of the Ordinary Shares subject to such Stock Appreciation Right on the date such Stock Appreciation Right is exercised and the exercise price of each Stock Appreciation Right on the date such Stock Appreciation Right was awarded) shall count against the aggregate and individual share limitations set forth under Sections 4.1(a) and 4.1(b). If any Option, Stock Appreciation Right or Other Share-Based Awards granted under the Plan expires, terminates or is canceled for any reason without having been exercised in full, the number of Ordinary Shares underlying any unexercised Award shall again be available for the purpose of Awards under the Plan. If any shares of Restricted Stock, Performance Awards or Other Share-Based Awards denominated in Ordinary Shares awarded under the Plan to a Participant are forfeited for any reason, the number of forfeited shares of Restricted Stock, Performance Awards or Other Share-Based Awards denominated in Ordinary Shares shall again be available for purposes of Awards under the Plan. If a Tandem Stock Appreciation Right or a Limited Stock Appreciation Right is granted in tandem with an Option, such grant shall only apply once against the maximum number of Ordinary Shares which may be issued under the Plan. Any Award under the Plan settled in cash shall not be counted against the foregoing maximum share limitations. Subject to the provisions of Section 4.2 of the Plan, the number of Ordinary Shares available for issuance under the Plan will be increased on the first day of each fiscal year beginning with the 2018 fiscal year, in an amount equal to the least of (i) two percent (2%) of the outstanding Ordinary Shares on the last day of the immediately preceding fiscal year or (ii) such number of Ordinary Shares determined by the Board; provided, however, that such determination under clause (ii) will be made no later than the last day of the immediately preceding fiscal year.
(b) Individual Participant Limitations . To the extent required by Section 162(m) of the Code for Awards under the Plan to qualify as performance-based compensation, the following individual Participant limitations shall only apply after the expiration of the Transition Period:
(i) The maximum number of Ordinary Shares subject to any Award of Stock Options, or Stock Appreciation Rights, or shares of Restricted Stock, or Other Share-Based Awards for which the grant of such Award or the lapse of the relevant Restriction Period is subject to the attainment of Performance Goals in accordance with Section 8.3(a)(ii) which may be granted under the Plan during any fiscal year of the Company to any Participant shall be 750,000 shares per type of Award (which shall be subject to any further increase or decrease pursuant to Section 4.2), provided that the maximum number of Ordinary Shares for all types of Awards does not exceed 1,000,000 shares (which shall be subject to any further increase or decrease pursuant to Section 4.2) during any fiscal year of the Company. If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation Right is granted in tandem with a Stock Option, it shall apply against the Participants individual share limitations for both Stock Appreciation Rights and Stock Options.
(ii) There are no annual individual share limitations applicable to Participants on Restricted Stock or Other Share-Based Awards for which the grant, vesting or payment (as applicable) of any such Award is not subject to the attainment of Performance Goals.
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(iii) The maximum number of Ordinary Shares subject to any Performance Award which may be granted under the Plan during any fiscal year of the Company to any Participant shall be 750,000 shares (which shall be subject to any further increase or decrease pursuant to Section 4.2) with respect to any fiscal year of the Company.
(iv) The maximum value of a cash payment made under a Performance Award which may be granted under the Plan with respect to any fiscal year of the Company to any Participant shall be $5,000,000.
(v) The individual Participant limitations set forth in this Section 4.1(b) (other than Section 4.1(b)(iii)) shall be cumulative; that is, to the extent that Ordinary Shares for which Awards are permitted to be granted to a Participant during a fiscal year are not covered by an Award to such Participant in a fiscal year, the number of Ordinary Shares available for Awards to such Participant shall automatically increase in the subsequent fiscal years during the term of the Plan until used.
(c) Annual Non-Employee Director Award Limitation . The aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all Awards granted under the Plan to any individual Non-Employee Director in any fiscal year of the Company (excluding Awards made pursuant to deferred compensation arrangements in lieu of all or a portion of cash retainers and any stock dividends payable in respect of outstanding Awards) shall not exceed $1,000,000.
4.2 Changes .
(a) The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board, the Committee or the shareholders of the Company to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Companys capital structure or its business, (ii) any merger or consolidation of the Company or any Affiliate, (iii) any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Ordinary Shares, (iv) the dissolution or liquidation of the Company or any Affiliate, (v) any sale or transfer of all or part of the assets or business of the Company or any Affiliate or (vi) any other corporate act or proceeding.
(b) Subject to the provisions of Section 11.1:
(i) If the Company at any time subdivides (by any split, recapitalization or otherwise) the outstanding Ordinary Shares into a greater number of Ordinary Shares, or combines (by reverse split, combination or otherwise) its outstanding Ordinary Shares into a lesser number of Ordinary Shares, then the respective exercise prices for outstanding Awards that provide for a Participant elected exercise and the number of Ordinary Shares covered by outstanding Awards shall be appropriately adjusted by the Committee to prevent dilution or enlargement of the rights granted to, or available for, Participants under the Plan.
(ii) Excepting transactions covered by Section 4.2(b)(i), if the Company effects any merger, consolidation, statutory exchange, spin-off, reorganization, sale or transfer of all or substantially all the Companys assets or business, or other corporate transaction or event in such a manner that the Companys outstanding Ordinary Shares are converted into
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the right to receive (or the holders of Ordinary Shares are entitled to receive in exchange therefor), either immediately or upon liquidation of the Company, securities or other property of the Company or other entity (each, a Reorganization ), then, subject to the provisions of Section 11.1, (A) the aggregate number or kind of securities that thereafter may be issued under the Plan, (B) the number or kind of securities or other property (including cash) to be issued pursuant to Awards granted under the Plan (including as a result of the assumption of the Plan and the obligations hereunder by a successor entity, as applicable), or (C) the purchase price thereof, shall be appropriately adjusted by the Committee to prevent dilution or enlargement of the rights granted to, or available for, Participants under the Plan.
(iii) If there shall occur any change in the capital structure of the Company other than those covered by Section 4.2(b)(i) or 4.2(b)(ii), including by reason of any extraordinary dividend (whether cash or equity), any conversion, any adjustment, any issuance of any class of securities convertible or exercisable into, or exercisable for, any class of equity securities of the Company, then the Committee may adjust any Award and make such other adjustments to the Plan to prevent dilution or enlargement of the rights granted to, or available for, Participants under the Plan.
(iv) Any such adjustment determined by the Committee pursuant to this Section 4.2(b) shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and permitted assigns. Any adjustment to, or assumption or substitution of, an Award under this Section 4.2(b) shall be intended to comply with the requirements of Section 409A of the Code and Treasury Regulation §1.424-1 (and any amendments thereto), to the extent applicable. Except as expressly provided in this Section 4.2 or in the applicable Award Agreement, a Participant shall have no additional rights under the Plan by reason of any transaction or event described in this Section 4.2.
(v) Fractional Ordinary Shares resulting from any adjustment in Awards pursuant to Section 4.2(a) or this Section 4.2(b) shall be aggregated until, and eliminated at, the time of exercise or payment by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements shall be required with respect to fractional shares eliminated by rounding. Notice of any adjustment shall be given by the Committee to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan.
4.3 Minimum Purchase Price . Notwithstanding any provision of the Plan to the contrary, if authorized but previously unissued Ordinary Shares are issued under the Plan, such shares shall not be issued for a consideration that is less than as permitted under applicable law and, in any event, for less than the par value of such shares.
ARTICLE V
ELIGIBILITY
5.1 General Eligibility . All current and prospective Eligible Individuals are eligible to be granted Awards. Eligibility for the grant of Awards and actual participation in the Plan shall be determined by the Committee in its sole discretion.
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5.2 Incentive Stock Options . Notwithstanding the foregoing, only Eligible Employees of the Company, its Subsidiaries and its Parent (if any) are eligible to be granted Incentive Stock Options under the Plan. Eligibility for the grant of an Incentive Stock Option and actual participation in the Plan shall be determined by the Committee in its sole discretion.
5.3 General Requirement . The vesting and exercise of Awards granted to a prospective Eligible Individual are conditioned upon such individual actually becoming an Eligible Employee, Consultant or Non-Employee Director, respectively.
ARTICLE VI
STOCK OPTIONS
6.1 Options . Stock Options may be granted alone or in addition to other Awards granted under the Plan. Each Stock Option granted under the Plan shall be of one of two types: (a) an Incentive Stock Option or (b) a Non-Qualified Stock Option.
6.2 Grants . The Committee shall have the authority to grant to any Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options. The Committee shall have the authority to grant any Consultant or Non-Employee Director one or more Non-Qualified Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof which does not so qualify shall constitute a separate Non-Qualified Stock Option.
6.3 Incentive Stock Options . Notwithstanding anything in the Plan to the contrary, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such Section 422.
6.4 Terms of Options . Options granted under the Plan shall be subject to the following terms and conditions and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Exercise Price . The exercise price per share of Ordinary Shares subject to a Stock Option shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Stock Option shall not be less than 100% (or, in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, 110%) of the Fair Market Value of the Ordinary Shares at the time of grant.
(b) Stock Option Term . The term of each Stock Option shall be fixed by the Committee, provided that no Stock Option shall be exercisable more than 10 years after the date the Option is granted; and provided further that the term of an Incentive Stock Option granted to a Ten Percent Shareholder shall not exceed five years.
(c) Exercisability . Unless otherwise provided by the Committee in accordance with the provisions of this Section 6.4, Stock Options granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the
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Committee at the time of grant. If the Committee provides, in its discretion, that any Stock Option is exercisable subject to certain limitations (including, without limitation, that such Stock Option is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the exercisability at any time at or after the time of grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such Stock Option may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion.
(d) Method of Exercise . Subject to whatever installment exercise and waiting period provisions apply under Section 6.4(c), to the extent vested, Stock Options may be exercised in whole or in part at any time during the Option term, by giving written notice of exercise to the Company specifying the number of Ordinary Shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price as follows: (i) in cash or by check, bank draft or money order payable to the order of the Company; (ii) solely to the extent permitted by applicable law, if the Ordinary Shares are traded on a national securities exchange, and the Committee authorizes, through a procedure whereby the Participant delivers irrevocable instructions to a broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the purchase price; or (iii) on such other terms and conditions as may be acceptable to the Committee (including, without limitation, having the Company withhold Ordinary Shares issuable upon exercise of the Stock Option, or by payment in full or in part in the form of Ordinary Shares owned by the Participant, based on the Fair Market Value of the Ordinary Shares on the payment date as determined by the Committee). No Ordinary Shares shall be issued until payment therefor, as provided herein, has been made or provided for.
(e) Non-Transferability of Options . No Stock Option shall be Transferable by the Participant other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the Participants lifetime, only by the Participant. Notwithstanding the foregoing, the Committee may determine, in its sole discretion, at the time of grant or thereafter that a Non-Qualified Stock Option that is otherwise not Transferable pursuant to this Section is Transferable to a Family Member in whole or in part and in such circumstances, and under such conditions, as specified by the Committee. A Non-Qualified Stock Option that is Transferred to a Family Member pursuant to the preceding sentence (i) may not be subsequently Transferred other than by will or by the laws of descent and distribution and (ii) remains subject to the terms of the Plan and the applicable Award Agreement. Any Ordinary Shares acquired upon the exercise of a Non-Qualified Stock Option by a permissible transferee of a Non-Qualified Stock Option or a permissible transferee pursuant to a Transfer after the exercise of the Non-Qualified Stock Option shall be subject to the terms of the Plan and the applicable Award Agreement.
(f) Termination by Death or Disability . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination is by reason of death or Disability, all Stock Options that are held by such Participant that are vested and exercisable at the time of the Participants Termination may be exercised by the Participant (or in the case of the Participants death, by the legal representative of the Participants estate) at any time within a period of one (1) year from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options; provided, however, that, in the event of a Participants Termination by reason of Disability, if the
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Participant dies within such exercise period, all unexercised Stock Options held by such Participant shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a period of one (1) year from the date of such death, but in no event beyond the expiration of the stated term of such Stock Options.
(g) Involuntary Termination Without Cause . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination is by involuntary termination by the Company without Cause, all Stock Options that are held by such Participant that are vested and exercisable at the time of the Participants Termination may be exercised by the Participant at any time within a period of ninety (90) days from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options.
(h) Voluntary Resignation . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination is voluntary (other than a voluntary termination described in Section 6.4(i)(y) hereof), all Stock Options that are held by such Participant that are vested and exercisable at the time of the Participants Termination may be exercised by the Participant at any time within a period of thirty (30) days from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options.
(i) Termination for Cause . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination (x) is for Cause or (y) is a voluntary Termination (as provided in Section 6.4(h)) after the occurrence of an event that would be grounds for a Termination for Cause, all Stock Options, whether vested or not vested, that are held by such Participant shall thereupon terminate and expire as of the date of such Termination.
(j) Unvested Stock Options . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, Stock Options that are not vested as of the date of a Participants Termination for any reason shall terminate and expire as of the date of such Termination.
(k) Incentive Stock Option Limitations . To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Ordinary Shares with respect to which Incentive Stock Options are exercisable for the first time by an Eligible Employee during any calendar year under the Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. In addition, if an Eligible Employee does not remain employed by the Company, any Subsidiary or any Parent at all times from the time an Incentive Stock Option is granted until three months prior to the date of exercise thereof (or such other period as required by applicable law), such Stock Option shall be treated as a Non-Qualified Stock Option. Should any provision of the Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend the Plan accordingly, without the necessity of obtaining the approval of the shareholders of the Company.
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(l) Form, Modification, Extension and Renewal of Stock Options . Subject to the terms and conditions and within the limitations of the Plan, Stock Options shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may (i) modify, extend or renew outstanding Stock Options granted under the Plan (provided that the rights of a Participant are not reduced without such Participants consent and provided further that such action does not subject the Stock Options to Section 409A of the Code without the consent of the Participant), and (ii) accept the surrender of outstanding Stock Options (to the extent not theretofore exercised) and authorize the granting of new Stock Options in substitution therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, an outstanding Option may not be modified to reduce the exercise price thereof nor may a new Option at a lower price be substituted for a surrendered Option (other than adjustments or substitutions in accordance with Section 4.2), unless such action is approved by the shareholders of the Company.
(m) Deferred Issuance of Ordinary Shares . The Committee may in its discretion permit Participants to defer issuance of Ordinary Shares acquired pursuant to a Participants exercise of an Option in accordance with the terms and conditions established by the Committee in the applicable Award Agreement, which shall be intended to comply with the requirements of Section 409A of the Code.
(n) Early Exercise . The Committee may provide that a Stock Option include a provision whereby the Participant may elect at any time before the Participants Termination to exercise the Stock Option as to any part or all of the Ordinary Shares subject to the Stock Option prior to the full vesting of the Stock Option and such shares shall be subject to the provisions of Article VIII and be treated as Restricted Stock. Unvested Ordinary Shares so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Committee determines to be appropriate.
(o) Other Terms and Conditions . The Committee may include a provision in an Award Agreement providing for the automatic exercise of a Non-Qualified Stock Option on a cashless basis on the last day of the term of such Option if the Participant has failed to exercise the Non-Qualified Stock Option as of such date, with respect to which the Fair Market Value of the Ordinary Shares underlying the Non-Qualified Stock Option exceeds the exercise price of such Non-Qualified Stock Option on the date of expiration of such Option, subject to Section 14.4. Stock Options may contain such other provisions, which shall not be inconsistent with any of the terms of the Plan, as the Committee shall deem appropriate.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 Tandem Stock Appreciation Rights . Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option (a Reference Stock Option ) granted under the Plan ( Tandem Stock Appreciation Rights ). In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Reference Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Reference Stock Option.
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7.2 Terms and Conditions of Tandem Stock Appreciation Rights . Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, and the following:
(a) Exercise Price . The exercise price per Ordinary Share subject to a Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the Ordinary Shares at the time of grant.
(b) Term . A Tandem Stock Appreciation Right or applicable portion thereof granted with respect to a Reference Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the Reference Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, at the time of grant, a Tandem Stock Appreciation Right granted with respect to less than the full number of shares covered by the Reference Stock Option shall not be reduced until, and then only to the extent that the exercise or termination of the Reference Stock Option causes, the number of shares covered by the Tandem Stock Appreciation Right to exceed the number of shares remaining available and unexercised under the Reference Stock Option.
(c) Exercisability . Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Reference Stock Options to which they relate shall be exercisable in accordance with the provisions of Article VI, and shall be subject to the provisions of Section 6.4(c).
(d) Method of Exercise . A Tandem Stock Appreciation Right may be exercised by the Participant by surrendering the applicable portion of the Reference Stock Option. Upon such exercise and surrender, the Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 7.2. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent that the related Tandem Stock Appreciation Rights have been exercised.
(e) Payment . Upon the exercise of a Tandem Stock Appreciation Right, a Participant shall be entitled to receive up to, but no more than, an amount in cash and/or Ordinary Shares (as chosen by the Committee in its sole discretion) equal in value to the excess of the Fair Market Value of an Ordinary Share over the Option exercise price per share specified in the Reference Stock Option agreement multiplied by the number of Ordinary Shares in respect of which the Tandem Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment.
(f) Deemed Exercise of Reference Stock Option . Upon the exercise of a Tandem Stock Appreciation Right, the Reference Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Article IV of the Plan on the number of Ordinary Shares to be issued under the Plan.
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(g) Non-Transferability . Tandem Stock Appreciation Rights shall be Transferable only when and to the extent that the underlying Stock Option would be Transferable under Section 6.4(e) of the Plan.
7.3 Non-Tandem Stock Appreciation Rights . Non-Tandem Stock Appreciation Rights may also be granted without reference to any Stock Options granted under the Plan.
7.4 Terms and Conditions of Non-Tandem Stock Appreciation Rights . Non-Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, and the following:
(a) Exercise Price . The exercise price per Ordinary Share subject to a Non-Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Non-Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the Ordinary Shares at the time of grant.
(b) Term . The term of each Non-Tandem Stock Appreciation Right shall be fixed by the Committee, but shall not be greater than 10 years after the date the right is granted.
(c) Exercisability . Unless otherwise provided by the Committee in accordance with the provisions of this Section 7.4, Non-Tandem Stock Appreciation Rights granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant. If the Committee provides, in its discretion, that any such right is exercisable subject to certain limitations (including, without limitation, that it is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such right may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion.
(d) Method of Exercise . Subject to whatever installment exercise and waiting period provisions apply under Section 7.4(c), Non-Tandem Stock Appreciation Rights may be exercised in whole or in part at any time in accordance with the applicable Award Agreement, by giving written notice of exercise to the Company specifying the number of Non-Tandem Stock Appreciation Rights to be exercised.
(e) Payment . Upon the exercise of a Non-Tandem Stock Appreciation Right a Participant shall be entitled to receive, for each right exercised, up to, but no more than, an amount in cash and/or Ordinary Shares (as chosen by the Committee in its sole discretion) equal in value to the excess of the Fair Market Value of one Ordinary Share on the date that the right is exercised over the Fair Market Value of one Ordinary Share on the date that the right was awarded to the Participant.
(f) Termination . Unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, subject to the provisions of the applicable Award Agreement and the Plan, upon a Participants Termination for any reason, Non-Tandem Stock Appreciation Rights will remain exercisable following a Participants Termination on the same basis as Stock Options would be exercisable following a Participants Termination in accordance with the provisions of Sections 6.4(f) through 6.4(j).
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(g) Non-Transferability . No Non-Tandem Stock Appreciation Rights shall be Transferable by the Participant other than by will or by the laws of descent and distribution, and all such rights shall be exercisable, during the Participants lifetime, only by the Participant.
7.5 Limited Stock Appreciation Rights . The Committee may, in its sole discretion, grant Tandem and Non-Tandem Stock Appreciation Rights either as a general Stock Appreciation Right or as a Limited Stock Appreciation Right. Limited Stock Appreciation Rights may be exercised only upon the occurrence of a Change in Control or such other event as the Committee may, in its sole discretion, designate at the time of grant or thereafter. Upon the exercise of Limited Stock Appreciation Rights, except as otherwise provided in an Award Agreement, the Participant shall receive in cash and/or Ordinary Shares, as determined by the Committee, an amount equal to the amount (i) set forth in Section 7.2(e) with respect to Tandem Stock Appreciation Rights, or (ii) set forth in Section 7.4(e) with respect to Non-Tandem Stock Appreciation Rights.
7.6 Other Terms and Conditions . The Committee may include a provision in an Award Agreement providing for the automatic exercise of a Stock Appreciation Right on a cashless basis on the last day of the term of such Stock Appreciation Right if the Participant has failed to exercise the Stock Appreciation Right as of such date, with respect to which the Fair Market Value of the Ordinary Shares underlying the Stock Appreciation Right exceeds the exercise price of such Stock Appreciation Right on the date of expiration of such Stock Appreciation Right, subject to Section 14.4. Stock Appreciation Rights may contain such other provisions, which shall not be inconsistent with any of the terms of the Plan, as the Committee shall deem appropriate.
ARTICLE VIII
RESTRICTED STOCK
8.1 Awards of Restricted Stock . Shares of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Eligible Individuals, to whom, and the time or times at which, grants of Restricted Stock shall be made, the number of shares to be awarded, the price (if any) to be paid by the Participant (subject to Section 8.2), the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the Awards.
The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance targets (including, the Performance Goals) or such other factor as the Committee may determine in its sole discretion, including to comply with the requirements of Section 162(m) of the Code.
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8.2 Awards and Certificates . Eligible Individuals selected to receive Restricted Stock shall not have any right with respect to such Award, unless and until such Participant has delivered a fully executed copy of the agreement evidencing the Award to the Company, to the extent required by the Committee, and has otherwise complied with the applicable terms and conditions of such Award. Further, such Award shall be subject to the following conditions:
(a) Purchase Price . The purchase price of Restricted Stock shall be fixed by the Committee. Subject to Section 4.3, the purchase price for shares of Restricted Stock may be zero to the extent permitted by applicable law, and, to the extent not so permitted, such purchase price may not be less than par value.
(b) Acceptance . Awards of Restricted Stock must be accepted within a period of 60 days (or such shorter period as the Committee may specify at grant) after the grant date, by executing a Restricted Stock agreement and by paying whatever price (if any) the Committee has designated thereunder.
(c) Legend . Each Participant receiving Restricted Stock shall be registered in the shareholder register in book entry, as evidencing ownership of shares of Restricted Stock. Any certificates issued shall be registered in the name of such Participant, and shall, in addition to such legends required by applicable securities laws, bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:
The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Ichor Holdings, Ltd. (the Company) 2016 Omnibus Incentive Plan (the Plan) and an Agreement entered into between the registered owner and the Company dated . Copies of such Plan and Agreement are on file at the principal office of the Company.
(d) Custody . If stock certificates are issued in respect of shares of Restricted Stock, the Committee may require that any stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any grant of Restricted Stock, the Participant shall have delivered a duly signed share transfer form or other instruments of assignment (including a power of attorney), with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the shares subject to the Restricted Stock Award in the event that such Award is forfeited in whole or part.
8.3 Restrictions and Conditions . The shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions:
(a) Restriction Period . (i) The Participant shall not be permitted to Transfer shares of Restricted Stock awarded under the Plan during the period or periods set by the Committee (the Restriction Period ) commencing on the date of such Award, as set forth in the Restricted Stock Award Agreement and such agreement shall set forth a vesting schedule and any event that would accelerate vesting of the shares of Restricted Stock. Within these limits, based on service, attainment of Performance Goals pursuant to Section 8.3(a)(ii) and/or such other factors or criteria as the Committee may determine in its sole discretion, the Committee may condition the grant or provide for the lapse of such restrictions in installments in whole or in part, or may accelerate the vesting of all or any part of any Restricted Stock Award and/or waive the deferral limitations for all or any part of any Restricted Stock Award.
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(ii) If the grant of shares of Restricted Stock or the lapse of restrictions is based on the attainment of Performance Goals, the Committee shall establish the objective Performance Goals and the applicable vesting percentage of the Restricted Stock applicable to each Participant or class of Participants in writing prior to the beginning of the applicable fiscal year or at such later date as otherwise determined by the Committee and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. With regard to a Restricted Stock Award that is intended to comply with Section 162(m) of the Code, to the extent that any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect.
(b) Rights as a Shareholder . Except as provided in Section 8.3(a) and this Section 8.3(b) or as otherwise determined by the Committee in an Award Agreement, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a holder of Ordinary Shares of the Company, including, without limitation, the right to receive dividends, the right to vote such shares and, subject to and conditioned upon the full vesting of shares of Restricted Stock, the right to tender such shares. The Committee may, in its sole discretion, include in the Award Agreement a contractual waiver of the payment of dividends until, and conditioned upon, the expiration of the applicable Restriction Period.
(c) Termination . Unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, subject to the applicable provisions of the Award Agreement and the Plan, upon a Participants Termination for any reason during the relevant Restriction Period, all Restricted Stock still subject to restriction will be surrendered in accordance with the terms and conditions established by the Committee at grant or thereafter.
(d) Lapse of Restrictions . If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock, the certificates for such shares shall be delivered to the Participant. All legends shall be removed from said certificates at the time of delivery to the Participant, except as otherwise required by applicable law or other limitations imposed by the Committee.
ARTICLE IX
PERFORMANCE AWARDS
9.1 Performance Awards . The Committee may grant a Performance Award to a Participant payable upon the attainment of specific Performance Goals. The Committee may grant Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, as well as Performance Awards that are not intended to qualify as performance-based compensation under Section 162(m) of the Code. If the Performance Award is payable in shares of Restricted Stock, such shares shall be transferable to the Participant
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only upon attainment of the relevant Performance Goal in accordance with Article VIII. If the Performance Award is payable in cash, it may be paid upon the attainment of the relevant Performance Goals either in cash or in shares of Restricted Stock (based on the then current Fair Market Value of such shares), as determined by the Committee, in its sole and absolute discretion. Each Performance Award shall be evidenced by an Award Agreement in such form that is not inconsistent with the Plan and that the Committee may from time to time approve. With respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall condition the right to payment of any Performance Award upon the attainment of objective Performance Goals established pursuant to Section 9.2(c).
9.2 Terms and Conditions . Performance Awards awarded pursuant to this Article IX shall be subject to the following terms and conditions:
(a) Earning of Performance Award . At the expiration of the applicable Performance Period, the Committee shall determine the extent to which the Performance Goals established pursuant to Section 9.2(c) are achieved and the percentage of each Performance Award that has been earned.
(b) Non-Transferability . Subject to the applicable provisions of the Award Agreement and the Plan, Performance Awards may not be Transferred during the Performance Period.
(c) Objective Performance Goals, Formulae or Standards . With respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall establish the objective Performance Goals for the earning of Performance Awards based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent that any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect, with respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code.
(d) Dividends . Unless otherwise determined by the Committee at the time of grant, amounts equal to dividends declared during the Performance Period with respect to the number of Ordinary Shares covered by a Performance Award will not be paid to the Participant.
(e) Payment . Following the Committees determination in accordance with Section 9.2(a), the Company shall settle Performance Awards, in such form (including, without limitation, in Ordinary Shares or in cash) as determined by the Committee, in an amount equal to such Participants earned Performance Awards. With respect to any Award that is intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall be precluded from having discretion to increase the amount of compensation payable under the terms of such Award.
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(f) Termination . Subject to the applicable provisions of the Award Agreement and the Plan, upon a Participants Termination for any reason during the Performance Period for a given Performance Award, the Performance Award in question will vest or be surrendered in accordance with the terms and conditions established by the Committee at grant.
(g) Accelerated Vesting . Based on service, performance and/or such other factors or criteria, if any, as the Committee may determine, the Committee may, at or after grant, accelerate the vesting of all or any part of any Performance Award.
ARTICLE X
OTHER SHARE-BASED AND CASH-BASED AWARDS
10.1 Other Share-Based Awards . The Committee is authorized to grant to Eligible Individuals Other Share-Based Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to Ordinary Shares, including but not limited to, Ordinary Shares awarded purely as a bonus and not subject to restrictions or conditions, Ordinary Shares in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Company or an Affiliate, stock equivalent units, restricted stock units, and Awards valued by reference to book value of Ordinary Shares. Other Share-Based Awards may be granted either alone or in addition to or in tandem with other Awards granted under the Plan.
Subject to the provisions of the Plan, the Committee shall have authority to determine the Eligible Individuals, to whom, and the time or times at which, such Awards shall be made, the number of Ordinary Shares to be awarded pursuant to such Awards, and all other conditions of the Awards. The Committee may also provide for the grant of Ordinary Shares under such Awards upon the completion of a specified Performance Period.
The Committee may condition the grant or vesting of Other Share-Based Awards upon the attainment of specified Performance Goals as the Committee may determine, in its sole discretion; provided that to the extent that such Other Share-Based Awards are intended to comply with Section 162(m) of the Code, the Committee shall establish the objective Performance Goals for the grant or vesting of such Other Share-Based Awards based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent that any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect, with respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code.
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10.2 Terms and Conditions . Other Share-Based Awards made pursuant to this Article X shall be subject to the following terms and conditions:
(a) Non-Transferability . Subject to the applicable provisions of the Award Agreement and the Plan, Ordinary Shares subject to Awards made under this Article X may not be Transferred prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses.
(b) Dividends . Unless otherwise determined by the Committee in the Award Agreement, subject to the provisions of the Award Agreement and the Plan, the recipient of an Award under this Article X contractually waives any right to receive, currently or on a deferred basis, dividends or dividend equivalents in respect of the number of Ordinary Shares covered by the Award.
(c) Vesting . Any Award under this Article X and any Ordinary Shares covered by any such Award shall vest or be surrendered to the extent so provided in the Award Agreement, as determined by the Committee, in its sole discretion.
(d) Price . Ordinary Shares issued on a bonus basis under this Article X may be issued for no cash consideration. Ordinary Shares purchased pursuant to a purchase right awarded under this Article X shall be priced, as determined by the Committee in its sole discretion.
10.3 Other Cash-Based Awards . The Committee may from time to time grant Other Cash-Based Awards to Eligible Individuals in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by applicable law, as it shall determine in its sole discretion. Other Cash-Based Awards may be granted subject to the satisfaction of vesting conditions or may be awarded purely as a bonus and not subject to restrictions or conditions, and if subject to vesting conditions, the Committee may accelerate the vesting of such Awards at any time in its sole discretion. The grant of an Other Cash-Based Award shall not require a segregation of any of the Companys assets for satisfaction of the Companys payment obligation thereunder.
ARTICLE XI
CHANGE IN CONTROL PROVISIONS
11.1 Benefits . In the event of a Change in Control of the Company (as defined below), and except as otherwise provided by the Committee in an Award Agreement, a Participants unvested Award shall not vest automatically and a Participants Award shall be treated in accordance with one or more of the following methods as determined by the Committee:
(a) Awards, whether or not then vested, shall be continued, assumed, or have new rights substituted therefor, as determined by the Committee in a manner consistent with the requirements of Section 409A of the Code, and restrictions to which shares of Restricted Stock or any other Award granted prior to the Change in Control are subject shall not lapse upon a Change in Control and the Restricted Stock or other Award shall, where appropriate in the sole discretion of the Committee, receive the same distribution as other Ordinary Shares on such terms as determined by the Committee; provided that the Committee may decide to award additional Restricted Stock or other Awards in lieu of any cash distribution. Notwithstanding anything to the contrary herein, for purposes of Incentive Stock Options, any assumed or substituted Stock Option shall comply with the requirements of Treasury Regulation Section 1.424-1 (and any amendment thereto).
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(b) The Committee, in its sole discretion, may provide for the purchase of any Awards by the Company or an Affiliate for an amount of cash equal to the excess (if any) of the Change in Control Price (as defined below) of the Ordinary Shares covered by such Awards, over the aggregate exercise price of such Awards; provided that in the event such exercise price does not exceed such Change in Control Price, the Awards may be cancelled for no consideration. For purposes hereof, Change in Control Price shall mean the highest price per Ordinary Share paid in any transaction related to a Change in Control of the Company.
(c) The Committee may, in its sole discretion, terminate all outstanding and unexercised Stock Options, Stock Appreciation Rights, or any Other Share-Based Award that provides for a Participant elected exercise, effective as of the date of the Change in Control, by delivering notice of termination to each Participant at least twenty (20) days prior to the date of consummation of the Change in Control, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Change in Control, each such Participant shall have the right to exercise in full all of such Participants Awards that are then outstanding (without regard to any limitations on exercisability otherwise contained in the Award Agreements), but any such exercise shall be contingent on the occurrence of the Change in Control, and, provided that, if the Change in Control does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise pursuant thereto shall be null and void.
(d) Notwithstanding any other provision herein to the contrary, the Committee may, in its sole discretion, provide for accelerated vesting or lapse of restrictions, of an Award at any time.
11.2 Change in Control . Unless otherwise determined by the Committee in the applicable Award Agreement or other written agreement with a Participant approved by the Committee, a Change in Control shall be deemed to occur if:
(a) any person, as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Ordinary Shares of the Company), becoming the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Companys then outstanding securities;
(b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c), or (d) of this Section 11.2 or a director whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the
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Board) whose election by the Board or nomination for election by the Companys shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board;
(c) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than those covered by the exceptions in Section 11.2(a)) acquires more than 50% of the combined voting power of the Companys then outstanding securities shall not constitute a Change in Control of the Company; or
(d) a complete liquidation or dissolution of the Company or the consummation of a sale or disposition by the Company of all or substantially all of the Companys assets other than the sale or disposition of all or substantially all of the assets of the Company to a Person or Persons who beneficially own, directly or indirectly, 50% or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale.
Notwithstanding the foregoing, with respect to any Award that is characterized as nonqualified deferred compensation within the meaning of Section 409A of the Code, an event shall not be considered to be a Change in Control under the Plan for purposes of payment of such Award unless such event is also a change in ownership, a change in effective control or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A of the Code.
11.3 Escrow and Withholding of Proceeds . To the extent the Board determines that the escrow or withholding of any proceeds with respect to any Awards is in the best interest of the Company in connection with a transaction that would result in a Change in Control, the Board shall, in its good faith, make any such determination, taking into account the requirements of Section 409A of the Code, and such determination shall be final, binding and conclusive. The Board may make any such determination with respect to any Awards and shall not be required to treat all Awards in the same manner.
11.4 Initial Public Offering not a Change in Control . Notwithstanding the foregoing, for purposes of the Plan, the occurrence of the Registration Date or any change in the composition of the Board within one year following the Registration Date shall not be considered a Change in Control.
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ARTICLE XII
TERMINATION OR AMENDMENT OF PLAN
Notwithstanding any other provision of the Plan, the Board may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XIV or Section 409A of the Code), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant and, provided further, that without the approval of the holders of the Companys Ordinary Shares entitled to vote in accordance with applicable law, no amendment may be made that would (i) increase the aggregate number of Ordinary Shares that may be issued under the Plan (except by operation of Section 4.2); (ii) increase the maximum individual Participant limitations for a fiscal year under Section 4.1(b) (except by operation of Section 4.2); (iii) change the classification of individuals eligible to receive Awards under the Plan; (iv) decrease the minimum option price of any Stock Option or Stock Appreciation Right; (v) extend the maximum option period under Section 6.4; (vi) alter the Performance Goals for Restricted Stock, Performance Awards or Other Share-Based Awards as set forth in Exhibit A hereto; (vii) award any Stock Option or Stock Appreciation Right in replacement of a canceled Stock Option or Stock Appreciation Right with a higher exercise price than the replacement award; or (viii) require shareholder approval in order for the Plan to continue to comply with the applicable provisions of Section 162(m) of the Code or, to the extent applicable to Incentive Stock Options, Section 422 of the Code. In no event may the Plan be amended without the approval of the shareholders of the Company in accordance with the applicable laws of the Cayman Islands to increase the aggregate number of Ordinary Shares that may be issued under the Plan, decrease the minimum exercise price of any Award, or to make any other amendment that would require shareholder approval under Financial Industry Regulatory Authority (FINRA) rules and regulations or the rules of any exchange or system on which the Companys securities are listed or traded at the request of the Company. Notwithstanding anything herein to the contrary, the Board may amend the Plan or any Award Agreement at any time without a Participants consent to comply with applicable law including Section 409A of the Code. The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV or as otherwise specifically provided herein, no such amendment or other action by the Committee shall impair the rights of any holder without the holders consent.
ARTICLE XIII
UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an unfunded plan for incentive and deferred compensation. With respect to any payment as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any right that is greater than those of a general unsecured creditor of the Company.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Legend . The Committee may require each Person receiving Ordinary Shares pursuant to a Stock Option or other Award under the Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by the Plan, the certificates for such shares may
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include any legend that the Committee deems appropriate to reflect any restrictions on Transfer. All certificates for Ordinary Shares delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Ordinary Shares are then listed or any national securities exchange system upon whose system the Ordinary Shares are then quoted, any applicable federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
14.2 Other Plans . Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases.
14.3 No Right to Employment/Directorship/Consultancy . Neither the Plan nor the grant of any Option or other Award hereunder shall give any Participant or other employee, Consultant or Non-Employee Director any right with respect to continuance of employment, consultancy or directorship by the Company or any Affiliate, nor shall there be a limitation in any way on the right of the Company or any Affiliate by which an employee is employed or a Consultant or Non-Employee Director is retained to terminate such employment, consultancy or directorship at any time.
14.4 Withholding of Taxes . The Company shall have the right to deduct from any payment to be made pursuant to the Plan, or to otherwise require, prior to the issuance or delivery of Ordinary Shares or the payment of any cash hereunder, payment by the Participant of, any federal, state or local taxes required by law to be withheld. Upon the vesting of Restricted Stock (or other Award that is taxable upon vesting), or upon making an election under Section 83(b) of the Code, a Participant shall pay all required withholding to the Company. Any minimum statutorily required withholding obligation with regard to any Participant may be satisfied, subject to the consent of the Committee, by reducing the number of Ordinary Shares otherwise deliverable or by delivering Ordinary Shares already owned. Any fraction of an Ordinary Share required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant.
14.5 No Assignment of Benefits . No Award or other benefit payable under the Plan shall, except as otherwise specifically provided by law or permitted by the Committee, be Transferable in any manner, and any attempt to Transfer any such benefit shall be void, and any such benefit shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any Person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such Person.
14.6 Listing and Other Conditions .
(a) Unless otherwise determined by the Committee, as long as the Ordinary Shares are listed on a national securities exchange or system sponsored by a national securities association, the issuance of Ordinary Shares pursuant to an Award shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or other Award with respect to such shares shall be suspended until such listing has been effected.
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(b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of Ordinary Shares pursuant to an Option or other Award is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise, with respect to Ordinary Shares or Awards, and the right to exercise any Option or other Award shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this Section 14.6, any Award affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Award.
(d) A Participant shall be required to supply the Company with certificates, representations and information that the Company requests and otherwise cooperate with the Company in obtaining any listing, registration, qualification, exemption, consent or approval the Company deems necessary or appropriate.
14.7 Shareholders Agreement and Other Requirements . Notwithstanding anything herein to the contrary, as a condition to the receipt of Ordinary Shares pursuant to an Award under the Plan, to the extent required by the Committee, the Participant shall execute and deliver a shareholders agreement or such other documentation that shall set forth certain restrictions on transferability of the Ordinary Shares acquired upon exercise or purchase, and such other terms as the Board or Committee shall from time to time establish. Such shareholders agreement or other documentation shall apply to the Ordinary Shares acquired under the Plan and covered by such shareholders agreement or other documentation. The Company may require, as a condition of exercise, the Participant to become a party to any other existing shareholder agreement (or other agreement).
14.8 Governing Law . The Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws).
14.9 Jurisdiction; Waiver of Jury Trial . Any suit, action or proceeding with respect to the Plan or any Award Agreement, or any judgment entered by any court of competent jurisdiction in respect of any thereof, shall be resolved only in the courts of the State of Delaware or the United States District Court for the District of Delaware and the appellate courts having jurisdiction of appeals in such courts. In that context, and without limiting the generality of the foregoing, the Company and each Participant shall irrevocably and unconditionally (a) submit in any proceeding relating to the Plan or any Award Agreement, or for the recognition and enforcement of any judgment in respect thereof (a Proceeding ), to the exclusive jurisdiction of
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the courts of the State of Delaware, the court of the United States of America for the District of Delaware and appellate courts having jurisdiction of appeals from such courts, and agree that all claims in respect of any such Proceeding shall be heard and determined in such Delaware State court or, to the extent permitted by law, in such federal court, (b) consent that any such Proceeding may and shall be brought in such courts and waives any objection that the Company and each Participant may now or thereafter have to the venue or jurisdiction of any such Proceeding in any such court or that such Proceeding was brought in an inconvenient court and agree not to plead or claim the same, (c) waive all right to trial by jury in any Proceeding (whether based on contract, tort or otherwise) arising out of or relating to the Plan or any Award Agreement, (d) agree that service of process in any such Proceeding may be effected by mailing a copy of such process by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party, in the case of a Participant, at the Participants address shown in the books and records of the Company or, in the case of the Company, at the Companys principal offices, attention General Counsel, and (e) agree that nothing in the Plan shall affect the right to effect service of process in any other manner permitted by the laws of Delaware.
14.10 Construction . Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.
14.11 Other Benefits . No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its Affiliates nor affect any benefit under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.
14.12 Costs . The Company shall bear all expenses associated with administering the Plan, including expenses of issuing Ordinary Shares pursuant to Awards hereunder.
14.13 No Right to Same Benefits . The provisions of Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years.
14.14 Death/Disability . The Committee may in its discretion require the transferee of a Participant to supply it with written notice of the Participants death or Disability and to supply it with a copy of the will (in the case of the Participants death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Award. The Committee may also require that the agreement of the transferee to be bound by all of the terms and conditions of the Plan.
14.15 Section 16(b) of the Exchange Act . All elections and transactions under the Plan by Persons subject to Section 16 of the Exchange Act involving Ordinary Shares are intended to comply with any applicable exemptive condition under Rule 16b-3. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder.
30
14.16 Section 409A of the Code . The Plan is intended to comply with the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent. To the extent that any Award is subject to Section 409A of the Code, it shall be paid in a manner that will comply with Section 409A of the Code, including proposed, temporary or final regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto. Notwithstanding anything herein to the contrary, any provision in the Plan that is inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section 409A of the Code and to the extent such provision cannot be amended to comply therewith, such provision shall be null and void. The Company shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A of the Code is not so exempt or compliant or for any action taken by the Committee or the Company and, in the event that any amount or benefit under the Plan becomes subject to penalties under Section 409A of the Code, responsibility for payment of such penalties shall rest solely with the affected Participants and not with the Company. Notwithstanding any contrary provision in the Plan or Award Agreement, any payment(s) of nonqualified deferred compensation (within the meaning of Section 409A of the Code) that are otherwise required to be made under the Plan to a specified employee (as defined under Section 409A of the Code) as a result of such employees separation from service (other than a payment that is not subject to Section 409A of the Code) shall be delayed for the first six (6) months following such separation from service (or, if earlier, the date of death of the specified employee) and shall instead be paid (in a manner set forth in the Award Agreement) upon expiration of such delay period.
14.17 Successor and Assigns . The Plan shall be binding on all successors and permitted assigns of a Participant, including, without limitation, the estate of such Participant and the executor, administrator or trustee of such estate.
14.18 Severability of Provisions . If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.
14.19 Payments to Minors, Etc . Any benefit payable to or for the benefit of a minor, an incompetent Person or other Person incapable of receipt thereof shall be deemed paid when paid to such Persons guardian or to the party providing or reasonably appearing to provide for the care of such Person, and such payment shall fully discharge the Committee, the Board, the Company, its Affiliates and their employees, agents and representatives with respect thereto.
14.20 Lock-Up Agreement . As a condition to the grant of an Award, if requested by the Company and the lead underwriter of any public offering of the Ordinary Shares (the Lead Underwriter ), a Participant shall irrevocably agree not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of, any interest in any Ordinary Shares or any securities convertible into, derivative of, or exchangeable or exercisable for, or any other rights to purchase or acquire Ordinary Shares (except Ordinary Shares included in such public offering or acquired on the public market after such offering) during such period of time following the effective date of a registration statement of the Company filed under the Securities Act that the Lead Underwriter shall specify (the Lock -Up Period ). The Participant shall further agree to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agree that the Company may impose stop-transfer instructions with respect to Ordinary Shares acquired pursuant to an Award until the end of such Lock-Up Period.
31
14.21 Headings and Captions . The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.
14.22 Section 162(m) of the Code . Notwithstanding any other provision of the Plan to the contrary, (i) prior to the Registration Date and during the Transition Period, the provisions of the Plan requiring compliance with Section 162(m) of the Code for Awards intended to qualify as performance-based compensation shall only apply to the extent required by Section 162(m) of the Code, and (ii) the provisions of the Plan requiring compliance with Section 162(m) of the Code shall not apply to Awards granted under the Plan that are not intended to qualify as performance-based compensation under Section 162(m) of the Code.
14.23 Post-Transition Period . Following the Transition Period, any Award granted under the Plan that is intended to be performance-based compensation under Section 162(m) of the Code, shall be subject to the approval of the material terms of the Plan by a majority of the shareholders of the Company in accordance with Section 162(m) of the Code and the treasury regulations promulgated thereunder.
14.24 Company Recoupment of Awards . A Participants rights with respect to any Award hereunder shall in all events be subject to (i) any right that the Company may have under any Company recoupment policy or other agreement or arrangement with a Participant, or (ii) any right or obligation that the Company may have regarding the clawback of incentive-based compensation under Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission.
ARTICLE XV
EFFECTIVE DATE OF PLAN
The Plan shall become effective on December [], 2016, which is the date of its adoption by the Board, subject to the approval of the Plan by the shareholders of the Company in accordance with the requirements of the laws of the Cayman Islands.
ARTICLE XVI
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the earlier of the date that the Plan is adopted or the date of shareholder approval, but Awards granted prior to such tenth anniversary may extend beyond that date; provided that no Award (other than a Stock Option or Stock Appreciation Right) that is intended to be performance-based compensation under Section 162(m) of the Code shall be granted on or after the fifth anniversary of the shareholder approval of the Plan unless the Performance Goals are re-approved (or other designated Performance Goals are approved) by the shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders approve the Performance Goals.
32
ARTICLE XVII
NAME OF PLAN
The Plan shall be known as the Ichor Holdings, Ltd. 2016 Omnibus Incentive Plan.
33
EXHIBIT A
PERFORMANCE GOALS
To the extent permitted under Section 162(m) of the Code, performance goals established for purposes of Awards intended to be performance-based compensation under Section 162(m) of the Code, shall be based on the attainment of certain target levels of, or a specified increase or decrease (as applicable) in one or more of the following performance goals:
| earnings per share; |
| operating income; |
| gross income; |
| net income (before or after taxes); |
| cash flow; |
| gross profit; |
| gross profit return on investment; |
| gross margin return on investment; |
| gross margin; |
| operating margin; |
| working capital; |
| earnings before interest and taxes; |
| earnings before interest, tax, depreciation and amortization; |
| return on equity; |
| return on assets; |
| return on capital; |
| return on invested capital; |
| net sales; |
| gross sales; |
| sales growth; |
| annual recurring sales; |
| recurring sales; |
| license sales; |
| sales or market share; |
| total shareholder return; |
| economic value added; |
| specified objectives with regard to limiting the level of increase in all or a portion of the Companys bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee in its sole discretion; |
| the fair market value of an Ordinary Share; |
| the growth in the value of an investment in the Ordinary Shares assuming the reinvestment of dividends; or |
| reduction in operating expenses. |
A-1
With respect to Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, to the extent permitted under Section 162(m) of the Code, the Committee may, in its sole discretion, also exclude, or adjust to reflect, the impact of an event or occurrence that the Committee determines should be appropriately excluded or adjusted, including:
(a) restructurings, discontinued operations, extraordinary items or events, and other unusual or non-recurring charges as described in Accounting Standards Codification 225-20, Extraordinary and Unusual Items, and/or managements discussion and analysis of financial condition and results of operations appearing or incorporated by reference in the Companys Form 10-K for the applicable year;
(b) an event either not directly related to the operations of the Company or not within the reasonable control of the Companys management; or
(c) a change in tax law or accounting standards required by generally accepted accounting principles.
Performance goals may also be based upon individual participant performance goals, as determined by the Committee, in its sole discretion. In addition, Awards that are not intended to qualify as performance-based compensation under Section 162(m) of the Code may be based on the performance goals set forth herein or on such other performance goals as determined by the Committee in its sole discretion.
In addition, such performance goals may be based upon the attainment of specified levels of Company (or subsidiary, division, other operational unit, administrative department or product category of the Company) performance under one or more of the measures described above relative to the performance of other corporations. With respect to Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, to the extent permitted under Section 162(m) of the Code, but only to the extent permitted under Section 162(m) of the Code (including, without limitation, compliance with any requirements for shareholder approval), the Committee may also:
(a) designate additional business criteria on which the performance goals may be based; or
(b) adjust, modify or amend the aforementioned business criteria.
A-2
Exhibit 10.12
INCENTIVE STOCK OPTION AGREEMENT
PURSUANT TO THE
ICHOR HOLDINGS, LTD. 2016 OMNIBUS INCENTIVE PLAN
* * * * *
Participant:
Grant Date:
Per Share Exercise Price: $
Number of Shares subject to this Option:
* * * * *
THIS INCENTIVE STOCK OPTION AWARD AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Ichor Holdings, Ltd., a Cayman Islands exempted company (the Company ), and the Participant specified above, pursuant to the Ichor Holdings, Ltd. 2016 Omnibus Incentive Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the Incentive Stock Option provided for herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the Award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.
2. Grant of Option . The Company hereby grants to the Participant, as of the Grant Date specified above, an Incentive Stock Option (this Option ) to acquire from the Company at the Per Share Exercise Price specified above, the aggregate number of Ordinary Shares specified above (the Option Shares ). Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is
intended to provide, the Participant with any protection against potential future dilution of the Participants interest in the Company for any reason. The Participant shall have no rights as a shareholder with respect to any Ordinary Shares covered by the Option unless and until the Participant has become the holder of record of such shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement.
3. Tax Matters . The Option granted hereunder is intended to qualify as an incentive stock option under Section 422 of the Code. Notwithstanding the foregoing, the Option will not qualify as an incentive stock option, among other events, (a) if the Participant disposes of the Option Shares at any time during the two-year period following the date of this Agreement or the one-year period following the date of any exercise of the Option; (b) except in the event of the Participants death or Disability, if the Participant is not employed by the Company, a Parent or a Subsidiary at all times during the period beginning on the date of this Agreement and ending on the day that is three months before the date of any exercise of the Option; or (c) to the extent that the aggregate fair market value of the Ordinary Shares subject to incentive stock options held by the Participant which become exercisable for the first time in any calendar year (under all plans of the Company, a Parent or a Subsidiary) exceeds $100,000. For purposes of clause (c) above, the fair market value of the Ordinary Shares shall be determined as of the Grant Date. To the extent that the Option does not qualify as an incentive stock option, it shall not affect the validity of the Option and shall constitute a separate non-qualified stock option. In the event that the Participant disposes of the Option Shares within either two (2) years following the Grant Date or one year following the date of exercise of the Option, the Participant must deliver to the Company, within seven (7) days following such disposition, a written notice specifying the date on which such shares were disposed of, the number of shares so disposed, and, if such disposition was by a sale or exchange, the amount of consideration received.
4. Vesting and Exercise .
(a) Vesting . Subject to the provisions of Sections 4(b) [and 4(c)] hereof, the Option shall vest and become exercisable as follows, provided that the Participant has not incurred a Termination prior to each such vesting date:
Vesting Date |
Number of Shares | |||
[ ● ] |
[ ● | ] | ||
[ ● ] |
[ ● | ] | ||
[ ● ] |
[ ● | ] | ||
[ ● ] |
[ ● | ] |
There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date. Upon expiration of the Option, the Option shall be cancelled and no longer exercisable.
2
(b) Committee Discretion to Accelerate Vesting . Notwithstanding the foregoing, the Committee may, in its sole discretion, provide for accelerated vesting of the Option at any time and for any reason.
(c) [ Change in Control . The Option shall become fully vested upon the occurrence of a Change in Control so long as the Participant has not incurred a Termination prior to such Change in Control.] 1
(d) Expiration . Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, all portions of the Option (whether vested or not vested) shall expire and shall no longer be exercisable after the expiration of ten (10) years from the Grant Date.
5. Termination . Subject to the terms of the Plan and this Agreement, the Option, to the extent vested at the time of the Participants Termination, shall remain exercisable as follows:
(a) Termination due to Death or Disability . In the event of the Participants Termination by reason of death or Disability, the vested portion of the Option shall remain exercisable until the earlier of (i) one (1) year from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 4(d) hereof.
(b) Involuntary Termination Without Cause . In the event of the Participants involuntary Termination by the Company without Cause, the vested portion of the Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 4(d) hereof.
(c) Voluntary Resignation . In the event of the Participants voluntary Termination (other than a voluntary Termination described in Section 5(d) hereof), the vested portion of the Option shall remain exercisable until the earlier of (i) thirty (30) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 4(d) hereof.
(d) Termination for Cause . In the event of the Participants Termination for Cause or in the event of the Participants voluntary Termination (as provided in Section 5(c) hereof) after an event that would be grounds for a Termination for Cause, the Participants entire Option (whether or not vested) shall terminate and expire upon such Termination.
(e) Treatment of Unvested Options upon Termination . Any portion of the Option that is not vested as of the date of the Participants Termination for any reason shall terminate and expire as of the date of such Termination.
(f) Blackout Periods . If the Participant is subject to any Company blackout policy or other trading restriction imposed by the Company on the date that an exercise period described in Section 5(a) through 5(c) would otherwise expire, such exercise period shall be extended until the date that the Participant is not subject to any such policy or restriction, provided that in no event shall the exercise period be extended beyond the expiration of the stated term of the Option pursuant to Section 4(d) hereof.
1 | To be included in specific grants at the discretion of the Committee. |
3
6. Method of Exercise and Payment . Subject to Section 9 hereof, to the extent that the Option has become vested and exercisable with respect to a number of Ordinary Shares as provided herein, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein and in accordance with Sections 6.4(c) and 6.4(d) of the Plan, including, without limitation, by the filing of any written form of exercise notice as may be required by the Committee and payment in full of the Per Share Exercise Price specified above multiplied by the number of Ordinary Shares underlying the portion of the Option exercised.
7. Non-Transferability . The Option, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way the Option, or the levy of any execution, attachment or similar legal process upon the Option, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
8. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of Delware, without regard to the choice of law principles thereof.
9. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Option and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any Ordinary Shares otherwise required to be issued pursuant to this Agreement. Any minimum statutorily required withholding obligation with regard to the Participant may be satisfied, at the discretion of the Participant, by reducing the amount of cash or Ordinary Shares otherwise deliverable upon exercise of the Option.
10. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
4
11. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
12. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participants employment or service at any time, for any reason and with or without Cause.
13. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Option awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
14. Compliance with Laws . The issuance of the Option (and the Option Shares upon exercise of the Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act, the Exchange Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue the Option or any of the Option Shares pursuant to this Agreement if any such issuance would violate any such requirements.
15. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the Option is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.
16. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except in accordance with Section 7 hereof) any part of this Agreement without the prior express written consent of the Company.
17. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
18. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
19. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
5
20. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
21. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of the Option made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Option awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
22. Shareholders Agreement . This Award and any Ordinary Shares issued with respect to this Award are subject to restrictions on voting and transfer and requirements of sale and other provisions as set forth herein and in the shareholders agreement. The Participants rights with respect to the Award and shares of Ordinary Shares issued with respect to this Award are subject to the restrictions and other provisions contained in the Plan and the shareholders agreement in addition to such other restrictions, if any, as may be imposed by law. In the event of a conflict between the Plan and the shareholders agreement, the shareholders agreement shall control. Furthermore, by acceptance of this Award, the undersigned agrees hereby to become a party to, and be bound by the terms of, the shareholders agreement (and to the extent the undersigned is not already a party thereto, the undersigned shall execute a joinder thereto in form and substance acceptable to the Company).
23. Nonsolicitation . During the Participants employment with the Company and for a period of one year thereafter, the Participant agrees that the Participant shall not, except in the furtherance of the Participants duties hereunder, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, solicit, aid or induce any employee, representative or agent of the Company or any of its direct affiliates to leave such employment or retention or to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company, or hire or retain any such employee, representative or agent, or take any action to materially assist or aid any other person, firm, corporation or other entity in identifying, hiring or soliciting any such employee, representative or agent. An employee, representative or agent shall be deemed covered by this Section 23 while so employed or retained and for a period of six (6) months thereafter.
[Remainder of Page Intentionally Left Blank]
6
IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
ICHOR HOLDINGS, LTD. | ||
By: |
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Name: |
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Title: |
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PARTICIPANT | ||
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Name: |
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Signature Page to Incentive Stock Option Agreement
Exhibit 10.13
RESTRICTED STOCK AWARD AGREEMENT
PURSUANT TO THE
ICHOR HOLDINGS, LTD. 2016 OMNIBUS INCENTIVE PLAN
* * * * *
Participant:
Grant Date:
Number of Shares of Restricted Stock Granted:
* * * * *
THIS RESTRICTED STOCK AWARD AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Ichor Holdings, Ltd., a Cayman Islands exempted company (the Company ), and the Participant specified above, pursuant to the Ichor Holdings, Ltd. 2016 Omnibus Incentive Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the shares of Restricted Stock provided herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the Award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.
2. Grant of Restricted Stock Award . The Company hereby grants to the Participant, as of the Grant Date specified above, the number of shares of Restricted Stock specified above. Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participants interest in the Company for any reason, and no adjustments shall be made for dividends in cash or other
property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement. Subject to Section 5 hereof, the Participant shall not have the rights of a shareholder in respect of the shares underlying this Award until such shares are vested in accordance with the terms hereof.
3. Vesting .
(a) Subject to the provisions of Sections 3(b) and 3(c) hereof, the Restricted Stock subject to this grant shall become unrestricted and vested as follows, provided that the Participant has not incurred a Termination prior to each such vesting date:
Vesting Date |
Number of Shares | |||
[ ● ] |
[ ● | ] | ||
[ ● ] |
[ ● | ] | ||
[ ● ] |
[ ● | ] | ||
[ ● ] |
[ ● | ] |
There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date.
(b) Committee Discretion to Accelerate Vesting . Notwithstanding the foregoing, the Committee may, in its sole discretion, provide for accelerated vesting of the Restricted Stock at any time and for any reason.
(c) [ Change in Control . The Restricted Stock shall become fully vested upon the occurrence of a Change in Control so long as the Participant has not incurred a Termination prior to such Change in Control. ] 1
(d) Forfeiture . Subject to the Committees discretion to accelerate vesting hereunder, all unvested shares of Restricted Stock shall be immediately deemed to have been surrendered (without any further action required by the Company or the Participant other than the updating of the shareholder register of the Company) upon the Participants Termination for any reason.
4. Period of Restriction . During the Period of Restriction, the Restricted Stock shall bear a legend as described in Section 8.2(c) of the Plan. When shares of Restricted Stock awarded by this Agreement become vested, and if the Participants stock certificates or uncertificated shares contain legends restricting the transfer of such shares, the Participant shall be entitled to receive new stock certificates or uncertificated shares free of such legends (except any legends requiring compliance with securities laws).
1 | To be included in specific grants at the discretion of the Committee. |
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5. Dividends and Other Distributions; Voting . Participants holding Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such shares, provided that any such dividends or other distributions will be subject to the same vesting requirements as the underlying Restricted Stock and shall be paid at the time the Restricted Stock becomes vested pursuant to Section 3 hereof. If any dividends or distributions are paid in shares, the shares shall be deposited with the Company and shall be subject to the same restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were paid. The Participant may exercise full voting rights with respect to the Restricted Stock granted hereunder.
6. Non-Transferability . The shares of Restricted Stock, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way any of the Restricted Stock, or the levy of any execution, attachment or similar legal process upon the Restricted Stock, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
7. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the Cayman Islands, without regard to the choice of law principles thereof.
8. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Restricted Stock and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any Ordinary Shares otherwise required to be issued pursuant to this Agreement. Any minimum statutorily required withholding obligation with regard to the Participant may be satisfied, at the discretion of the Participant, by reducing the amount of cash or Ordinary Shares otherwise deliverable to the Participant hereunder.
9. Section 83(b) . If the Participant properly elects (as required by Section 83(b) of the Code) within 30 days after the issuance of the Restricted Stock to include in gross income for federal income tax purposes in the year of issuance the Fair Market Value of such shares of Restricted Stock, the Participant shall pay to the Company or make arrangements satisfactory to the Company to pay to the Company upon such election, any federal, state or local taxes required to be withheld with respect to the Restricted Stock. If the Participant shall fail to make such payment, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock, as well as the rights set forth in Section 8 hereof. The Participant acknowledges that it is the Participants sole responsibility, and not the Companys, to file timely and properly the election under Section 83(b) of the Code and any corresponding provisions of state tax laws if the Participant elects to make such election, and the Participant agrees to timely provide the Company with a copy of any such election.
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10. Legend . All certificates representing the Restricted Stock shall have endorsed thereon, and all uncertificated shares held in book entry by the Company or its transfer agent on behalf of the Participant shall indicate, the legend set forth in Section 8.2(c) of the Plan. Notwithstanding the foregoing, in no event shall the Company be obligated to deliver to the Participant a certificate representing the Restricted Stock prior to the vesting dates set forth above.
11. Securities Representations . The shares of Restricted Stock are being issued to the Participant and this Agreement is being made by the Company in reliance upon the following express representations and warranties of the Participant. The Participant acknowledges, represents and warrants that:
(a) The Participant has been advised that the Participant may be an affiliate within the meaning of Rule 144 under the Securities Act and in this connection the Company is relying in part on the Participants representations set forth in this Section 11.
(b) If the Participant is deemed an affiliate within the meaning of Rule 144 of the Securities Act, the shares of Restricted Stock must be held indefinitely unless an exemption from any applicable resale restrictions is available or the Company files an additional registration statement (or a re-offer prospectus) with regard to the shares of Restricted Stock and the Company is under no obligation to register the shares of Restricted Stock (or to file a re-offer prospectus).
(c) If the Participant is deemed an affiliate within the meaning of Rule 144 of the Securities Act, the Participant understands that (i) the exemption from registration under Rule 144 will not be available unless (A) a public trading market then exists for the Ordinary Shares of the Company, (B) adequate information concerning the Company is then available to the public, and (C) other terms and conditions of Rule 144 or any exemption therefrom are complied with, and (ii) any sale of the shares of vested Restricted Stock hereunder may be made only in limited amounts in accordance with the terms and conditions of Rule 144 or any exemption therefrom.
12. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
13. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the
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General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
14. Acceptance . As required by Section 8.2 of the Plan, the Participant shall forfeit the Restricted Stock if the Participant does not execute this Agreement within a period of sixty (60) days from the date that the Participant receives this Agreement (or such other period as the Committee shall provide).
15. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or Affiliates to terminate the Participants employment or service at any time, for any reason and with or without Cause.
16. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Restricted Stock awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
17. Compliance with Laws . The issuance of the Restricted Stock or unrestricted shares pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act, the Exchange Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue the Restricted Stock or any of the shares pursuant to this Agreement if any such issuance would violate any such requirements.
18. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the shares of Restricted Stock are intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.
19. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except in accordance with Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.
20. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
21. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
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22. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
23. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
24. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of Restricted Stock made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Restricted Stock awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
25. Shareholders Agreement . This Award and any Ordinary Shares issued with respect to this Award are subject to restrictions on voting and transfer and requirements of sale and other provisions as set forth herein and in the shareholders agreement The Participants rights with respect to the Award and Ordinary Shares issued with respect to this Award are subject to the restrictions and other provisions contained in the Plan and the shareholders agreement in addition to such other restrictions, if any, as may be imposed by law. In the event of a conflict between the Plan and the shareholders agreement, the shareholders agreement shall control. Furthermore, by acceptance of this Award, the undersigned agrees hereby to become a party to, and be bound by the terms of, the shareholders agreement (and to the extent the undersigned is not already a party thereto, the undersigned shall execute a joinder thereto in form and substance acceptable to the Company).
26. Nonsolicitation . During the Participants employment with the Company and for a period of one year thereafter, the Participant agrees that the Participant shall not, except in the furtherance of the Participants duties hereunder, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, solicit, aid or induce any employee, representative or agent of the Company or any of its direct affiliates to leave such employment or retention or to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company, or hire or retain any such employee, representative or agent, or take any action to materially assist or aid any other person, firm, corporation or other entity in identifying, hiring or soliciting any such employee, representative or agent. An employee, representative or agent shall be deemed covered by this Section 26 while so employed or retained and for a period of six (6) months thereafter.
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
ICHOR HOLDINGS, LTD. | ||
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Exhibit 10.14
NONQUALIFIED STOCK OPTION AGREEMENT
PURSUANT TO THE
ICHOR HOLDINGS, LTD. 2016 OMNIBUS INCENTIVE PLAN
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Participant:
Grant Date:
Per Share Exercise Price: $
Number of Shares subject to this Option:
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THIS NON-QUALIFIED STOCK OPTION AWARD AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Ichor Holdings, Ltd., a Cayman Islands exempted company (the Company ), and the Participant specified above, pursuant to the Ichor Holdings, Ltd. 2016 Omnibus Incentive Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the Non-Qualified Stock Option provided for herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the Award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. No part of the Option granted hereby is intended to qualify as an incentive stock option under Section 422 of the Code.
2. Grant of Option . The Company hereby grants to the Participant, as of the Grant Date specified above, a Non-Qualified Stock Option (this Option ) to acquire from the Company at the Per Share Exercise Price specified above, the aggregate number of Ordinary Shares specified above (the Option Shares ). Except as otherwise provided by the Plan, the
Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participants interest in the Company for any reason. The Participant shall have no rights as a shareholder with respect to any Ordinary Shares covered by the Option unless and until the Participant has become the holder of record of such shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement.
3. Vesting and Exercise .
(a) Vesting . Subject to the provisions of Sections 3(b) [and 3(c)] hereof, the Option shall vest and become exercisable as follows, provided that the Participant has not incurred a Termination prior to each such vesting date:
Vesting Date |
Number of Shares | |||
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There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date. Upon expiration of the Option, the Option shall be cancelled and no longer exercisable.
(b) Committee Discretion to Accelerate Vesting . Notwithstanding the foregoing, the Committee may, in its sole discretion, provide for accelerated vesting of the Option at any time and for any reason.
(c) [ Change in Control . The Option shall become fully vested upon the occurrence of a Change in Control so long as the Participant has not incurred a Termination prior to such Change in Control.] 1
(d) Expiration . Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, all portions of the Option (whether vested or not vested) shall expire and shall no longer be exercisable after the expiration of ten (10) years from the Grant Date.
4. Termination . Subject to the terms of the Plan and this Agreement, the Option, to the extent vested at the time of the Participants Termination, shall remain exercisable as follows:
(a) Termination due to Death or Disability . In the event of the Participants Termination by reason of death or Disability, the vested portion of the Option shall remain
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To be included in specific grants at the discretion of the Committee. |
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exercisable until the earlier of (i) one (1) year from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3(d) hereof; provided , however , that in the case of a Termination due to Disability, if the Participant dies within such one (1) year exercise period, any unexercised Option held by the Participant shall thereafter be exercisable by the legal representative of the Participants estate, to the extent to which it was exercisable at the time of death, for a period of one (1) year from the date of death, but in no event beyond the expiration of the stated term of the Option pursuant to Section 3(d) hereof.
(b) Involuntary Termination Without Cause . In the event of the Participants involuntary Termination by the Company without Cause, the vested portion of the Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3(d) hereof.
(c) Voluntary Resignation . In the event of the Participants voluntary Termination (other than a voluntary Termination described in Section 4(d) hereof), the vested portion of the Option shall remain exercisable until the earlier of (i) thirty (30) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3(d) hereof.
(d) Termination for Cause . In the event of the Participants Termination for Cause or in the event of the Participants voluntary Termination (as provided in Section 4(c) hereof) after an event that would be grounds for a Termination for Cause, the Participants entire Option (whether or not vested) shall terminate and expire upon such Termination.
(e) Treatment of Unvested Options upon Termination . Any portion of the Option that is not vested as of the date of the Participants Termination for any reason shall terminate and expire as of the date of such Termination.
(f) Blackout Periods . If the Participant is subject to any Company blackout policy or other trading restriction imposed by the Company on the date that an exercise period described in Section 4(a) through 4(c) would otherwise expire, such exercise period shall be extended until the date that the Participant is not subject to any such policy or restriction, provided that in no event shall the exercise period be extended beyond the expiration of the stated term of the Option pursuant to Section 3(d) hereof.
5. Method of Exercise and Payment . Subject to Section 8 hereof, to the extent that the Option has become vested and exercisable with respect to a number of Ordinary Shares as provided herein, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein and in accordance with Sections 6.4(c) and 6.4(d) of the Plan, including, without limitation, by the filing of any written form of exercise notice as may be required by the Committee and payment in full of the Per Share Exercise Price specified above multiplied by the number of Ordinary Shares underlying the portion of the Option exercised.
6. Non-Transferability . The Option, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary
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of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its sole discretion, permit the Option to be Transferred to a Family Member for no value, provided that such Transfer shall only be valid upon execution of a written instrument in form and substance acceptable to the Committee in its sole discretion evidencing such Transfer and the transferees acceptance thereof signed by the Participant and the transferee, and provided, further, that the Option may not be subsequently Transferred other than by will or by the laws of descent and distribution or to another Family Member (as permitted by the Committee in its sole discretion) in accordance with the terms of the Plan and this Agreement, and shall remain subject to the terms of the Plan and this Agreement. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way the Option, or the levy of any execution, attachment or similar legal process upon the Option, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
7. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of Delaware, without regard to the choice of law principles thereof.
8. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Option and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any Ordinary Shares otherwise required to be issued pursuant to this Agreement. Any minimum statutorily required withholding obligation with regard to the Participant may be satisfied, at the discretion of the Participant, by reducing the amount of cash or Ordinary Shares otherwise deliverable upon exercise of the Option.
9. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
10. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
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11. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participants employment or service at any time, for any reason and with or without Cause.
12. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Option awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
13. Compliance with Laws . The issuance of the Option (and the Option Shares upon exercise of the Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act, the Exchange Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue the Option or any of the Option Shares pursuant to this Agreement if any such issuance would violate any such requirements.
14. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the Option is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.
15. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except in accordance with Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.
16. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
17. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
18. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
19. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
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20. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of the Option made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Option awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
21. Shareholders Agreement . This Award and any Ordinary Shares issued with respect to this Award are subject to restrictions on voting and transfer and requirements of sale and other provisions as set forth herein and in the shareholders agreement. The Participants rights with respect to the Award and Ordinary Shares issued with respect to this Award are subject to the restrictions and other provisions contained in the Plan and the shareholders agreement in addition to such other restrictions, if any, as may be imposed by law. In the event of a conflict between the Plan and the shareholders agreement, the shareholders agreement shall control. Furthermore, by acceptance of this Award, the undersigned agrees hereby to become a party to, and be bound by the terms of, the shareholders agreement (and to the extent the undersigned is not already a party thereto, the undersigned shall execute a joinder thereto in form and substance acceptable to the Company).
22. Nonsolicitation . During the Participants employment with the Company and for a period of one year thereafter, the Participant agrees that the Participant shall not, except in the furtherance of the Participants duties hereunder, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, solicit, aid or induce any employee, representative or agent of the Company or any of its direct affiliates to leave such employment or retention or to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company, or hire or retain any such employee, representative or agent, or take any action to materially assist or aid any other person, firm, corporation or other entity in identifying, hiring or soliciting any such employee, representative or agent. An employee, representative or agent shall be deemed covered by this Section 22 while so employed or retained and for a period of six (6) months thereafter.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
ICHOR HOLDINGS, LTD. | ||
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Signature Page to Non-Qualified Stock Option Agreement
Exhibit 10.15
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this Agreement ) is made and entered into as of [ ], 20[ ] between Ichor Holdings, Ltd., an exempted company incorporated in the Cayman Islands (the Company ), and [ ] ( Indemnitee ).
WITNESSETH THAT:
WHEREAS, Indemnitee is either a member of the board of directors of the Company (the Board ) or an officer of the Company, or both, and in such capacity or capacities is performing a valuable service for the Company;
WHEREAS, the Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations or other business entities unless they are protected by comprehensive indemnification and liability insurance, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and because the exposure frequently bears no reasonable relationship to the compensation of such directors and officers;
WHEREAS, the Board of the Company has concluded that, to retain and attract talented and experienced individuals to serve or continue to serve as officers or directors of the Company, and to encourage such individuals to take the business risks necessary for the success of the Company, it is necessary for the Company contractually to indemnify directors and officers and to assume for itself to the fullest extent permitted by law expenses and damages related to claims against such officers and directors in connection with their service to the Company;
WHEREAS, the laws of the Cayman Islands, under which the Company is organized, empower the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provide that the indemnification provided by the laws of the Cayman Islands is not exclusive;
WHEREAS, the Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company free from undue concern for claims for damages arising out of or related to such services to the Company; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be indemnified as herein provided;
WHEREAS, this Agreement is a supplement to and in furtherance of the Amended and Restated Memorandum and Articles of Association of the Company (the Charter ) and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;
WHEREAS, it is intended that Indemnitee shall be paid promptly by the Company all amounts necessary to effectuate in full the indemnity provided herein; and
[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by Francisco Partners Management, LLC ( FP ) or affiliates of FP that Indemnitee and FP intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Companys acknowledgment of and agreement to the foregoing being a material condition to Indemnitees willingness to serve as a director or in any other capacity for the Company and its subsidiaries.] 1
NOW, THEREFORE, in consideration of Indemnitees agreement to serve as a director or officer from and after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of Indemnitees Corporate Status (as hereinafter defined), Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a) , Indemnitee shall be indemnified against all Liabilities and Expenses (each as hereinafter defined) actually incurred by or on behalf of Indemnitee, in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of Indemnitees Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b) , Indemnitee shall be indemnified against all Liabilities and Expenses actually incurred by or on behalf of Indemnitee, in connection with such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided , however , if applicable law so provides, no indemnification against such Liabilities or Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware or other court of competent jurisdiction shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitees Corporate Status, a party to and is successful,
1 |
Bracketed provisions apply only to FP directors. |
2
on the merits or otherwise, in any Proceeding, Indemnitee shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually incurred by or on behalf of Indemnitee in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually incurred by or on behalf of Indemnitee in connection with each successfully resolved claim, issue or matter. For purposes of this Section 1(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
2. Additional Indemnity . In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does, to the fullest extent permitted by applicable law, indemnify and hold harmless Indemnitee against all Liabilities and Expenses actually incurred by or on behalf of Indemnitee if, by reason of Indemnitees Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Companys obligations pursuant to this Agreement, other than those set forth in Section 9 hereof, shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.
3. Contribution .
(a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permitted by applicable law, the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such Proceeding without requiring Indemnitee to contribute to such payment and the Company hereby irrevocably waives and relinquishes any right of contribution it may have against Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in Section 3(a) , if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permitted by applicable law, the Company shall contribute to the amount of Liabilities and Expenses actually incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided , however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and
3
Indemnitee, on the other hand, in connection with the events that resulted in such Liabilities or Expenses, as well as any other equitable considerations which applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) To the fullest extent permitted by applicable law, the Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by directors, officers or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for Liabilities and/or for Expenses, in connection with any claim relating to a Proceeding under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding, and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
4. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of Indemnitees Corporate Status, a witness, or is made (or asked) to respond to discovery requests, in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses actually incurred by or on behalf of Indemnitee in connection therewith.
5. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance, to the extent not prohibited by law, all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitees Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall, if and to the extent required by applicable law, include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free. In accordance with Sections 7(d) and 7(e) of this Agreement, advances shall include any and all Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed.
4
6. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of the parties to this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted by applicable law. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Secretary of the Company (or, if the office of Secretary is vacant or the Indemnitee is the Secretary, the then President) a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitees entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (1) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (3) if there are no Disinterested Directors, or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee, or (4) if so directed by the Board, by the stockholders of the Company; provided , however , that if a Change in Control has occurred, the determination with respect to Indemnitees entitlement to indemnification shall be made by Independent Counsel.
(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as provided in this Section 6(c) . If a Change in Control has not occurred, the Independent Counsel shall be selected by the Board (including a vote of a majority of the Disinterested Directors if obtainable), and the Company shall give written notice to the Indemnitee advising Indemnitee of the identity of the Independent Counsel so selected. Indemnitee may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 12 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the Person (as hereinafter defined) so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If a Change in Control has occurred, the Independent Counsel shall be
5
selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and approved by the Board within twenty (20) days after notification by Indemnitee. If (i) an Independent Counsel is to make the determination of entitlement pursuant to this Section 6 , and (ii) within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by Indemnitee to the Companys selection of Independent Counsel and/or for the appointment as Independent Counsel of a Person selected by the court or by such other Person as the court shall designate, and the Person with respect to whom all objections are so resolved or the Person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c) , regardless of the manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to indemnification hereunder, the Person making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors, Independent Counsel or stockholders) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e) Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers, directors, managers, employees, agents or representatives of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
6
(f) If the Person empowered or selected under this Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within forty-five (45) days (or in the case of an advancement of Expenses in accordance with Section 4 , twenty (20) days; provided that Indemnitee has, if and to the extent required by applicable law, delivered the undertaking contemplated in Section 4 ) after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law, and such right to indemnification shall be enforceable by Indemnitee in any court of competent jurisdiction; provided that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.
(g) Indemnitee shall reasonably cooperate with the Person making such determination with respect to Indemnitees entitlement to indemnification, including providing to such Person upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding Indemnitees entitlement to indemnification under this Agreement. Any Expenses incurred by Indemnitee in so cooperating with the Person making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(h) With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof the Company will be entitled to participate therein at its own expense. The Company jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided , however , that the Company shall not be entitled to assume the defense of any Proceeding if there has been a Change in Control or if Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee with respect to such Proceeding. After notice from the Company to Indemnitee of its election to assume the defense thereof, the Company will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable
7
costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ Indemnitees own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless:
(i) the employment of counsel by Indemnitee has been authorized by the Company;
(ii) Indemnitee shall have reasonably concluded that counsel engaged by the Company may not adequately represent Indemnitee due to, among other things, actual or potential differing interests; or
(iii) the Company shall not in fact have employed counsel to assume the defense in such Proceeding or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Company.
(i) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. The Company shall not settle any Proceeding in any manner unless such settlement (i) provides for a full and final release of all claims against Indemnitee and (ii) does not impose any penalty or limitation on Indemnitee without Indemnitees written consent.
(j) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitees conduct was unlawful.
7. Remedies of Indemnitee .
(a) Subject to Section 9 , in the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within forty-five (45) days (or in the case of an
8
advancement of Expenses in accordance with Section 4 , twenty (20) days; provided that Indemnitee has, if and to the extent required by applicable law, delivered the undertaking contemplated in Section 4 ) after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitees entitlement to such indemnification, contribution or advancement of Expenses. Alternatively, Indemnitee, at Indemnitees option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7 ; provided , however , that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce Indemnitees rights under Section 1(c) of this Agreement. Except as set forth herein, the provisions of Delaware law (without regard to its conflict-of-law rules) shall apply to any such arbitration. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b) . In any judicial proceeding or arbitration commenced pursuant to this Section 7 , Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 6(b) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 7 and it is determined in such judicial proceeding or arbitration that Indemnitee must reimburse the Company for advance of expenses, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 5 until a final determination is made with respect to Indemnitees entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).
(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees misstatement not materially misleading, in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
9
(d) In the event that Indemnitee, pursuant to this Section 7 , seeks a judicial adjudication of Indemnitees rights under, or to recover damages for breach of, this Agreement, or to recover under any directors and officers liability insurance policies maintained by the Company, the Company shall pay on Indemnitees behalf, in advance, any and all Expenses (of the types described in the definition of Expenses in Section 12 of this Agreement) actually incurred by Indemnitee in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery, to the fullest extent permitted by applicable law.
(e) The Company shall, to the extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Company that, to the fullest extent permitted by applicable law, Indemnitee not be required to incur Expenses associated with the interpretation, enforcement or defense of Indemnitees rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall advance, to the extent not prohibited by law and in accordance with Section 5 of this Agreement, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
8. Non-Exclusivity; Survival of Rights; Insurance; [Primacy of Indemnification;] 2 Subrogation .
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, any agreement, a vote of stockholders, a resolution of directors or otherwise, of the Company. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by Indemnitee in Indemnitees Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in applicable law, whether by statute or
2 |
Bracketed provisions apply only to FP directors. |
10
judicial decision, permits greater indemnification than would be afforded currently under the Charter and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b)
(i) The Company shall, if commercially reasonable, obtain and maintain in effect during the entire period described in Section 10 for which the Company is obligated to indemnify Indemnitee under this Agreement, one or more policies of insurance with reputable insurance companies to provide the directors and officers of the Company with coverage for losses from wrongful acts and omissions and to ensure the Companys performance of its indemnification obligations under this Agreement ( D&O Insurance ); provided , that in connection with a Change of Control that occurs prior to the termination of the period described in Section 10 for which the Company is obligated to indemnify Indemnitee, the Company shall instead purchase a six (6) year pre-paid tail policy (a Tail Policy ) on terms and conditions (in both amount and scope) providing substantially equivalent benefits to Indemnitee as the D&O Insurance in effect as of the closing of the Change of Control (the Change of Control Closing Date ) with respect to matters arising on or prior to the earlier of (i) the Change of Control Closing Date and (ii) the date on which Indemnitee ceased serving as a director, officer or fiduciary of the Company, any direct or indirect subsidiary of the Company or of any other corporation, partnership, joint venture, trust or other enterprise at the express written consent of the Company.
(ii) Indemnitee shall be covered by such D&O Policies (including any Tail Policy) in accordance with its or their terms to the maximum extent of the coverage available for any such officer or director under such D&O Policies. In all such D&O Policies, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee with the same rights and benefits as are accorded to the most favorably insured of the Companys directors and officers. At the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective D&O Policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such D&O Policies.
(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by FP and certain of FPs affiliates that, directly or indirectly, (i) are controlled by, (ii) control or (iii) are under common control with, FP (collectively, the Fund Indemnitors ). The Company
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hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance Expenses or to provide indemnification for the same Liabilities or Expenses incurred by Indemnitee is secondary), (ii) that it shall be required to advance the full amount of Expenses actually incurred by Indemnitee and shall be liable for the full amount of all Liabilities and Expenses to the extent legally permitted and as required by the terms of this Agreement and the Charter (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 8(c) .] 3
(d) [Except as provided in Section 8(c) above,] 4 in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Fund Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(e) [Except as provided in Section 8(c) above,] 5 the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(f) [Except as provided in Section 8(c) above,] 6 the Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
3 | Bracketed provisions apply only to FP directors. |
4 | Bracketed provisions apply only to FP directors. |
5 | Bracketed provisions apply only to FP directors. |
6 | Bracketed provisions apply only to FP directors. |
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9. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as hereinafter defined), or similar provisions of state statutory law or common law; or
(b) for reimbursement to the Company of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company in each case as required under the Exchange Act; or
(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Company has joined in or the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (iii) the Proceeding is one to enforce Indemnitees rights under this Agreement.
10. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue until and terminate upon the later of (i) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company, and (ii) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 7 of this Agreement relating thereto (including any rights of appeal of any Section 7 Proceeding).
11. Security . To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Companys obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of Indemnitee.
12. Definitions . For purposes of this Agreement:
(a) Change in Control shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party . Any Person, other than FP or any of its respective affiliates and other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the
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same proportions as their ownership of stock of the Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities, unless the change in relative beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of the Companys securities by any Person results solely from a reduction in the aggregate number of outstanding securities entitled to vote generally in the election of directors;
(ii) Change in Board of Directors . During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Section 12(b)(i) , 12(b)(iii) or 12(b)(iv) ) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or who was otherwise nominated by FP or any of its respective affiliates, cease for any reason to constitute at least a majority of the members of the Board;
(iii) Corporate Transactions . The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; and
(iv) Liquidation . The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Companys assets, or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions.
(b) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company, any direct or indirect subsidiary of the Company, or of any other corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, that such person is or was serving at the request of the Company; provided , that any person that serves as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, of at least 50% of whose equity interests are owned by the Company, shall be conclusively presumed to be serving in such capacity at the request of the Company.
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(c) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(d) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary.
(e) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(f) Expenses shall include all reasonable direct and indirect costs, including attorneys fees, retainers, court costs, transcript costs, fees of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, out-of-pocket expenses and other disbursements and expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, responding to, or objecting to, a request to provide discovery in any Proceeding, or, to the fullest extent permitted by applicable law, successfully establishing a right to indemnification under this Agreement, whether in whole or part. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include any Liabilities.
(g) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any Person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees and disbursements of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
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(h) Liabilities shall mean damages, losses and liabilities of any type whatsoever, including, but not limited to, any judgments, fines, Employee Retirement Income Security Act excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) of any Proceeding.
(i) Person shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided , however , that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(j) Proceeding includes any actual, threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened, pending or completed proceeding, and any appeal thereof, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the Corporate Status of Indemnitee, by reason of any action taken by Indemnitee or of any inaction on Indemnitees part while acting in such Corporate Status, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise; in each case whether or not Indemnitee is acting or serving in any such capacity at the time any Liability or Expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement.
13. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the fullest extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.
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14. Enforcement and Binding Effect .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director, officer or key employee of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer or key employee of the Company.
(b) Without limiting any of the rights of Indemnitee under the Charter as it may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
(c) The indemnification and advancement of expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise at the Companys request, and shall inure to the benefit of Indemnitee and Indemnitees spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
(d) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
(e) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which Indemnitee may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the court, and the Company hereby waives any such requirement of such a bond or undertaking.
15. Modification and Waiver . No supplement, modification, waiver, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
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16. Notice By Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
17. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a) To Indemnitee at the address set forth below Indemnitees signature hereto.
(b) To the Company at:
Ichor Holdings, Ltd.
3185 Laurelview Ct.
Fremont, California 94538
Attention: Chief Financial Officer
Facsimile: (510) 897-5201
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
18. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
19. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
20. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict-of-laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 7 of this Agreement, the
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Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court ), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) agree that service of process in any such action or proceeding may be effected by notice given pursuant to Section 17 of this Agreement, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. The foregoing consent to jurisdiction shall not constitute general consent to service of process in the state for any purpose except as provided above, and shall not be deemed to confer rights on any Person other than the parties to this Agreement.
21. Further Action . The parties shall execute and deliver all documents, provide all information, and take or refrain from taking such actions as may be necessary or appropriate to achieve the purposes of this Agreement.
[Signature page follows]
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement on and as of the day and year first written above.
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Ichor Holdings, Ltd.
We consent to the use of our report dated April 22, 2016, except as to Notes 14 and 15 pertaining to earnings per share and discontinued operations as to which the date is October 7, 2016, with respect to the consolidated balance sheets of Ichor Holdings, Ltd. and its subsidiaries as of December 25, 2015 and December 26, 2014, and the related consolidated statements of operations, shareholders equity, and cash flows for the years then ended, included herein and to the reference to our firm under the heading Experts in the prospectus.
/s/ KPMG LLP
Portland, Oregon
November 29, 2016