Ultra Clean Holdings, Inc., Form S-1

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

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(1)	Includes shares which the underwriters have the right to purchase to cover over-allotments.

(2)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Prior to the offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $ and $ per share. We will apply to have our common stock listed for quotation on The Nasdaq National Market under the symbol “UCTT.”

The underwriters have an option to purchase a maximum of additional shares from the selling stockholder to cover over-allotments of shares.

Investing in our common stock involves risks. See “Risk Factors” on page 6.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We manufacture gas delivery systems in our ISO 9001:2000 certified clean room facilities.

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate as of the date of this document.

Until , 2004 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. You should read this entire prospectus, including the section entitled “Risk Factors” and our consolidated financial data and related notes, before making an investment decision. References in this prospectus to “Ultra Clean,” “we,” “us,” “our” and “our company” refer to Ultra Clean Holdings, Inc. and Ultra Clean Technology Systems and Service, Inc. unless otherwise specified. The Ultra Clean Technology logo is our registered trademark. In addition, this prospectus contains trademarks, service marks and trade names of companies and organizations other than Ultra Clean Holdings, Inc.

A complete outsourced solution for gas delivery systems. We provide our OEM customers with a complete outsourced solution for the development, design, prototyping, engineering, manufacturing and testing of advanced gas delivery systems. Our engineers work with our customers to customize and improve the design and performance of their gas delivery systems, in addition to ensuring that our products comply with applicable safety and environmental regulations and industry standards. We also manage supply chain logistics and perform comprehensive testing and qualification of final gas delivery systems to help our customers improve their manufacturing efficiencies, design-to-delivery cycle times, capital utilization and product operating characteristics.

Improved design-to-delivery cycle times. Our strong relationships with our customers and familiarity with their products and requirements help us to reduce design-to-delivery cycle times. We have optimized our supply chain management, coordination of design and manufacturing stages of production, logistics expertise and manufacturing controls to reduce design-to-delivery cycle times, allowing us to rapidly respond to order requests and quickly reconfigure product designs to meet end-users’ constantly changing requirements.

Component neutral design and manufacturing. We do not manufacture any of the components used in gas delivery systems and are therefore component neutral. This enables us to optimize overall designs for our customers by recommending the best available components on the basis of technology, performance and cost for incorporation into their gas delivery systems. Our component neutral position also enables us to maintain close relationships with a wide range of component suppliers who view us solely as a customer rather than as a competitor.

Component testing capabilities. We have made significant investments in advanced analytic and automated test equipment and utilize our engineering expertise to test key components that we incorporate into our gas delivery systems. With our component testing capabilities, we can perform diagnostic tests, design verification and failure analysis. Our component test capabilities provide us with insight into future technological trends and our customers with an important value-added service.

Our objective is to be the leading supplier of advanced gas delivery systems that are critical to the semiconductor manufacturing process. Our strategy is comprised of the following key elements:

Increase our market share at existing customers. We believe that a significant market opportunity exists to grow our business with sales to our existing customers by gaining market share from our competitors and by obtaining new business in different product families as our customers continue to outsource their gas delivery system requirements. In addition, we are expanding our manufacturing capacity to meet increased customer demand.

Broaden our customer base by expanding our resources and geographical presence. We plan to continue to attract new customers by promoting both the merits of outsourcing by leading OEMs and our own proven ability to meet the demands of OEMs. As we grow our business, we plan to increase our design, engineering and manufacturing capabilities. We believe significant growth opportunities exist in Europe and Asia.

Drive profitable growth with our flexible cost structure. In response to cyclical changes in the demand for semiconductor capital equipment, we undertake cost containment initiatives and benefit from our supply chain efficiencies. We believe that we are well positioned to respond to an upturn in our business without significant new capital investment. In addition, we believe we can quickly and easily add additional manufacturing personnel and test equipment to meet increased demand.

Expand into new product markets using our existing expertise. We are committed to expanding beyond gas delivery systems into new product markets such as liquid delivery systems, catalytic steam generation systems and frame assemblies.

Selectively pursue strategic acquisitions. We may choose to accelerate the growth of our business by selectively pursuing strategic acquisitions that will enable us to expand our geographic reach, secure new customers, diversify into complementary product markets and broaden our technological capabilities and product offerings.

Our business dates back to 1991 when Mitsubishi Corporation founded Ultra Clean Technology Systems and Service, Inc. Our business was operated as a subsidiary of Mitsubishi until November 2002. It was then acquired by Ultra Clean Holdings, Inc., which we refer to as the Ultra Clean acquisition. Ultra Clean Holdings, Inc. is owned by FP-Ultra Clean LLC (95.2%), a wholly-owned subsidiary of Francisco Partners, L.P., and by some of our key employees (4.8%). After completion of this offering, FP-Ultra Clean, LLC will own approximately % of our outstanding common stock, assuming no exercise of the underwriters’ over-allotment option. We conduct our operating activities primarily through Ultra Clean Technology Systems and Service, Inc., our wholly-owned subsidiary.

Our principal executive offices are located at 150 Independence Drive, Menlo Park, California 94025 and our telephone number is (650) 323-4100. We maintain a web site at www.uct.com. The information on our web site is not part of this prospectus.

The common stock outstanding immediately after the offering is based on shares outstanding as of December 31, 2003, and excludes:


	•	shares subject to options outstanding as of December 31, 2003, at a weighted average exercise price of $ per share; and

	•	additional shares to be reserved for issuance under our Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering.


	•	a for reverse stock split that was effected on , 2004;

	•	the repurchase of $30.0 million aggregate principal amount of our Series A Senior Notes with a portion of the net proceeds of this offering;

	•	no exercise of the underwriters’ over-allotment option; and

	•	the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering.

The following table presents our summary consolidated financial information. You should read this information together with the “Selected Consolidated Financial Information,” our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Ultra Clean Holdings, Inc. (Ultra Clean) was incorporated in October 2002 for the purpose of acquiring Ultra Clean Technology Systems and Service, Inc. (Predecessor) from Mitsubishi and did not have any significant operations prior to the Ultra Clean acquisition on November 15, 2002. Summary financial data for the periods prior to the Ultra Clean acquisition on November 15, 2002 are derived from the financial statements of Predecessor. The following financial information may not be indicative of our future performance and results for the nine months ended September 30, 2003 are not necessarily indicative of results to be expected for the full year.

The preceding table presents a summary of our balance sheet data as of September 30, 2003:


	•	on an actual basis; and

	•	on an as adjusted basis to give effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, after deducting the underwriting discount and estimated offering expenses payable by us.

See note 1 of our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share data.

You should carefully consider the risks and uncertainties described below before making an investment decision. These risks and uncertainties may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the events or circumstances described below actually occur, our business, financial condition and results of operations could suffer, the trading price of our common stock could decline and you may lose part or all of your investment.

The highly cyclical nature of the semiconductor industry and general economic slowdowns could harm our operating results.

In addition, the uncertainty regarding the growth rate of economies throughout the world has caused companies to reduce capital investment and may cause further reduction of such investments. These reductions have been particularly severe in the semiconductor capital equipment industry. A potential rebound in the worldwide economy in the near future will not necessarily mean that our business will experience similar effects. Moreover, if the worldwide economy does not rebound in the near future, our business may be further harmed.

Our quarterly revenue and operating results fluctuate significantly from period to period and this may cause volatility in our common stock price.

Our quarterly revenue and operating results have fluctuated significantly in the past and we expect them to continue to fluctuate in the future for a variety of reasons, including:


	•	demand for and market acceptance of our products as a result of the cyclical nature of the semiconductor industry or otherwise, often resulting in reduced sales during industry downturns and increased sales during periods of industry recovery;

	•	changes in the timing and size of orders by our customers;

	•	cancellations of previously placed orders;

	•	pricing pressure from either our competitors or our customers, resulting in the reduction of our product prices;

	•	disruptions or delays in the manufacturing of our products or in the supply of components that we incorporate into our products, thereby causing us to delay the shipment of our products;

	•	changes in design-to-delivery cycle times;

	•	our inability to quickly reduce our costs in response to decreased demand for our products, as our costs are relatively fixed in the short-term;

	•	changes in our mix of products sold;


	•	write-offs of excess or obsolete inventory; and

	•	announcements by our competitors of new products, services or technological innovations, which may, among other things, render our products less competitive.

As a result of the foregoing, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. Changes in the timing or terms of a small number of transactions could disproportionately affect our operating results in any particular quarter. Moreover, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, we would expect to experience an immediate and significant decline in the trading price of our common stock.

We rely on a small number of customers for a significant portion of our sales, and any impairment of our relationships with these customers would adversely affect our business.

A relatively small number of OEM customers have historically accounted for a significant portion of our sales, and we expect this trend to continue. Our two largest customers together accounted for 93% of our sales in 2000 and 91% of our sales in 2001. Our three largest customers as a group accounted for 98% of our sales in 2002 and 93% of our sales for the nine months ended September 30, 2003. Because of the small number of OEMs in our industry, most of whom are already our customers, it would be difficult to replace lost revenue resulting from the loss of, or the reduction, cancellation or delay in purchase orders by, any one of these customers. Consolidation among our customers may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a small number of customers. In addition, any significant pricing pressure exerted by a key customer could adversely effect our operating results.

We have had to qualify, and are required to maintain our status, as a preferred supplier for each of our customers. This is a lengthy process that involves the inspection and approval by a customer of our engineering, documentation, manufacturing and quality control procedures before that customer will place volume orders. Attempts to lessen the adverse effect of any loss of or reduction in sales to an existing customer through the rapid addition of one or more new customers would be difficult because of these qualification requirements. Consequently, our business, operating results and financial condition would be adversely affected by the loss of, or any reduction in orders by, any of our significant customers.

Because we are subject to order and shipment uncertainties, any significant reductions, cancellations or delays in customer orders could cause our revenue to decline and our operating results to suffer.

Our revenue is difficult to forecast because we generally do not have a material backlog of unfilled orders and because of the short time frame within which we are often required to design, produce and deliver products to our customers. Most of our revenue in any quarter depends on customer orders for our products that we receive and fulfill in the same quarter. We do not have long-term purchase orders or contracts that contain minimum purchase commitments from our customers. Instead, we receive non-binding forecasts of the future volume of orders from our customers. At times, we order and build component inventory in advance of the receipt of actual customer orders. Customers may cancel order forecasts, change production quantities from forecasted volumes or delay production for reasons beyond our control. Furthermore, reductions, cancellations or delays in customer order forecasts occur without penalty to or compensation from the customer. Reductions, cancellations or delays in forecasted orders could cause us to hold inventory for longer than anticipated, which could reduce our gross profit, restrict our ability to fund our operations and cause us to incur unanticipated reductions or delays in revenue. If we do not obtain orders as we anticipate, we could have excess component inventory for a specific product that we would not be able to sell to another customer, likely resulting in inventory write-offs, which could have a material adverse affect on our business, financial condition and operating results. In addition, because many of our costs are fixed in the short-term, we could experience deterioration in our gross profit when our production volumes decline.

The manufacturing of our products is highly complex, and if we are not able to effectively manage our manufacturing and procurement process, our business and operating results would suffer.

The manufacturing of our products is a highly complex process that involves the integration of multiple components and requires effective management of our supply chain while meeting our customers’ design-to-delivery cycle time requirements. Through the course of the manufacturing process, our customers may modify design and system configurations in response to changes in their own customers’ requirements. In order to rapidly respond to these modifications and deliver our products to our customers in a timely manner, we must effectively manage our manufacturing and procurement process. If we fail to effectively manage this process, we risk losing customers and damaging our reputation which could limit our growth and have a material adverse affect on our business, financial condition and operating results.

OEMs may not continue to outsource subsystem manufacturing for their capital equipment which could adversely impact our operating results.

The success of our business depends on OEMs continuing to outsource the manufacturing of gas delivery systems for their semiconductor capital equipment. Most of the largest OEMs have already outsourced a significant portion of their gas delivery systems. If OEMs do not continue to outsource gas delivery systems for their capital equipment, our revenue would be reduced, which could have a material adverse affect on our business, financial condition and operating results. In addition, if we are unable to obtain additional business as OEMs outsource their production of gas delivery systems, our business, financial condition and operating results could be adversely affected.

We may experience a variety of difficulties and incur a variety of costs as a result of acquisitions of companies or technologies, and the anticipated benefits of any such acquisitions may never be realized.

We may make acquisitions of, or significant investments in, complementary companies or technologies, although no acquisitions or investments are currently pending. Any future acquisitions would be accompanied by risks such as:


	•	difficulties in assimilating the operations and personnel of acquired companies;

	•	difficulties in integrating information systems of acquired companies;

	•	diversion of our management’s attention from ongoing business concerns;

	•	our potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology into our products;

	•	additional expense associated with amortization of depreciation of acquired assets;

	•	maintenance of uniform standards, controls, procedures and policies;

	•	impairment of existing relationships with employees, suppliers and customers as a result of the integration of new personnel;

	•	dilution to our stockholders in the event we issue stock as consideration to finance an acquisition; and

	•	increased leverage if we incur debt to finance an acquisition.

We may not be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future, and our failure to do so could have a material adverse affect on our business, financial condition and operating results.

If we do not keep pace with developments in the semiconductor industry, and with technological innovation generally, our products may not be competitive.

Rapid technological innovation in semiconductor manufacturing processes requires the semiconductor capital equipment industry to anticipate and respond quickly to evolving customer requirements and could

render our current product offerings and technology obsolete. Technological innovations are inherently complex. We must devote resources to technology development in order to keep pace with the rapidly evolving technologies used in the semiconductor manufacturing process. We believe that our future success will depend upon our ability to design, engineer and manufacture products that meet the changing needs of our customers. This requires that we successfully anticipate and respond to technological changes in design, engineering and manufacturing processes in a cost-effective and timely manner. If we are unable to integrate new technical specifications into competitive product designs, develop the technical capabilities necessary to manufacture new products or make necessary modifications or enhancements to existing products, our business prospects could be harmed.

The timely development of new or enhanced products is a complex and uncertain process which requires that we:


	•	design innovative and performance-enhancing features that differentiate our products from those of our competitors;

	•	identify emerging technological trends in the semiconductor industry, including new standards for our products;

	•	accurately identify and design new products to meet market needs;

	•	collaborate with OEMs to design and develop products on a timely and cost-effective basis;

	•	successfully manage development production cycles; and

	•	respond effectively to technological changes or product announcements by others.

The industry in which we participate is highly competitive and rapidly evolving, and if we are unable to compete effectively, our operating results would be harmed.

Our industry is highly competitive and rapidly evolving. Our competitors are primarily companies that design and manufacture gas delivery systems for semiconductor capital equipment. Increased competition has in the past resulted, and could in the future result, in price reductions, reduced gross margins or loss of market share, any of which would harm our operating results. Competitors may introduce new products for the markets currently served by our products. These products may have better performance, lower prices and achieve broader market acceptance than our products. Further, OEMs typically own the design rights to their products and may provide these designs to subsystem manufacturers. If our competitors obtain proprietary rights to these designs such that we are unable to obtain the designs necessary to manufacture products for our OEM customers, our business, financial condition and operating results could be adversely affected.

Our competitors may have greater financial, technical, manufacturing and marketing resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion, sale and support of their products, and reduce prices to increase market share. Moreover, there may be merger and acquisition activity among our competitors and potential competitors that may provide our competitors and potential competitors with an advantage over us by enabling them to expand their product offerings and service capabilities to meet a broader range of customer needs. Further, if one of our customers develops or acquires the internal capability to develop and produce gas delivery systems, the loss of that customer could have a material adverse affect on our business, financial condition and operating results. The introduction of new technologies and new market entrants may also increase competitive pressures.

We must achieve design wins to retain our existing customers and to obtain new customers.

New semiconductor capital equipment typically has a lifespan of several years, and OEMs frequently specify which systems, subassemblies, components and instruments are to be used in their equipment. Once a specific system, subassembly, component or instrument is incorporated into a piece of semiconductor capital equipment, it will likely continue to be incorporated into that piece of equipment for

a period of at least several months before the OEM uses the product of another supplier. Accordingly, it is important that our products are designed into the new semiconductor capital equipment of OEMs, which we refer to as a design win, in order to retain our competitive position with existing customers and to obtain new customers.

We incur technology development and sales expenses with no assurance that our products will ultimately be designed into an OEM’s semiconductor capital equipment. Further, developing new customer relationships, as well as increasing our market share at existing customers, requires a substantial investment of our sales, engineering and management resources without any assurance from prospective customers that they will place significant orders. We believe that OEMs often select their suppliers and place orders based on long-term relationships. Accordingly, we may have difficulty achieving design wins from OEMs that are not currently our customers. Our operating results and potential growth could be adversely affected if we fail to achieve design wins with leading OEMs.

We have experienced significant growth in our business in recent periods, and we may not be able to manage our future growth successfully.

Our ability to successfully execute our business plan in a rapidly evolving market requires an effective planning and management process. We have increased, and plan to continue to increase, the scope of our operations. Due to the cyclical nature of the semiconductor industry, however, future growth is difficult to predict. Future expansion efforts could be expensive and may strain our managerial and other resources. To manage future growth effectively, we must maintain and enhance our financial and operating systems and controls and manage expanded operations. The number of people we employ has grown and we expect this number to continue to grow in the near term. As of December 31, 2001, we had a total of 130 employees. As of December 31, 2003, we had a total of 229 employees. As we grow our business, we will also need to effectively integrate and train these additional employees in order to increase our production while maintaining our product quality. If we do not manage growth properly, our business, operating results and financial condition would be adversely affected.

We will face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, the Public Company Accounting Oversight Board and The Nasdaq National Market, have required changes in the corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make legal, accounting and administrative activities more time-consuming and costly. For example, as a result of becoming a public company, we plan to add two additional independent directors, create additional committees of our board of directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect to incur substantially higher costs to obtain directors and officers insurance. We cannot estimate the amount of additional costs we may incur or the timing of such costs.

We may not be able to respond quickly enough to increases in demand for our products.

Demand shifts in the semiconductor industry are rapid and difficult to predict, and we may not be able to respond quickly enough to an increase in demand. Our ability to increase sales of our products depends, in part, upon our ability to:


	•	mobilize our supply chain in order to maintain component supply;

	•	optimize the use of our design, engineering and manufacturing capacity in a timely manner;

	•	deliver our products to our customers in a timely fashion;


	•	expand, if necessary, our manufacturing capacity; and

	•	maintain our product quality as we increase production.

If we are unable to respond to rapid increases in demand for our products on a timely basis or to manage any corresponding expansion of our manufacturing capacity effectively, our customers could increase their purchases from our competitors, which would adversely affect our business.

Our dependence on our suppliers may prevent us from delivering an acceptable product on a timely basis.

We rely on both single source and sole source suppliers, some of whom are relatively small in size, for many of the components we use in our products. In addition, our customers often specify components made by particular suppliers that we must incorporate into their products. Our suppliers are under no obligation to provide us with components. As a result, the loss of or failure to perform by any of these providers could adversely affect our business and operating results. In addition, the manufacturing of certain components and subassemblies is an extremely complex process. Therefore, if a supplier was unable to provide the volume of components we require on a timely basis and at acceptable prices, we would have to identify and qualify replacements from alternative sources of supply. The process of qualifying new suppliers for these complex components is lengthy and could delay our production and adversely affect our business, operating results and financial condition. In addition, one of our competitors manufactures mass flow controllers that may be specified by one or more of our customers. If we are unable to obtain these particular mass flow controllers from our competitor or convince a customer to select alternative mass flow controllers, we may be unable to meet that customer’s requirements.

The technology labor market is very competitive, and our business will suffer if we are unable to hire and retain key personnel.

Our future success depends in part on the continued service of our key executive officers, as well as our research, engineering, sales, manufacturing and administrative personnel, most of whom are not subject to employment or non-competition agreements. In addition, competition for qualified personnel in the technology industry is intense, and we operate in geographic locations in which labor markets are particularly competitive. Our business is particularly dependent on expertise which only a very limited number of engineers possess. The loss of any of our key employees, or the failure to attract and retain new qualified employees, would adversely affect our business, operating results and financial condition.

Defects in our products could damage our reputation, decrease market acceptance of our products, cause the unintended release of hazardous materials and result in potentially costly litigation.

A number of factors, including design flaws, material and component failures, contamination in the manufacturing environment, impurities in the materials used and unknown sensitivities to process conditions, such as temperature and humidity, as well as equipment failures, may cause our products to contain undetected errors or defects. Problems with our products may:


	•	cause delays in product introductions and shipments;

	•	result in increased costs and diversion of development resources;

	•	cause us to incur increased charges due to unusable inventory;

	•	require design modifications;

	•	decrease market acceptance of, or customer satisfaction with, our products, which could result in decreased sales and product returns; or

	•	result in lower yields for semiconductor manufacturers.

If any of our products contain defects or have reliability, quality or compatibility problems, our reputation might be damaged and customers might be reluctant to buy our products. We may also face a higher rate of product defects as we increase our production levels. Product defects could result in the loss

of, or impair our ability to attract, customers. In addition, we may not find defects or failures in our products until after they are installed in a semiconductor manufacturer’s fabrication facility. We may have to invest significant capital and other resources to correct these problems. Our current or potential customers also might seek to recover from us any losses resulting from defects or failures in our products. Hazardous materials flow through and are controlled by our products and an unintended release of these materials could result in serious injury or death. Liability claims could require us to spend significant time and money in litigation or pay significant damages.

Our business is largely dependent on the know-how of our employees, and we generally do not have a protected intellectual property position.

Our business is largely dependent upon our design, engineering, manufacturing and testing know-how. We rely on a combination of trade secrets and contractual confidentiality provisions, and to a much lesser extent, patents, copyrights and trademarks, to protect our proprietary rights. Accordingly, our intellectual property position is more vulnerable than it otherwise would be if it were protected by issued patents. If we fail to successfully protect our proprietary rights, our competitive position could suffer, which could harm our operating results. We may be required to spend significant resources to monitor and protect our proprietary rights. In addition, we may not be able to detect infringement of our proprietary rights and may lose our competitive position in the market if any such infringement occurs. In addition, competitors may design around our technology or develop competing technologies and know-how.

Third parties may claim we are infringing their intellectual property which could subject us to litigation or licensing expenses, and we may be prevented from selling our products if any such claims prove successful.

Third parties may claim that we are infringing their intellectual property rights and we may be unaware of intellectual property rights of others that may be applicable to our products. Any litigation regarding patents or other intellectual property could be costly and time-consuming and divert our management and key personnel from our business operations. The complexity of the technology involved in our products and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement may also require us to enter into costly license agreements. However, we may not be able to obtain licenses on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against the development and sale of certain of our products if any such claims prove successful.

We may not be able to fund our future capital requirements from our operations, and financing from other sources may not be available on favorable terms or at all.

We made capital expenditures of $0.6 million in 2001, $1.8 million in 2002 and $13,000 for the nine months ended September 30, 2003. The amount of our future capital requirements will depend on many factors, including:


	•	the cost required to ensure access to adequate manufacturing capacity;

	•	the timing and extent of spending to support product development efforts;

	•	the timing of introductions of new products and enhancements to existing products;

	•	changing manufacturing capabilities to meet new customer requirements; and

	•	market acceptance of our products.

To the extent that existing cash, together with any cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Future equity financings could be dilutive to holders of our common stock, and debt financings could involve covenants that restrict our business operations. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, take advantage of future

If environmental contamination were to occur in one of our manufacturing facilities, we could be subject to substantial liabilities.

We use substances regulated under various federal, state and local environmental laws in our manufacturing facilities. Our failure or inability to comply with existing or future environmental laws could result in significant remediation liabilities, the imposition of fines or the suspension or termination of the production of our products. In addition, we may not be aware of all environmental laws or regulations that could subject us to liability.

If our facilities were to experience catastrophic loss due to natural disasters, our operations would be seriously harmed.

Our facilities could be subject to a catastrophic loss caused by natural disasters, including fires and earthquakes. We have facilities in areas with above average seismic activity, such as our manufacturing and headquarters facilities in Menlo Park, California. If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, reduce revenue and result in large expenses to repair or replace the facility. In addition, we have in the past experienced, and may in the future experience, extended power outages at our Menlo Park, California facilities. We do not carry insurance policies which cover potential losses caused by earthquakes or other natural disasters or power loss.

Threatened or actual terrorist attacks may negatively impact our business and cause our stock price to decline.

Future threatened or actual terrorist attacks against United States targets or military or trade disruptions impacting our component suppliers may cause delays or loss of customer orders. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in United States and worldwide financial markets. These events could also result in further economic recession in the United States or abroad. Any of these occurrences would have an adverse impact on our business, operating results and financial condition.

We will be controlled by FP-Ultra Clean, LLC as long as it owns a significant percentage of our common stock, and our other stockholders will be unable to affect the outcome of stockholder voting during such time.

After the completion of this offering, Francisco Partners, through its membership interests in FP-Ultra Clean, LLC, will beneficially own approximately % of our outstanding common stock, or approximately % if the underwriters exercise in full their over-allotment option to purchase additional shares. Because we are a controlled company in accordance with the rules of The Nasdaq National Market, we are not required to comply with regulations that would otherwise require a majority of our board of directors to be comprised of independent directors under rule 4350(c)(5) of The Nasdaq National Market. As long as FP-Ultra Clean, LLC owns at least 25% of our outstanding common stock, it will continue to be able to nominate a majority of our board of directors in accordance with the terms of our stockholder’s agreement with FP-Ultra Clean, LLC. Furthermore, investors in this offering will not be able to affect the outcome of any stockholder vote prior to the time that FP-Ultra Clean, LLC owns less than a majority of our outstanding common stock. As a result, FP-Ultra Clean, LLC will control all matters affecting us, including:


	•	the composition of our board of directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;


	•	any determinations with respect to mergers or other business combinations;

	•	our acquisition or disposition of assets; and

	•	our financing.

In addition, pursuant to our stockholder’s agreement with FP-Ultra Clean, LLC, to the extent that FP-Ultra Clean, LLC continues to beneficially own a significant portion of our outstanding common stock, although less than a majority, it will continue to have significant influence over all matters submitted to our stockholders and to exercise significant control over our business policies and affairs. In particular, for so long as FP-Ultra Clean, LLC holds at least 25% of our common stock, our board of directors is prohibited from taking many significant corporate actions without the consent of FP-Ultra Clean, LLC, including mergers, acquisitions or sales of assets outside of the ordinary course of business, the issuance of securities and the incurrence or refinancing of indebtedness in excess of $10 million. Such power could have the effect of delaying, deterring or preventing a change of control, business combination or other transaction that might otherwise be beneficial to our stockholders. FP-Ultra Clean, LLC also is not prohibited from selling a controlling interest in us to a third party or a participant in our industry. For additional information regarding our relationship with FP-Ultra Clean, LLC, you should read the section of this prospectus entitled “Certain Relationships and Related Party Transactions.”

FP-Ultra Clean, LLC and its designees on our board of directors may have interests that conflict with our interests and the interests of our other stockholders.

FP-Ultra Clean, LLC and its designees on our board of directors may have interests that conflict with, or are different from, our own and those of our other stockholders. Francisco Partners, which will be the beneficial holder of % of our outstanding common stock after completion of this offering through its membership interests in FP-Ultra Clean, LLC, has invested in or acquired other businesses that are involved in the semiconductor industry and may invest in or acquire others in the future. Conflicts of interest between FP-Ultra Clean, LLC and us or our other stockholders may arise. Any such conflicts of interest may not be resolved in a manner favorable to us or our other stockholders. Our amended and restated certificate of incorporation to be effective upon the completion of this offering does not contain any provisions designed to facilitate resolution of actual or potential conflicts of interest, or to ensure that potential business opportunities that may become available to both FP-Ultra Clean, LLC and us will be reserved for or made available to us. In addition, FP-Ultra Clean, LLC and its director designees could delay or prevent an acquisition, merger or other transaction even if the transaction would benefit our other stockholders. In addition, FP-Ultra Clean, LLC’s significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Please see “Principal and Selling Stockholders” for a more detailed description of our share ownership.

Future sales of our common stock by existing stockholders could depress our stock price.

Sales of substantial amounts of our common stock by FP-Ultra Clean, LLC, or the perception that these sales might occur, may depress prevailing market prices of our common stock. All of our outstanding shares are subject to lock-up agreements with the underwriters as described in “Underwriting” that prohibit the resale of these shares for 180 days from the date of this prospectus, although the underwriters may release all or a portion of the shares subject to lock-up agreements at any time without notice. The shares owned by FP-Ultra Clean, LLC have the benefit of an agreement with us that provides for customary demand and piggyback registration rights. Upon expiration of the 180-day lock-up period, in addition to the shares owned by FP-Ultra Clean, LLC that may be sold under a registration statement, shares underlying exercisable options to purchase our common stock will be available for resale without restriction or further registration under the Securities Act.

Our securities have no prior trading history, and we cannot assure you that our stock price will not decline after the offering.

Prior to this offering, there was no public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. The market price of our common stock could be subject to significant fluctuations after this offering. Among the factors that could affect our stock price are:


	•	quarterly variations in our operating results;

	•	our ability to successfully introduce new products and manage new product transitions;

	•	changes in revenue or earnings estimates or publication of research reports by analysts;

	•	speculation in the press or investment community;

	•	strategic actions by us or our competitors, such as acquisitions or restructurings;

	•	announcements relating to any of our key customers, significant suppliers or the semiconductor manufacturing and capital equipment industry generally;

	•	general market conditions; and

	•	domestic and international economic factors unrelated to our performance.

The stock markets in general, and the markets for technology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price, which will be determined by negotiations between the representatives of the underwriters and us.

We have broad discretion in how we use a portion of the net proceeds of this offering, and we may not use these proceeds in a manner desired by our stockholders.

We do not currently have a specific plan with respect to the use of a significant portion of the net proceeds of this offering and have not committed these proceeds to any particular purpose. We expect to use approximately $29.3 million of the net proceeds from this offering to repurchase our Series A Senior Notes held by FP-Ultra Clean LLC, our principal stockholder, and $738,000 to repurchase our Series A Senior Notes held by some of our key employees. In addition, subject to the completion of this offering, we have agreed to pay Francisco Partners a one-time fee of $2.0 million for advisory services performed in connection with our initial public offering. We plan to use the balance of the net proceeds of this offering primarily for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses or technologies, although we have no current agreements or commitments with respect to any specific acquisition. Our management will have broad discretion with respect to the use of the net proceeds and investors will be relying on the judgment of our management regarding the application of these proceeds. Our management could spend these proceeds in ways which our stockholders may not desire or that do not yield a favorable return. You will not have the opportunity, as part of your investment in our common stock, to influence the manner in which the net proceeds of this offering are used.

Provisions of our charter documents could discourage potential acquisition proposals and could delay, deter or prevent a change in control.

In addition to the provisions of our stockholder’s agreement with FP-Ultra Clean, LLC described above, the provisions of our amended and restated certificate of incorporation and by-laws to be effective


	•	a requirement that special meetings of stockholders may be called only by our board of directors, the chairman of our board of directors, our president or our secretary;

	•	advance notice requirements for stockholder proposals and director nominations; and

	•	the authority of our board of directors to issue, without stockholder approval, preferred stock with such terms as our board of directors board may determine.

The initial public offering price is substantially higher than the net book value per share of our outstanding common stock. As a result, if you purchase shares in this offering, you will incur immediate and substantial dilution, which would have been $ per share as of December 31, 2003. In addition, as of December 31, 2003 we had options outstanding to acquire shares of common stock with a weighted average exercise price of $ per share. To the extent these options are exercised, you will incur further dilution. See “Dilution” for a more complete description of the dilution that you will incur.

This prospectus contains forward-looking statements which reflect our current views with respect to future events and financial performance. In this prospectus, we use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue” and similar expressions to identify these forward-looking statements. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding the growth of our markets. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, you should not rely on forward-looking statements in this prospectus, as there are or will be important factors that could cause our actual results, as well as those of the markets we serve, levels of activity, performance, achievements and prospects to differ materially from the results predicted or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others, those identified in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.

We estimate that our net proceeds from this offering will be approximately $ million after deducting the underwriting discount and estimated offering expenses payable by us, based on an assumed initial public offering price of $ per share. We expect to use approximately $29.3 million of the net proceeds to repurchase our Series A Senior Notes held by FP-Ultra Clean, LLC, our principal stockholder, and $738,000 to repurchase our Series A Senior Notes held by some of our key employees. Our Series A Senior Notes bear interest at a rate of 5% per annum and mature on November 15, 2009. In addition, subject to the completion of this offering, we have agreed to pay Francisco Partners a one-time fee of $2.0 million for advisory services performed in connection with our initial public offering. We intend to use the remainder of the net proceeds for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses or technologies, although we have no current agreements or commitments with respect to any specific acquisition. We will have discretion in the use of a significant portion of the net proceeds we receive from this offering. Investors will be relying on the judgment of our management regarding the application of those net proceeds. In addition, any investments, capital expenditures, cash acquisitions or other application of our proceeds may not produce the anticipated results. Pending use of these proceeds as discussed above, we intend to invest these funds in short-term, interest-bearing investment-grade obligations. We will not receive any proceeds from the exercise of the underwriters’ over-allotment option.

We have not paid any cash dividends on our common stock since the Ultra Clean acquisition. We intend to retain any future earnings to fund the development and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and, under the terms of our stockholder’s agreement, will require the approval of FP-Ultra Clean, LLC for as long as it holds at least 25% of our common stock. In addition, our revolving credit facility prohibits us from paying cash dividends on our common stock.

The following table sets forth our long-term debt and capitalization on an unaudited basis as of September 30, 2003.


	•	the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share;

	•	the application of the net proceeds from the sale of the shares of common stock by us in this offering, after deducting the underwriting discount and estimated offering expenses payable by us, to repurchase $30.0 million aggregate principal amount of our outstanding Series A Senior Notes as described in “Use of Proceeds;”

	•	the for reverse stock split that was effected on , 2004; and

	•	the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering.

You should read the information set forth below together with the “Selected Consolidated Financial Information,” our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

The number of shares of common stock outstanding after this offering excludes 4,179,000 shares subject to options outstanding as of September 30, 2003 at a weighted average exercise price of $0.25 per share and additional shares to be reserved for issuance under our Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering.

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the amount you pay per share for our common stock in this offering and the net tangible book value per share of our common stock immediately after this offering. Net tangible book value per share is determined by dividing our tangible net worth, which is equal to our total tangible assets less total liabilities, by the aggregate number of shares of common stock outstanding. Our net tangible book value as of December 31, 2003 was approximately $ , or $ per share of common stock. After giving effect to the sale of the shares of common stock in this offering at an assumed initial public offering price of $ per share and after deducting the underwriting discount and estimated offering expenses payable by us and the receipt and application of a portion of the net proceeds to repurchase our outstanding Series A Senior Notes as described under “Use of Proceeds,” our net tangible book value at December 31, 2003 would have been $ , or $ per share. This represents an immediate increase in net tangible book value to existing stockholders of $ per share and an immediate dilution to new investors of $ per share. The following table illustrates this per share dilution:

Assuming the initial public offering had occurred on December 31, 2003, the following table sets forth, as of December 31, 2003, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by the new investors, at an assumed initial public offering price of $ per share before deducting the underwriting discount and estimated offering expenses payable by us.

The foregoing tables assume no exercise of the underwriters’ over-allotment option or outstanding stock options after December 31, 2003 and no issuance of shares reserved under our Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering. At December 31, 2003, shares of common stock were subject to outstanding options, at a weighted average exercise price of $ . To the extent these options are exercised, there will be further dilution to new investors.

If the underwriters’ over-allotment option is exercised in full, the number of shares held by existing stockholders will be reduced to , or approximately % of the total shares of common stock outstanding after the offering, and will increase the number of shares to be purchased by new investors to , or approximately % of the total shares of common stock outstanding after the offering.

The following selected consolidated financial data should be read together with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. This financial data includes the accounts of Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and for the nine months ended September 30, 2002 and for the years ended December 31, 2001, 2000, 1999 and 1998 and the accounts of Ultra Clean Holdings, Inc. (Ultra Clean) for the period from November 16, 2002 through December 31, 2002 and for the nine months ended September 30, 2003. See note 1 of the consolidated financial statements for a description of the Ultra Clean acquisition. The selected consolidated balance sheet data as of December 31, 2001 and 2002 and the selected consolidated statements of operations data for the periods from January 1, 2002 through November 15, 2002 and November 16, 2002 through December 31, 2002 and the years ended December 31, 2001 and 2000 have been derived from our audited consolidated financial statements which are included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 1998, 1999 and 2000 and the selected consolidated statements of operations data for the years ended December 31, 1998 and 1999 have been derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated balance sheet data as of September 30, 2003 and the selected consolidated statements of operations data for the nine months ended September 30, 2002 and 2003 have been derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. Our unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements contained in this prospectus and include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. Historical results are not necessarily indicative of the results to be expected in the future, and the results for the nine months ended September 30, 2003 are not necessarily indicative of results to be expected for the entire year.

The following discussion should be read in conjunction with and is qualified in its entirety by reference to our audited financial statements and unaudited interim financial statements included elsewhere in this prospectus. Except for the historical information contained herein, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below. See “Risk Factors” and “Forward-Looking Statements” for a discussion of these risks and uncertainties.

Our business dates back to 1991 when Mitsubishi Corporation founded Ultra Clean Technology Systems and Service, Inc. Our business was operated as a subsidiary of Mitsubishi until November 2002. It was then acquired by Ultra Clean Holdings, Inc., which we refer to as the Ultra Clean acquisition. Ultra Clean Holdings, Inc. is owned by FP-Ultra Clean LLC (95.2%), a wholly-owned subsidiary of Francisco Partners, and by members of our management (4.8%). After completion of this offering, FP-Ultra Clean, LLC will beneficially own approximately % of our outstanding common stock, assuming no exercise of the underwriters’ over-allotment option. We conduct our operating activities primarily through Ultra Clean Technology Systems and Service, Inc., our wholly-owned subsidiary.

We have entered into a stockholder’s agreement with FP-Ultra Clean, LLC which provides that our board of directors may not take certain significant actions without the approval of FP-Ultra Clean, LLC as long as it owns at least 25% of our outstanding common stock, including mergers, acquisitions or sales of assets outside the ordinary course of business, the issuance of securities and the incurrence or refinancing of indebtedness in excess of $10 million. See “Certain Relationships and Related Party Transactions — Relationship with Francisco Partners — Stockholder’s Agreement.”

Our business and operating results depend in significant part upon capital expenditures by manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for semiconductors. Historically, the semiconductor industry has been highly cyclical, with recurring periods of over-supply of semiconductor products that have had a severe negative effect on the demand for capital equipment used to manufacture semiconductors. In periods where supply exceeds demand for semiconductor capital equipment, we generally experience significant reductions in customer orders for our products. For example, for the nine months ended September 30, 2003, our sales decreased to $51.8 million from $67.6 million for the nine months ended September 30, 2002. Sharp decreases in demand for semiconductor capital equipment may lead our customers to cancel order forecasts, change production quantities from forecasted volumes or delay production, which may negatively impact our gross profit, as we may be unable to quickly reduce costs and may be required to hold inventory longer than anticipated. In periods where demand for semiconductor capital equipment exceeds supply, we generally need to quickly increase our production of gas delivery systems, requiring us to order additional inventory, effectively manage our component supply chain, hire additional employees and expand, if necessary, our manufacturing capacity. If we are unable to respond to rapid increases in demand for our products on a

We generate revenue from the sale of gas delivery systems. The success of our business and our ability to generate future sales depends on OEMs continuing to outsource the manufacturing of gas delivery systems for their semiconductor capital equipment. Most of the largest OEMs have already outsourced a significant portion of their gas delivery systems. If OEMs do not continue to outsource gas delivery systems for their capital equipment, our revenue would be reduced, which could have a material adverse affect on our business, financial condition and operating results. In addition, if we are unable to obtain additional business as OEMs outsource their production of gas delivery systems, our business, financial condition and operating results could be adversely affected.

A relatively small number of OEM customers have historically accounted for a significant portion of our revenue, and we expect this trend to continue. Our two largest customers together accounted for 93% of our sales in 2000 and 91% of our sales in 2001. Our three largest customers as a group accounted for 98% of our sales in 2002 and 93% of our sales for the nine months ended September 30, 2003. Because of the small number of OEMs in our industry, most of whom are already our customers, it would be difficult to replace lost revenue resulting from the loss of, or the reduction, cancellation or delay in purchase orders by, any one of these customers. Consolidation among our customers may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a small number of customers. In addition, any significant pricing pressure exerted by a key customer could adversely effect our operating results.

We record deferred compensation in respect of the unvested portion of our Series A Senior Notes and common stock granted to some of our key employees in connection with the Ultra Clean acquisition. In addition, we record deferred stock-based compensation resulting from the grant of stock options to employees at exercise prices less than the estimated fair value of the underlying common stock on the grant date. We determined the estimated fair value of our common stock based on several factors, including our historical and projected operating performance. We have recorded total deferred compensation of $0.9 million as of September 30, 2003 and expect to record amortization expense of $0.1 million for the fourth quarter of 2003, $0.3 million in 2004, $0.3 million in 2005 and $0.2 million in 2006.

Our consolidated financial statements have been derived from the financial statements of Ultra Clean Technology Systems and Service, Inc. until November 15, 2002. Our consolidated financial statements beginning with the period from inception to September 30, 2003 reflect the purchase accounting resulting from the Ultra Clean acquisition on November 15, 2002.

In the discussion of our financial statements for the year ended December 31, 2002 in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we refer to the financial statements for 2002 as “combined” for comparative purposes. These combined financial results for 2002 represent the sum of the financial data for Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and the financial data for Ultra Clean Holdings, Inc. (Ultra Clean) for the period from its inception to December 31, 2002. We further refer to the period from our inception through December 31, 2002 as the November 16, 2002 through December 31, 2002 period, because we had no operations in the period from October 28, 2002, our date of incorporation, to November 15, 2002, the closing date of the Ultra Clean acquisition. These combined financial results are for informational purposes only and do not purport to represent what our financial position would have actually been in such periods had the Ultra Clean acquisition occurred prior to November 15, 2002.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our financial statements. On an on-going basis, we evaluate our estimates and judgments, including those related to sales, inventories, intangible assets, stock compensation and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to the Ultra Clean acquisition, revenue recognition, inventory valuation, accounting for income taxes, valuation of intangible assets and goodwill and stock options to employees to be critical policies due to the estimates and judgments involved in each.

In connection with the Ultra Clean acquisition, we allocated the purchase price associated with the acquisition to the tangible and intangible assets acquired, liabilities assumed and in-process research and development based on their estimated fair values. We engaged a third-party appraisal firm to assist us in determining the fair values of the assets acquired and the liabilities assumed. Such valuations required us to make significant estimates and assumptions, especially with respect to intangible assets. Estimates associated with the accounting for the Ultra Clean acquisition may change as additional information becomes available regarding the assets acquired and liabilities assumed. In particular, a claim by us for a refund of approximately $470,000 of the purchase price remains unresolved. Any payment of this unresolved amount will reduce recorded goodwill.

The critical estimates we used in allocating the purchase price and valuing certain intangible assets include but were not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, acquired developed technologies and patents; expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed; and brand awareness and market position of acquired products and assumptions about the period of time the brand will continue to be used in the combined product portfolio. Our estimates of fair value at the time when they were made are based upon assumptions that we believed to be reasonable, but which are inherently uncertain and unpredictable.

Our revenue is concentrated in a few OEM customers in the semiconductor capital equipment industry in the United States. Our standard arrangement for our customers includes a signed purchase order or contract and no right of return of delivered products. Revenue from sales of products is generally recognized when:


	•	we enter into a legally binding arrangement with a customer;

	•	we ship the products;

	•	customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and

	•	collection is probable.

In certain circumstances, revenue is not recognized until the product is delivered. In addition, if we have not substantially completed or fulfilled the terms of a sales agreement at the time of shipment, revenue recognition is deferred until completion. Determination of criteria in the third and fourth bullet points above is based on our judgment regarding the fixed nature of the amounts charged for the products delivered and the collectability of those amounts.

We assess collectability based on the credit worthiness of the customer and past transaction history. We perform on-going credit evaluations of, and do not require collateral from, our customers. Our collection losses have historically been within our expectations. A significant change in the liquidity or financial position of any one customer could make it more difficult for us to assess collectability.

We value our inventories at the lesser of standard cost, determined on a first-in, first-out basis, or market. We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis. Obsolete inventory or inventory in excess of our estimated usage is written-down to its estimated market value less costs to sell, if less than its cost. Inherent in our estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for our products and technological obsolescence of our products. If actual market conditions are less favorable than our projections, additional inventory write-downs may be required. If the inventory value is written down to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold either as a component of a gas delivery system or as separate inventory. During the nine months ended September 30, 2003 and the year ended December 31, 2002, we charged $0.2 million and $0.3 million to cost of goods sold to write down excess and obsolete inventory.

The determination of our tax provision is subject to judgments and estimates. The carrying value of our net deferred tax assets, which is made up primarily of tax deductions and net operating loss carryforwards, assumes we will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, we make judgments with respect to whether we are likely to generate sufficient future taxable income to realize these assets. We have not recorded any valuation allowance to impair our tax assets because, based on the available evidence, we believe it is more likely than not that we will be able to utilize all of our deferred tax assets in the future. If we do not generate sufficient future income, the realization of these deferred tax assets may be impaired, resulting in an additional income tax expense.

We periodically evaluate our intangible assets and goodwill in accordance with Statement of Financial Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets, for indications of

impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets include goodwill, purchased technology and tradename. Factors we consider important that could trigger an impairment review include significant under-performance relative to historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, or significant negative industry or economic trends. If these criteria indicate that the value of the intangible asset may be impaired, an evaluation of the recoverability of the net carrying value of the asset over its remaining useful life is made. If this evaluation indicates that the intangible asset is not recoverable, the net carrying value of the related intangible asset will be reduced to fair value, and the remaining amortization period may be adjusted. Any such impairment charge could be significant and could have a material adverse effect on our reported results if and when an impairment charge is recorded. If an impairment charge is recognized, the amortization related to intangible assets would decrease during the remainder of the year. No impairment losses were recorded during the year ended December 31, 2002.

We have elected to follow the intrinsic value-based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25, and the related interpretations in accounting for employee stock options rather than adopting the alternative fair value accounting provided under SFAS No. 123, Accounting for Stock Based Compensation. Therefore, we do not record any compensation expense for stock options we grant to our employees where the exercise price equals the fair market value of the stock options on the date of grant and the exercise price, number of shares eligible for issuance under the options and vesting period are fixed. We comply with the disclosure provisions of SFAS No. 123 and SFAS No. 148, which require that we disclose our pro forma net income or loss and net income or loss per common share as if we had expensed the fair value of the options. In calculating such fair values, we use assumptions of estimated option life, dividend policy and interest rates.

The following table sets forth statements of operations data for the periods indicated as a percentage of revenue.

(1)

The combined financial results for 2002 represent the sum of the financial data for Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and the financial data for Ultra Clean Holdings, Inc. for the period from inception to December 31, 2002. The combined financial data for 2002 is presented to facilitate comparison with other annual periods.

We generate revenue from the sale of gas delivery systems. Sales for the nine months ended September 30, 2003 decreased 23.4% to $51.8 million from $67.6 million for the nine months ended September 30, 2002, a decrease of $15.8 million. This decrease in sales was due to the continued downturn in the semiconductor capital equipment industry, which resulted in decreased demand for, and therefore reduced sales of, our gas delivery systems.

Cost of goods sold consists primarily of purchased materials, labor and overhead, including depreciation, associated with the design and manufacture of products sold. Gross profit for the nine months ended September 30, 2003 decreased 37.4% to $5.7 million from $9.1 million for the nine months ended September 30, 2002, a decrease of $3.4 million. Gross profit as a percentage of sales decreased to 11.1% for the nine months ended September 30, 2003 compared to 13.4% for the nine months ended September 30, 2002. This decrease in gross profit was primarily attributable to the decreased utilization of

Research and development expense consists primarily of activities related to new component testing and evaluation, test equipment, design and implementation, new product design and testing and other product development activities. Research and development expense for the nine months ended September 30, 2003 increased 60% to $0.8 million from $0.5 million for the nine months ended September 30, 2002, an increase of $0.3 million. Research and development expense as a percentage of sales increased to 1.4% for the nine months ended September 30, 2003 compared to 0.8% for the nine months ended September 30, 2002. This increase in research and development expense was primarily attributable to the development of additional test fixtures for a wider range of products.

Sales and marketing expense consists primarily of salaries and commissions paid to our sales and service employees. Sales and marketing expense for the nine months ended September 30, 2003 increased 7.1% to $1.5 million from $1.4 million for nine months ended September 30, 2002, an increase of $0.1 million. Sales and marketing expense as a percentage of sales increased to 2.8% for the nine months ended September 30, 2003 compared to 2.0% for the nine months ended September 30, 2002. We do not expect our sales and marketing expense to increase as a percentage of sales in 2004.

General and administrative expense consists primarily of salaries and overhead of our administrative staff. General and administrative expense for the nine months ended September 30, 2003 increased 52.2% to $3.5 million from $2.3 million for the nine months ended September 30, 2002, an increase of $1.2 million. General and administrative expense as a percentage of sales increased to 6.7% for the nine months ended September 30, 2003 compared to 3.4% for the nine months ended September 30, 2002. This increase in general and administrative expense was primarily attributable to a $1.0 million professional fee paid to a third-party financial advisor for services it had performed for us. General and administrative expense for the nine months ended September 30, 2003 also included approximately $0.2 million associated with deferred compensation amortization resulting from restricted stock and employee debt which originated at the time of the Ultra Clean acquisition. We expect our general and administrative expense to increase in 2004 as we incur additional expenses as a public company.

Interest expense for the nine months ended September 30, 2003 increased to $1.1 from $0.1 million for the nine months ended September 30, 2002, an increase of $1.0 million. This increase in interest expense was attributable to interest payable on our Series A Senior Notes held by FP-Ultra Clean, LLC and some of our key employees which were issued in the fourth quarter of 2002 in connection with the Ultra Clean acquisition.

Provision for income taxes for the nine months ended September 30, 2003 was a benefit of $0.5 million compared to an expense of $2.0 million for the nine months ended September 30, 2002. This decrease in provision for income taxes was primarily attributable to the decrease in taxable income for the nine months ended September 30, 2003.

In the discussion of our financial statements for the year ended December 31, 2002 in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we refer to financial statements for 2002 as “combined” for comparative purposes. These combined financial results for 2002 represent the sum of the financial data for Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and the financial data for Ultra Clean Holdings, Inc. (Ultra Clean) for the period from its inception to December 31, 2002. We further refer to the period from our inception through December 31, 2002 as the November 16, 2002 through December 31, 2002 period, because we had no operations in the period from October 28, 2002, our date of incorporation, to November 15, 2002, the closing date of the Ultra Clean acquisition. These combined financial results are for informational purposes only and do not purport to represent what our financial position would have actually been in such periods had the Ultra Clean acquisition occurred prior to November 15, 2002.

Sales for the year ended December 31, 2002 increased 10.2% to $84.3 million from $76.5 million for the year ended December 31, 2001, an increase of $7.8 million. This increase in sales was primarily attributable to the addition of a significant new customer. Sales to our other significant customers for the year ended December 31, 2002 decreased due to the downturn in the semiconductor capital equipment industry, which resulted in decreased demand for, and therefore reduced sales of, our gas delivery systems.

Gross profit for the year ended December 31, 2002 decreased 10.6% to $9.3 million from $10.4 million for the year ended December 31, 2001, a decrease of $1.1 million. Gross profit as a percentage of sales decreased to 11.0% for the year ended December 31, 2002 compared to 13.5% for the year ended December 31, 2001. This decrease in gross profit was primarily attributable to a decrease in sales beginning in the fourth quarter of 2002. In addition, we opened a new manufacturing facility in Tualatin, Oregon during that period which increased manufacturing expenses in the third and fourth quarters of 2002.

Research and development expense for the year ended December 31, 2002 increased 16.7% to $0.7 million from $0.6 million for the year ended December 31, 2001, an increase of $0.1 million. Research and development expense as a percentage of sales increased to 0.9% for the year ended December 31, 2002 compared to 0.8% for year ended December 31, 2001.

Sales and marketing expense for the year ended December 31, 2002 increased 46.2% to $1.9 million from $1.3 million for the year ended December 31, 2001, an increase of $0.6 million. Sales and marketing expense as a percentage of sales increased to 2.3% for the year ended December 31, 2002 compared to 1.7% for the year ended December 31, 2001. This increase in sales and marketing expense was primarily attributable to an increase in commissions paid to our sales force as a result of sales made to a significant new customer during 2002. In addition, we increased the size of our sales force during 2002 in order to increase our sales efforts with our significant customers.

General and administrative expense for the year ended December 31, 2002 increased 145.0% to $7.6 million from $3.1 million for the year ended December 31, 2001, an increase of $4.5 million. General and administrative expense as a percentage of sales increased to 9.0% for the year ended December 31, 2002 compared to 4.1% for the year ended December 31, 2001. This increase in general and administrative

expense was primarily attributable to the buyout of stock options of $2.5 million from, and one-time bonus payments of $0.7 million to, some of our key employees in connection with the Ultra Clean acquisition and a $1.3 million charge related to the expiration of unexercised stock options held by a former executive officer at the time of the Ultra Clean acquisition.

In-process research and development expense for the year ended December 31, 2002 was $0.9 million for purchased in-process research and development that had not yet reached technological feasibility and had no alternative future use.

Interest expense for the year ended December 31, 2002 decreased to $0.4 million from $0.5 million for the year ended December 31, 2001, a decrease of $0.1 million. This decrease in interest expense was primarily attributable to our lower average short-term borrowing balance during 2002.

Provision for income taxes for the year ended December 31, 2002 was negligible compared to an expense of $2.0 million for the year ended December 31, 2001. This decrease in provision for income taxes was attributable to the decrease in taxable income for the year ended December 31, 2002.

Sales for the year ended December 31, 2001 decreased 7.8% to $76.5 million from $83.0 million for the year ended December 31, 2000, a decrease of $6.5 million. This decrease in sales was primarily attributable to the downturn in the semiconductor capital equipment industry, which resulted in decreased demand for, and therefore reduced sales of, our gas delivery systems.

Gross profit for the year ended December 31, 2001 decreased 29.8% to $10.4 million from $14.8 million for the year ended December 31, 2000, a decrease of $4.4 million. Gross profit as a percentage of sales decreased to 13.5% for the year ended December 31, 2001 compared to 17.8% for the year ended December 31, 2000. This decrease in gross profit was primarily attributable to a decrease in sales during 2001 and our inability to reduce costs as fast as the decrease in sales. In addition, we opened a new manufacturing facility in Austin, Texas in the fourth quarter of 2000 which increased manufacturing expense in 2001.

Research and development expense increased 18.3% to $0.6 million for the year ended December 31, 2001 from $0.5 million for the year ended December 31, 2000, an increase of $0.1 million. Research and development expense as a percentage of sales increased to 0.8% for the year ended December 31, 2001 compared to 0.6% for the year ended December 31, 2000.

Sales and marketing expense for the year ended December 31, 2001 increased 8.3% to $1.3 million from $1.2 million for the year ended December 31, 2000, an increase of $0.1 million. Sales and marketing expense as a percentage of sales increased to 1.7% for the year ended December 31, 2001 compared to 1.5% for the year ended December 31, 2000.

General and administrative expense for the year ended December 31, 2001 decreased 16.2% to $3.1 million from $3.7 million for the year ended December 31, 2000, a decrease of $0.6 million. General and administrative expense as a percentage of sales decreased to 4.1% for the year ended December 31, 2001 compared to 4.5% for the year ended December 31, 2000. This decrease in general and administrative expense was primarily attributable to a decrease in sales and the resulting lower bonus compensation paid to our sales force.

Interest expense for the year ended December 31, 2001 decreased to $0.4 million from $0.7 million for the year ended December 31, 2000, a decrease of $0.3 million. This decrease in interest expense was the result of significantly lower interest rates on our obligations in 2001.

Provision for income taxes for the year ended December 31, 2001 was $2.0 million, for an effective tax rate of 40.6%, compared to a benefit of $0.1 million for the year ended December 31, 2000. The 2000 provision for income taxes was favorably impacted by the release of a tax asset valuation allowance resulting from the use of previously generated net operating loss carryforwards.

The following tables set forth statement of operations data for the periods indicated in dollars and as a percentage of sales. The information for each of these periods is unaudited and has been prepared on the same basis as our audited consolidated financial statements included elsewhere in this prospectus and includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our unaudited operations data for the periods presented. Historical results are not necessarily indicative of the results to be expected in the future.

Historically, we have required capital principally to fund our working capital needs, satisfy our debt obligations, maintain our equipment and purchase new capital equipment. We anticipate that our operating cash flow, together with the net proceeds of this offering and available borrowings under our revolving credit facility, will be sufficient to meet our working capital requirements and capital lease obligations for at least the next twelve months. The adequacy of these resources to meet our liquidity needs beyond that period will depend on our growth, the cyclical expansion or contraction of the semiconductor capital equipment industry and capital expenditures required to meet possible increased demand for our products. Prior to the Ultra Clean acquisition, we relied on capital contributions and borrowings from Mitsubishi to fund our liquidity needs. As of September 30, 2003, we had cash of approximately $7.3 million as compared to $1.9 million as of September 30, 2002. We estimate that our net proceeds from this offering will be approximately $ million after deducting the underwriting discount and estimated offering expenses payable by us, based on an assumed initial public offering price of $ per share. We expect to use approximately $29.3 million of the net proceeds to repurchase our Series A Senior Notes held by FP-Ultra Clean, LLC, our principal stockholder, and $738,000 to repurchase our Series A Senior Notes held by some of our key employees. In addition, subject to the completion of this offering, we have agreed to pay Francisco Partners a one-time fee of $2.0 million for advisory services performed in connection with our initial public offering. See “Use of Proceeds.”

We generated $1.1 million in cash from operating activities for the nine months ended September 30, 2002 and 2003. Net cash from operations for the nine months ended September 30, 2003 resulted mainly from lower inventory requirements associated with the continued downturn in the semiconductor capital equipment industry, which resulted in decreased demand for, and therefore reduced sales of, our gas delivery systems, and by non-cash charges, primarily depreciation, offsetting operating losses. Net cash from operations for the nine months ended

For the nine months ended September 30, 2003, we used net cash from investing activities of $13,000. For the nine months ended September 30, 2002, we used net cash from investing activities of $1.4 million, primarily to construct and equip a new manufacturing facility in Tualatin, Oregon which was established in October 2002. Cash used in financing activities for the nine months ended September 30, 2003 was $0.1 million, all for principal payments on our capital lease obligations. Cash provided by financing activities for the nine months ended September 30, 2002 was $1.4 million, primarily from draw-downs on a revolving credit facility from Mitsubishi to meet our working capital needs.

We generated $2.7 million in cash from operating activities for the year ended December 31, 2002 and had a net use of $0.6 million from operating activities for the year ended December 31, 2001. Net cash from operating activities for the year ended December 31, 2002 resulted mainly from significant increases in accounts payable and other liabilities and from lower inventory requirements associated with the downturn in the semiconductor capital equipment industry, which resulted in a decreased demand for, and therefore reduced sales of, our gas delivery systems.

For the year ended December 31, 2002, we used net cash from investing activities of $28.3 million primarily in connection with the Ultra Clean acquisition. For the year ended December 31, 2001, we used net cash from investing activities of $0.6 million primarily to complete the construction of and to equip a new manufacturing facility in Austin, Texas, which was established in October 2001. For the year ended December 31, 2002, cash provided by financing activities was $31.1 million, consisting primarily of proceeds from the issuance of our Series A Senior Notes and common stock associated with the Ultra Clean acquisition. Of these proceeds, $9.0 million was used to repay borrowings from Mitsubishi under a revolving credit facility. Cash used in financing activities for the year ended December 31, 2001 was $1.7 million, primarily for repayment of borrowings from Mitsubishi.

In June 2003, our wholly-owned subsidiary, Ultra Clean Technology Systems and Service, Inc., entered into a revolving credit facility with Union Bank of California providing for borrowings of up to $10.0 million based upon a defined borrowing base. Ultra Clean Technology Systems and Service, Inc. has never utilized this revolving credit facility. We have unconditionally guaranteed all obligations under this facility. These obligations are secured by substantially all of our and their respective assets. Borrowings under the revolving credit facility bear interest, at our option, at a rate equal to 2% per annum plus LIBOR or at 0.25% per annum plus the reference rate established from time to time by the lender. Under the terms of the credit agreement, we are subject to customary covenants related to our business, including financial covenants and restrictions on the payment of cash dividends. We will be in default under the revolving credit facility if FP-Ultra Clean, LLC ceases to hold, directly or indirectly, at least 50% of our voting interests.

For the nine months ended September 30, 2003, we spent $13,000 for capital expenditures compared to $1.4 million during the nine months ended September 30, 2002. Capital expenditures for the rest of 2003 are expected to be approximately $0.2 million, which will be used primarily to expand one of our clean room manufacturing facilities. For the year ended December 31, 2002, capital expenditures were $1.8 million compared to $0.6 million for the year ended December 31, 2001. We do not anticipate significant requirements for additional capital expenditures in the next twelve months but our requirements are subject to change depending upon industry conditions.

Other than operating leases for certain equipment and real estate, we have no significant off-balance sheet transactions, unconditional purchase obligations or similar instruments and, other than with respect


*	Declines in operating lease expense after the year ended December 31, 2003 reflect the fact that the lease for our headquarters facility in Menlo Park, California expires on July 31, 2004. We expect to be able to renew this lease prior to its expiration under similar terms.

At December 31, 2003, $30.0 million aggregate principal amount of our Series A Senior Notes were outstanding and an additional $0.6 million Series A Senior Notes were subject to vesting in the future. The $30.0 million aggregate principal amount of outstanding notes will be repurchased with a portion of the net proceeds of this offering. The unvested notes will continue to vest pursuant to the terms of the Restricted Securities Purchase Agreements. See “Use of Proceeds” and “Management — Restricted Securities Purchase Agreements.” As of September 30, 2003, no amount was drawn on our revolving credit facility.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force, or EITF Issue No. 94-3. The provisions of SFAS No. 146 are applicable for restructuring activities initiated after December 28, 2002. SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of the commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The adoption of SFAS No. 146 on January 1, 2003 did not have a material effect on our consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation, or FIN, No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation specifies the disclosures to be made by a guarantor in its interim and annual financial statements concerning its obligations under certain guarantees that it has issued. FIN No. 45 also requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations it has undertaken in issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for interim and annual periods ending after December 15, 2002. The initial recognition and initial measurement requirements of FIN No. 45 are effective for guarantees issued or modified after December 31, 2002. The adoption of these provisions did not have a material effect on our consolidated financial statements.

In December 2002, the EITF reached a consensus on EITF No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities, including when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. The guidance in EITF Issue No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material effect on our consolidated financial statements.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of FIN No. 46 are effective for all arrangements entered into after January 31, 2003. We do not expect the adoption of FIN No. 46 to have a material effect on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on our consolidated financial statements.

Market risk represents the risk of changes in value of a financial instrument caused by fluctuations in interest rates. After the application of the net proceeds from this offering, we will have no indebtedness for borrowed money and therefore our exposure to market risk related to interest rates is limited. If and when we do enter into future borrowing arrangements or borrow under our existing revolving credit facility, we may seek to manage exposure to interest rate changes by using a mix of debt maturities and variable- and fixed-rate debt, together with interest rate swaps where appropriate, to fix or lower our borrowing costs. We do not make material sales or have material purchase obligations outside of the United States and therefore do not generally have exposure to foreign currency exchange risks.

We are a leading developer and supplier of critical subsystems for the semiconductor capital equipment industry, focusing on gas delivery systems. Our gas delivery systems enable the precise delivery of specialty gases used in a majority of the key steps in the semiconductor manufacturing process. Our customers are primarily OEMs of semiconductor capital equipment. These OEMs outsource the manufacturing of their gas delivery systems in order to improve the efficiency and reduce the costs of their design and manufacturing processes. We provide our customers with a full range of services for the development, design, prototyping, engineering, manufacturing and testing of gas delivery systems. We use our engineering and manufacturing expertise, component neutral platform, supply chain management and comprehensive test capabilities to offer our customers high quality products at reduced design-to-delivery cycle times. For the nine month period ending September 30, 2003, our three largest customers by revenue were Customer A, Customer B and Customer C.

The manufacture of semiconductors is a highly complex process. Bare silicon wafers undergo a series of chemical, mechanical and physical process steps resulting in the formation of hundreds or thousands of integrated circuits on a single wafer. During the manufacturing process, a wafer may cycle through each process step up to 30 times before manufacturing is complete and each integrated circuit is fully formed.

Semiconductor manufacturers must frequently add new capital equipment in order to reduce manufacturing costs, add manufacturing capacity and accommodate more technologically advanced manufacturing processes for next generation semiconductor devices. For example, semiconductor manufacturers are increasingly transitioning fabrication machinery from 200mm to 300mm wafer size in order to increase the number of semiconductor devices produced on a single wafer. In addition, the introduction of new materials such as copper and low-K dielectrics and advances in the manufacturing process, including smaller line width technologies, have enabled semiconductor manufacturers to significantly increase the functionality and thereby the complexity of semiconductor devices. New manufacturing techniques require absolute precision in the control of the recipes used in the semiconductor manufacturing process. The flow of gases and liquids into and out of the process chambers must be carefully monitored and controlled to ensure proper timing and duration of gas and chemical reactions within the chambers. Minor deviations from the prescribed process recipe or the introduction of contaminants in the process chambers can result in device defects and manufacturing yield loss.

In order to achieve the required levels of precision and purity in the manufacture of semiconductor devices, gases are delivered to process chambers by delivery systems which have been integrated into a process tool. Gas delivery systems permit contamination-free handling and delivery of dangerous gases and chemicals at highly accurate flow rates, pressures and timing regimens and are used in a majority of the key semiconductor manufacturing process steps.

A typical gas delivery system consists of one or more gas lines, comprised of several filters, mass flow controllers, regulators, pressure transducers and valves, associated interconnect tubing and an integrated electronic and/or pneumatic control system. Gas delivery systems are highly specific and are tailored to each individual step in the semiconductor manufacturing process as well as to the specific requirements of OEMs and end-users. Gas delivery systems are one of the most technologically complex subsystems incorporated into each process tool and represent a significant portion of the overall cost of each tool.

The semiconductor capital equipment industry is highly cyclical. VLSI Research estimates that worldwide sales for semiconductor manufacturing equipment totaled $60.3 billion in 2000 and declined to $29.8 billion in 2002. VLSI estimates that this industry will grow 121% between 2002 and 2005.

Historically, semiconductor capital equipment manufacturers have either manufactured the components and subsystems for their equipment internally or have relied on a number of small suppliers to provide these products.

Today, however, OEMs are increasingly outsourcing the development, design, prototyping, engineering, manufacturing, assembly and testing of components and systems to subsystem suppliers in order to:


	•	reduce their investments in inventory, property, plant and equipment in the face of cyclical demands for their products;

	•	reduce design-to-delivery cycle times;

	•	take advantage of subsystem suppliers’ ability to quickly modify and reconfigure product designs;

	•	take advantage of subsystem suppliers’ inventory management capabilities and purchasing power; and

	•	focus on their core competencies in light of increasing research and development requirements and industry-wide pricing pressure.

Because gas delivery systems are among the most technologically complex subsystems, we believe that OEMs need to establish strong partner relationships with companies that possess the engineering expertise, design capabilities, quality control, financial stability and highly flexible manufacturing operations required to satisfy the cyclical and constantly changing demands of semiconductor manufacturers.

We are a leading developer and supplier of critical subsystems for the semiconductor capital equipment industry, focusing on gas delivery systems. Our products enable our OEM customers to improve the efficiency and reduce the costs of their design and manufacturing processes.


	A complete outsourced solution for gas delivery systems. We provide our OEM customers with a complete outsourced solution for the development, design, prototyping, engineering, manufacturing and testing of advanced gas delivery systems, one of the most critical and technologically complex elements of our customers’ products. Our engineers work with our customers to improve the design and performance of their gas delivery systems while reducing the system size and overall cost. We combine our highly specialized engineering capabilities and regulatory compliance expertise to produce high performance products that are customized to meet the needs of each of our customers and their respective end-users and to comply with applicable safety and environmental regulations and industry standards. In addition, we use our advanced analytical and automated equipment to perform comprehensive testing and qualification of final gas delivery systems. We provide our customers with a consolidated report of the key components utilized as well as the range of performance features for each gas delivery system we manufacture. We also manage the supply chain logistics required to manufacture gas delivery systems. This reduces the overall number of suppliers and inventory levels that our customers would otherwise have to manage. Furthermore, we believe we are often able to negotiate reduced component prices due to our large volume orders. As a result, we are able to help our customers improve their manufacturing efficiencies, design-to-delivery cycle times, capital utilization and product operating characteristics.

	Improved design-to-delivery cycle times. Our strong relationships with our customers and familiarity with their products and requirements help us to reduce design-to-delivery cycle times for gas delivery systems. Our design teams are highly integrated with the design teams of our customers and in many instances are physically located at the OEM sites. In addition, we have optimized our supply chain management, coordination of design and manufacturing stages of production, logistics expertise and manufacturing controls and can rapidly respond to order requests. This decreases the design-to-delivery cycle times for our customers and reduces the amount of


	inventory we must carry, thereby lowering our manufacturing costs. In addition, we are able to quickly modify and reconfigure product designs in order to meet end-users’ constantly changing requirements as they adjust their manufacturing processes to optimize manufacturing yields and reduce equipment down-time.

	Component neutral design and manufacturing. A typical gas delivery system consists of one or more gas lines, comprised of several filters, mass flow controllers, regulators, pressure transducers and valves, associated interconnect tubing and an integrated electronic and/or pneumatic control system. We do not manufacture any of the components ourselves and are therefore component neutral. This enables us to work with our customers to select the best available components for incorporation into their gas delivery systems. Our component neutral position allows us to recommend components on the basis of technology, performance and cost and to optimize our overall designs based on these criteria. It also enables us to maintain close relationships with a wide range of component suppliers who view us solely as a customer rather than as a competitor.

	Component testing capabilities. In addition to our system testing capabilities, we utilize our engineering expertise to test key components, including mass flow controllers, regulators, pressure transducers and valves, that we incorporate into our gas delivery systems. We have made significant investments in advanced analytic and automated equipment to test and qualify key components. With our component testing capabilities we can perform diagnostic tests, design verification and failure analysis for both our customers and suppliers. Because we are component neutral, we can objectively test and assess a wide range of components. We believe that our component testing capabilities provide us with insight into future technological trends and provide our customers with an important value-added service.

Our objective is to be the leading supplier of advanced gas delivery systems that are critical to the semiconductor manufacturing process. We plan to use our development, design, prototyping, engineering, manufacturing and testing expertise and efficiency to allow us to continue to foster strong relationships with our existing customers and penetrate more of their product lines, while concurrently engaging in joint-development projects with new customers. We believe that these efforts will allow us to grow our market share of gas delivery systems and expand into other markets.


	Increase our market share at existing customers. We believe that a significant market opportunity exists to grow our business with sales to our existing customers by both gaining market share from our competitors and obtaining new business in different product families as our customers continue to outsource their gas delivery system requirements. We believe that our continued focus on our technology development, design, engineering, manufacturing and testing expertise and efficiency, our design-to-delivery cycle times and ability to rapidly respond to non-forecasted demands from our customers will allow us to gain market share from our competitors and attract additional business from existing customers. In addition, we are expanding our manufacturing capacity to meet increased customer demand.

	Broaden our customer base by expanding our resources and geographical presence. We plan to continue to grow our business and attract new customers by promoting both the merits of outsourcing by leading OEMs and our own proven ability to meet the demands of OEMs. As we grow our business, we plan to increase our sales and support resources, as well as design, engineering and manufacturing capabilities. Additionally, we plan to expand our geographic footprint in regions that put us in close proximity with both the manufacturing locations of new product families at existing customers as well as with new or potential customers. We believe significant growth opportunities exist in Europe and Asia.


	Drive profitable growth with our flexible cost structure. In response to cyclical changes in the demand for semiconductor capital equipment, we undertake cost containment initiatives and benefit from our supply chain efficiencies. We believe that we are well positioned to respond to an upturn in our business with our current manufacturing capacity. In addition, we believe we can quickly and easily add additional manufacturing personnel and test equipment to meet increased demand.

	Expand into new product markets using our existing expertise. We are committed to expanding beyond gas delivery systems into new product markets such as liquid delivery systems, catalytic steam generation systems and frame assembly design. We believe the following attributes will allow us to enter new markets:


	•	our understanding of the semiconductor manufacturing process;

	•	our expertise in efficient technology development, design, engineering, manufacturing and testing;

	•	our supply chain management expertise; and

	•	our strong relationships with existing customers.


	Selectively pursue strategic acquisitions. We may choose to accelerate the growth of our business by selectively pursuing strategic acquisitions. We will consider strategic opportunistic acquisitions that will enable us to expand our geographic reach, secure new customers, diversify into complementary product markets and broaden our technological capabilities and product offerings.

We develop, design, prototype, engineer, manufacture and test gas delivery systems that enable the precise delivery of numerous specialty gases used in a majority of the key steps in the semiconductor manufacturing process, including deposition, etch, chemical mechanical planarization, cleaning and annealing. Our products control the flow, pressure, sequencing and mixing of specialty gases into and out of the process chambers of semiconductor manufacturing tools.


	•	Filters prevent particle matter from entering the process chambers.

	•	Mass flow controllers are devices that control the amount of gas flowing into the process chambers.

	•	Regulators regulate gas pressure (usually by means of a pre-loaded spring) in order to maintain a constant level of downstream pressure.

	•	Pressure transducers are pressure sensors that display and transmit an analog signal of gas pressure.

	•	Valves provide positive shut-off for the gas stream, either by pneumatic control or manual operation.

Our gas delivery systems minimize surface area and regions in the flow stream where contaminants may otherwise collect and stagnate. Our system designs are reconfigurable and can accommodate different components and additional functionality with each new generation of semiconductor devices. Our gas delivery systems are also capable of being upgraded to accommodate changes to existing processes within the lifecycle of a process tool.

Our gas delivery system designs are developed in collaboration with our customers and are customized to meet the needs of the specific OEM. We do not sell standard systems. Our customers either specify the particular brands of components they want incorporated into a particular system or rely on our design expertise to help them select the appropriate components for their particular system. Our component neutral position allows us to recommend components to our customers on the basis of technology, performance and cost and to optimize our overall designs based on these criteria.

In addition, we have developed a catalytic steam generator, or CSGS, which we intend to offer as a stand alone product or as an add-on feature to our gas delivery systems. Several semiconductor manufacturing process steps, including rapid thermal processing, oxidation, photo-resist stripping/ashing and post-etch metal passivation, utilize steam to accelerate growth rates or removal rates on wafers. Our CSGS produces ultra high purity steam that is suitable for these applications. Our CSGS can produce steam in a wide range of concentrations to meet various process requirements in both 200 mm and

We are able to produce reliable, cost-effective systems as a result of our proven design and engineering, manufacturing and testing expertise and attention to quality.

Design and engineering. We provide our customers with design, configuration and engineering services for their gas delivery systems. As of December 31, 2003, we had a 42-person engineering department, consisting of mechanical engineers, drafters and configuration analysts. We have engineers working on-site at several of our customers’ facilities.

We work with our customers to develop new product designs and help them to clarify and define their process tool requirements. Our component neutral position allows us to recommend components on the basis of technology, performance and cost and to optimize our overall designs based on these criteria. Our product designs address our customers’ needs in a reliable, cost-effective and highly customized manner. Our engineers work to quickly identify the appropriate components for a particular design and release the order for these components early in the development process so that material procurement can occur prior to the end of the development cycle. Our engineering design department also provides configuration services in which they define and release to our manufacturing facilities and to the customer a documentation package for each specific system. Additionally, our design expertise helps to ensure that new product designs will comply with applicable safety and environmental regulations and industry standards.

As semiconductor manufacturers continuously adjust and modify their manufacturing processes to optimize manufacturing yields and reduce equipment down-time, our customers are required to make modifications to their process tools. We partner with our customers to rapidly develop optimal design, manufacturing and production solutions and implement appropriate modifications to gas delivery systems to meet end-users’ requirements. Our engineers are trained on our significant customers’ computer aided design systems in order to facilitate quick turnaround times.

Manufacturing. Our manufacturing capabilities consist of precision machining, welding and assembly services. The breadth of our capabilities enables us to rapidly develop manufacturing specifications, provide precise and repeatable manufacturing and perform final assembly of complex integrated gas delivery systems. We manufacture components that adhere to strict design tolerances and specifications. We operate clean room manufacturing facilities in Menlo Park, California, Austin, Texas, and Tualatin, Oregon. We selected these manufacturing locations to permit us to be near our key customers and to allow us to interact with these customers on a regular basis. Each of our manufacturing facilities is ISO 9001:2000 certified and has been qualified by our customers with respect to the products we build for them. We generally implement new product and process technologies in our Menlo Park facility before migrating these technologies to our other facilities. We are currently expanding our clean room manufacturing facility in Austin, Texas in order to accommodate possible growth in demand. We expect to complete this expansion in January 2004.

Our manufacturing process is highly flexible, enabling our customers to make alterations to their final requirements throughout the design, engineering and manufacturing process. This results in decreased design-to-delivery cycle times for our customers. We use product data management software to automate documentation changes driven by the engineering design and redesign processes to manage customer requests. This software works directly with our manufacturing resource planning system to streamline the procurement, inventory management and manufacturing processes.

Supply-chain management. We use consignment material and just-in-time stocking programs to better manage our component inventories in response to changing customer requirements. These approaches enable us to significantly reduce our inventory levels and maintain flexibility in responding to changes in product demand. We believe our close relationships with key suppliers enable us to receive a

level of supplier support that substantially strengthens our competitive position. We are able to fulfill customer requirements by pre-buying common parts from approved suppliers. Furthermore, we believe we are often able to negotiate reduced component prices due to our large volume orders.

Testing. In order to ensure reliability, key components, such as mass flow controllers, valves, regulators and pressure transducers, are qualified prior to being integrated into our systems. These key components are generally tested to verify conformance with industry standards and specifications. Mass flow controllers are tested using a primary calibration test standard prior to installation in a gas delivery system. During the manufacturing process, all functions of the system are tested to assure that the lines are secure and properly connected, components operate correctly and pneumatic logic is correct as designed and built. This testing process also serves as a secondary test on the calibration of the mass flow controllers. Prior to shipping, each gas delivery system is thoroughly tested and verified to a zero particle level. Test data is made available to customers. In addition, every system shipped from our manufacturing facilities is digitally photographed, providing a permanent inspection record of the product. We use these photographs to assist us in answering customers’ questions about configuration or revision status while equipment is in the field and unavailable for direct inspection.

Quality control. Our quality management system allows us to access real-time corrective action reports, nonconformance reports, customer complaints and controlled documentation. In addition, our senior management conducts quarterly reviews of our quality control system to evaluate effectiveness. Our customers also complete quarterly surveys which allow us to measure satisfaction.

As a result of our commitment to, and strict compliance with, quality standards, we have received several service and quality awards from key customers for our performance and quality business processes. We were awarded the Novellus Outstanding Services Award in 2001 and 2002, the Novellus Outstanding Quality Award in 2002 and 2003 and the Lam Research Supplier Excellence Award in 2003. In addition, our products and manufacturing processes are designed to comply with applicable safety and environmental regulations and industry standards.

We sell our products to manufacturers of capital equipment for the production of semiconductor devices. The semiconductor capital equipment industry is highly concentrated and we are therefore highly dependent upon a small number of customers.

The following table sets forth the percentages of our total net sales to our three largest customers in each period presented.

Customer A, Customer B and Customer C are the only customers who accounted for 10% or more of our total revenue during these periods.

We sell our products through our direct sales force which, as of December 31, 2003, consisted of a total of 15 sales directors, account managers and sales support staff. Our sales directors are responsible for establishing sales strategy and setting the objectives for specific customer accounts. Each account manager is dedicated to a specific customer account and is responsible for the day-to-day management of that

customer. Account managers work closely with customers and in many cases provide on-site support. Account managers often attend customers’ internal meetings related to production, engineering design and quality to ensure that customer expectations are interpreted and communicated properly to our operations group. Account managers also work with our customers to identify and meet their cost and design-to-delivery cycle time objectives.

We have dedicated account managers responsible for new business development for gas delivery system products and related technologies. Our new business development account managers initiate and develop long-term, multi-level relationships with customer accounts and work closely with customers on new business opportunities throughout the design-to-delivery cycle.

Our sales force includes technical sales support for order placement, spare parts quotes and production status updates. We have a technical sales associate located at each of our manufacturing facilities. In addition, we have developed a service and support infrastructure to provide our customers with service and support 24 hours a day, seven days a week. Our dedicated field service engineers provide customer support through the performance of on-site installation, servicing and repair of our gas delivery systems.

We engage in ongoing technology development efforts in order to remain a technology leader for gas delivery systems. We have a technology development group which, as of December 31, 2003, consisted of three persons, two of whom hold doctoral degrees. In addition, our design engineering and new product engineering groups support our technology development activities.

Our technology development group works closely with our customers to identify and anticipate changes and trends in next generation semiconductor manufacturing equipment and, in particular, gas delivery systems. Our technology development group is involved in customer technology partnership programs that focus on process application requirements for gas delivery systems. These development efforts are designed to meet specific customer requirements in the areas of gas delivery system design, materials, component selection and functionality. Our technology development group also works directly with our suppliers to help them identify new component technologies and make necessary changes in, and enhancements to, the components that we integrate into our products. Our analytic and testing capabilities enable us to evaluate multiple supplier component technologies and provide customers with a wide range of appropriate component and design choices for their gas delivery systems. Our analytic and testing capabilities also enable us to predict technological changes and the requirements in component features for next generation gas delivery systems.

Through our technology development efforts, we are developing additional features to improve the performance and functionality of our gas delivery systems. Recently, we have also developed a proprietary catalytic steam generator product which we intend to offer as a stand alone product or as an additional feature to our gas delivery systems.

Our self-funded technology development and new product engineering expenses were approximately $518,000, $613,000, $733,000 (excluding our write-off of $889,000 of purchased in-process research and development) and $750,000 for 2000, 2001, 2002 and the nine month period ended September 30, 2003. We perform our technology development activities principally at our facilities in Menlo Park, California.

Our success depends in part on our ability to maintain and protect our proprietary technology and to conduct our business without infringing the proprietary rights of others. Our business is largely dependent upon our design, engineering, manufacturing and testing know-how. We also rely on a combination of trade secrets and confidentiality provisions, and to a much lesser extent, patents, copyrights and trademarks, to protect our proprietary rights. As of September 30, 2003, we had four issued United States patents, all of which expire in 2018. As of September 30, 2003, we had one additional United States

We routinely require our employees, suppliers and potential business partners to enter into confidentiality and non-disclosure agreements before we disclose to them any sensitive or proprietary information regarding our products, technology or business plans. We require employees to assign to us proprietary information, inventions and other intellectual property they create, modify or improve.

We may be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to detect infringement of our proprietary rights and may lose our competitive position in the market if any such infringement occurs. In addition, competitors may design around our technology or develop competing technologies and know-how.

In addition, third parties may claim that we are infringing their intellectual property rights, and although we do not know of any infringement by our products of the valid intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may cover some of our products. Any litigation regarding patents or other intellectual property rights could be costly and time-consuming and divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to obtain licenses, which we may not be able to obtain on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products if any infringement claims against us prove successful.

Our industry is highly fragmented, and we have numerous competitors. Our principal competitors are Celerity Group, Inc., Integrated Flow Systems, Matheson Tri-Gas, Inc. and Wolfe Engineering, Inc. When we compete for new business at OEMs, we often face competition from both other subsystem suppliers as well as the OEM’s internal manufacturing group. In addition, OEMs that have elected to outsource their gas delivery systems could elect in the future to develop and manufacture these subsystems internally, leading to further competition. We expect to face new competitors as we enter new markets. Some of our competitors have substantially greater financial, technical, manufacturing and marketing resources than we do. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that could adversely affect sales of our current and future products. In addition, the limited number of potential customers in our industry further intensifies competition. We anticipate that increased competitive pressures will cause intensified price-based competition and we may have to reduce the prices of our products. The primary competitive factors in our industry are price, technology, quality, design-to-delivery cycle time, reliability in meeting product demand, service and historical customer relationships.

As of December 31, 2003, we had 229 employees, of which 179 were full-time regular employees and 50 were temporary employees. Of our total employees, 42 were in engineering, 3 in technology development, 15 in sales and support, 80 in direct manufacturing, 72 in indirect manufacturing and 17 in executive and administrative functions. None of our employees are represented by a labor union and we have not experienced any work stoppages.

Our headquarters are located in Menlo Park, California, where we lease approximately 32,000 square feet of commercial space under a term lease that expires on July 31, 2004. We expect to be able to renew this lease prior to its expiration under similar terms. We use this space for our principal administrative, sales and support, engineering and technology development facilities and for manufacturing purposes. Approximately 6,500 square feet at our Menlo Park facility is a clean room manufacturing facility. We

also have manufacturing facilities in Austin, Texas, and Tualatin, Oregon. In Austin, we lease approximately 12,000 square feet of manufacturing space under a lease term that expires on August 1, 2005, subject to renewal for up to five years at our option. Approximately 3,500 square feet in Austin is a clean room manufacturing facility. In Tualatin, we lease approximately 15,000 square feet of manufacturing space under a term lease that expires on October 15, 2007, subject to renewal for up to five years at our option. Approximately 4,000 square feet in Tualatin is a clean room manufacturing facility.

Our backlog of unfilled product orders was approximately $8.9 million at September 30, 2003. Backlog is calculated on the basis of firm orders. However, because we do not have long-term purchase orders or contracts that contain minimum purchase commitments with our customers, and because of the cyclical nature of the semiconductor capital equipment industry, our backlog at any particular date is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering patterns of our customers.

Our operations are subject to federal, state and local regulatory requirements and foreign laws, relating to environmental, waste management and health and safety matters, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous substances and wastes, as well as practices and procedures applicable to the construction and operation of our facilities. Our past or future operations may result in exposure to injury or claims of injury by employees or the public which may result in material costs and liabilities to us. Although some risk of costs and liabilities related to these matters is inherent in our business, we believe that our business is operated in substantial compliance with applicable regulations. However, new, modified or more stringent requirements or enforcement policies could be adopted, which could adversely affect us.

Set forth below is information concerning our chief executive officer, three other executive officers and one additional key employee who, based on salary and bonus compensation, were our most highly compensated employees for the year ended December 31, 2003, whom we refer to as the named employees, and our directors as of December 31, 2003:

Clarence L. Granger, has served as our Chief Executive Officer since November 2002, as our President and Chief Operating Officer since March 1999 and as a director since May 2002. Mr. Granger served as our Executive Vice President and Chief Operating Officer from January 1998 to March 1999 and as our Executive Vice President of Operations from April 1996 to January 1998. Prior to joining Ultra Clean in April 1996, he served as Vice President of Media Operations for Seagate Technology from 1994 to 1996. Prior to that, Mr. Granger worked for HMT Technology as Chief Executive Officer from 1993 to 1994, as Chief Operating Officer from 1991 to 1993 and as President from 1989 to 1994. Prior to that, Mr. Granger worked for Xidex as Vice President and General Manager, Thin Film Disk Division, from 1988 to 1989, as Vice President, Santa Clara Oxide Disk Operations, from 1987 to 1988, as Vice President, U.S. Tape Operations, from 1986 to 1987 and as Director of Engineering from 1983 to 1986. Mr. Granger holds a master of science degree in industrial engineering from Stanford University and a bachelor of science degree in industrial engineering from the University of California at Berkeley.

Kevin L. Griffin has served as our Chief Financial Officer since February 2000. Mr. Griffin served as our controller from May 1992 to February 2000. Prior to joining Ultra Clean in May 1992, Mr. Griffin served as Manager of Accounting and Finance at Mitsubishi International Corporation from 1989 to 1991. Prior to that, Mr. Griffin was employed by Rudolf & Sletten as a project accountant from 1987 to 1988. Mr. Griffin holds a bachelor of arts degree in economics and history from the University of California at Santa Barbara.

Bruce Wier has served as our Vice President of Engineering since February 2000. Mr. Wier served as our Director of Design Engineering from July 1997 to February 2000. Prior to joining Ultra Clean in July 1997, Mr. Wier was the Engineering Manager for the Oxide Etch Business Unit at Lam Research from April 1993 to June 1997. Prior to that, Mr. Wier was the Senior Project Engineering Manager at Genus from May 1990 to April 1993, the Mechanical Engineering Manager at Varian Associates from November 1985 to May 1990, and the Principal Engineer/ Project Manager at Eaton Corporation from February 1981 to November 1985. Mr. Wier is also on the board of directors of, and is the Chief Financial Officer for, Acorn Travel, a travel company formed by his wife in 1999. Mr. Wier holds a bachelor of science degree cum laude in mechanical engineering from Syracuse University.

Deborah Hayward has served as our Vice President of Sales since October 2002. Ms. Hayward served as our Senior Sales Director from May 2001 to October 2002, as Sales Director from February 1998 to May 2001 and as a major account manager from October 1995 to February 1998. Prior to joining Ultra

Sowmya Krishnan, Ph.D., has served as our Chief Technology Officer since February 2001. Dr. Krishnan served as our Director of Technology Development from January 1998 to January 2001, as Manager of Technology Development from January 1995 to December 1997 and as manager of a joint evaluation program between Ultra Clean and VLSI Technology from February 1994 to December 1994. Dr. Krishnan holds a master of science degree in chemical engineering and a doctorate degree in chemical engineering from Clarkson University.

Dipanjan Deb has served as a director of Ultra Clean since November 2002. Mr. Deb is a founder of Francisco Partners and has been a partner since its formation in August 1999. Prior to joining Francisco Partners, Mr. Deb was a principal with Texas Pacific Group from 1998 to 1999. Earlier in his career, Mr. Deb was director of semiconductor banking at Robertson Stephens & Company and a management consultant at McKinsey & Company. Mr. Deb is also on the board of directors of AMIS Holdings, Inc., Globespan Virata, Inc., Legerity Inc. and NP Test Holding Corporation. Mr. Deb holds a bachelor of science degree in electrical engineering and computer science from the University of California, Berkeley, where he was a Regents Scholar, and masters in business administration from the Stanford University Graduate School of Business.

David T. ibnAle has served as a director of Ultra Clean since November 2002. Mr. ibnAle is a Principal of Francisco Partners and has been an investment professional with Francisco Partners since December 1999, when he joined as a Vice President. Prior to joining Francisco Partners, Mr. ibnAle was an Associate with Summit Partners from 1996 to 1998. Prior to that he worked in the Corporate Finance Department of Morgan Stanley & Co. from 1994 to 1996. Mr. ibnAle also worked in the Fixed Income Division of Goldman Sachs & Co. Mr. ibnAle holds an A.B. in public policy and an A.M. in international development policy from Stanford University and a masters in business administration from the Stanford University Graduate School of Business.

Thomas M. Rohrs has served as a director of Ultra Clean since January 2003. Mr. Rohrs has been Vice President, Strategic Development, of Applied Global Services since October 2003. Prior to that, he was a senior advisor to Applied Materials, Inc. from May 2002 to September 2003 and Senior Vice President, Global Operations, at Applied Materials, Inc. from November 1997 to April 2002. Prior to that he was Vice President, Worldwide Operations, for Silicon Graphics from 1992 to 1997 and Senior Vice President, Manufacturing and Customer Service, at MIPS Computer Systems from 1989 to 1992. From 1997 to 1988, Mr. Rohrs was employed by Hewlett Packard in a number of managerial positions. Mr. Rohrs is on the board of directors of Magma Design Automation, Inc., Ion Systems, Inc. and nthOrbit, Inc. Mr. Rohrs has a bachelor of science in mechanical engineering from the University of Notre Dame and a masters in business administration from Harvard Business School. He serves on the Engineering Advisory Council for the University of Notre Dame.

Our principal stockholder, FP-Ultra Clean, LLC, which is controlled by Francisco Partners, has the right to nominate for election a majority of the members of our board of directors as long as it holds at least 25% of our common stock. However, as FP-Ultra Clean, LLC’s ownership interest in us decreases, its right to nominate directors will be reduced as follows:

Our board of directors currently consists of four directors. All of our directors will stand for election at each annual meeting of stockholders. Non-employee directors will be paid an annual fee in an amount to be determined. Directors will be eligible for stock option grants under our Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering. For the year ended December 31, 2003, Mr. Rohrs was granted 130,000 options to purchase shares of our common stock in connection with services performed as a director. Mr. Rohrs also provided consulting services to us during 2003 for which he earned a one-time fee of $25,000.


	Audit Committee. Our audit committee consists of Messrs. Deb, ibnAle and Rohrs. The audit committee reviews our financial statements and accounting practices and makes recommendations to our board of directors regarding the selection of independent auditors. In addition, any transaction in which one of our directors has a conflict of interest must be disclosed to our board of directors and reviewed by the audit committee. Under our corporate governance guidelines, if a director has a conflict of interest, the director must disclose the interest to the audit committee and our board of directors and must recuse himself or herself from participation in the discussion and must not vote on the matter. In addition, the audit committee is authorized to retain special legal, accounting or other advisors in order to seek advice or information with respect to all matters under consideration, including potential conflicts of interest.

	Compensation Committee. Our compensation committee consists of Messrs. Deb, ibnAle and Rohrs. The compensation committee makes recommendations to our board of directors concerning salaries and incentive compensation for our officers and employees and administers our employee benefit plans.

	Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Messrs. Deb, ibnAle and Rohrs. The nominating and corporate governance committee identifies and recommends nominees to our board of directors, oversees and sets compensation for our directors and oversees compliance with our corporate governance guidelines.

No member of the compensation committee will serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Additional information concerning transactions between us and entities affiliated with members of the compensation committee is included in this prospectus under the caption “Certain Relationships and Related Party Transactions.”

The following table sets forth compensation information for 2003 for the named employees.


(1)	Amounts shown under “All Other Compensation” reflect our contributions to our 401(k) plan on behalf of the named employees. In addition, the amounts shown for Mr. Granger, Mr. Griffin and Mr. Wier also include $2,197, $665 and $1,266, respectively, for life insurance premiums.

(2)	This amount reflects commissions paid to Ms. Hayward.

The following table sets forth information concerning grants of options to acquire shares of our common stock granted to the named employees for the year ended December 31, 2003. All options listed in the table become vested and exercisable over a four year period from the grant date, with the first 25% vesting on the first anniversary of the grant date and 1/48 of the shares vesting monthly thereafter. The options were granted at an exercise price equal to the fair market value of our common stock on the grant date, as determined by our board of directors.

(1)

This represents hypothetical gains that would exist for the options at the end of their respective terms based on assumed annualized rates of compound stock price appreciation from the date of this prospectus of 5% and 10% based on an assumed initial public offering price of $ per share. The disclosure of 5% and 10% assumed rates is required by the rules of the Securities and Exchange Commission and does not represent our estimate or projection of future common stock prices or stock price growth.

The following table sets forth information regarding unexercised options held as of December 31, 2003 by each of the named employees. None of the named employees exercised any stock options in the year ended December 31, 2003.


(1)	The value of unexercised in-the-money options is based on an assumed initial public offering price of $ per share, minus the exercise price of the option, multiplied by the number of shares issued upon the exercise of the option.

We have entered into an employment agreement with Clarence L. Granger dated November 15, 2002, pursuant to which he agreed to serve as our President and Chief Executive Officer. His employment agreement provides for a base salary of $240,000. He received a signing bonus, of which approximately $74,000 was paid in cash, $88,000 was paid in cash but used to purchase our common stock, and $265,000 was placed in a deferred compensation arrangement payable after seven years (or earlier in the discretion of our board of directors). Under this deferred compensation arrangement, we have agreed to pay interest of 2.7% per annum on the deferred amount, payable on June 30 and December 31 of each year. In the event that Mr. Granger is terminated by us without cause at any time or Mr. Granger resigns within six months after a change of control with good reason, he is entitled to continue to receive the amount of his base salary for 12 months (offset by any income earned by him during such 12 months) and 12 months’ accelerated vesting of his options. Mr. Granger also entered into a non-compete agreement with us which expires on November 15, 2004.

We have entered into an employment agreement with Kevin L. Griffin dated November 15, 2002, pursuant to which he agreed to serve as our Chief Financial Officer. His employment agreement provides for a base salary of $185,000. He received a signing bonus of $314,000. In the event that Mr. Griffin is terminated by us without cause, he is entitled to continue to receive the amount of his base salary for 12 months (offset by any income earned by him during such 12 months) and 12 months’ accelerated vesting of his options. Mr. Griffin also entered into a non-compete agreement with us which expires on November 15, 2004.

In connection with the Ultra Clean acquisition, we issued and sold an aggregate of 715,900 shares of our common stock at a purchase price of $0.25 per share and $536,900 aggregate principal amount of our Series A Senior Notes to some of our key employees, including Messrs. Granger, Griffin and Wier and Dr. Krishnan. We also granted an aggregate of 1,074,100 shares of our common shares and $805,500 aggregate principal amount of our Series A Senior Notes to these same members of our management, which we refer to as bonus securities. The bonus securities vest at a rate of 25% annually over a four year period, subject to continued employment, and become fully vested upon a change in control. The first 25%

of the bonus securities vested in November 2003. The purchase by and grant of securities to each of the members of our management was made pursuant to a Restricted Securities Purchase Agreement, each dated as of November 26, 2002. We expect to repurchase the vested portion of our Series A Senior Notes held by our management with a portion of the net proceeds of this offering. See “Use of Proceeds.” Unvested shares and notes will continue to vest pursuant to the terms of the Restricted Securities Purchase Agreements.

The following table sets forth the purchase by and grant of notes and common stock to some of our key employees:

Our board of directors has adopted, and our stockholders have approved, our Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering. The plan provides for the grant of stock options and other stock-based awards, such as restricted stock or restricted stock units. Employees, consultants and non-employee members of our board of directors of us or any of our subsidiaries are eligible to receive awards under the plan.

As of December 31, 2003, there were outstanding options to purchase shares of common stock under the plan. Upon completion of this offering, stock awards under the plan may consist of a maximum of shares of common stock, subject to adjustment in the event of certain corporate events such as stock splits.

Our board of directors or a committee appointed by our board of directors administers the plan. Subject to the provisions of the plan, our board of directors or the committee, as applicable, has the authority to, among other things, make rules and regulations appropriate for the administration of the plan and determine the persons to whom awards may be granted, the number of shares to be covered by each award, the exercise or purchase price of each award, if applicable, the vesting schedule of each award, and whether a stock option will be designated as an incentive stock option or non-statutory stock option.

Unless otherwise provided in the optionee’s option agreement, if the optionee’s employment is terminated other than due to death or disability or for cause, then the optionee has three months from the date of termination to exercise any options that are vested and exercisable on the date of termination. If the optionee’s termination of employment is due to the optionee’s death or disability, all vested and exercisable stock options on the date of termination will remain exercisable for 12 months following the date of termination. If the optionee’s employment is terminated for cause, any outstanding options, whether vested or unvested, will terminate immediately. Regardless of the reason for termination (including death or disability), in no event may any option be exercised following its expiration.

Subject to certain conditions and stockholder approval as necessary, our board of directors may amend, alter or terminate the plan at any time, but no amendment may impair the rights of any optionee with respect to any outstanding option without that optionee’s consent. Unless terminated earlier by our board of directors, the plan will terminate in 2013.

We sponsor a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan. Eligible employees may make pre-tax contributions to the plan of a percentage of their eligible compensation, subject to certain limits. We match between 50% and 100% of employee contributions (up to 6% of the employee’s annual eligible compensation), depending on the years of service of the employee.

The following table sets forth information with respect to the beneficial ownership of our common stock outstanding as of December 31, 2003 and on an as adjusted basis to reflect the sale of shares in this offering for:


	•	each person or group known by us to beneficially own more than 5% of our common stock;

	•	each of our directors and executive officers;

	•	all of our directors and executive officers as a group; and

	•	the selling stockholder, FP-Ultra Clean, LLC, that is offering shares in the over-allotment option granted to the underwriters.

In accordance with the rules of the Securities and Exchange Commission, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant to stock options that are exercisable within 60 days of December 31, 2003. Shares issuable pursuant to stock options are deemed outstanding for computing the ownership percentage of the person holding such options but are not outstanding for computing the ownership percentage of any other person. The number of shares of common stock outstanding after this offering reflects the sale of shares of common stock in this offering. The percentage of beneficial ownership for the following table is based on shares of common stock outstanding as of December 31, 2003.

Unless otherwise indicated, the address of each of the named entities or individuals is c/o Ultra Clean Holdings, Inc., 150 Independence Drive, Menlo Park, California 94025. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.


(1)	All of the membership interests of FP-Ultra Clean, LLC are beneficially owned by Francisco Partners, L.P. Voting and investment power belongs to a group of managing directors of Francisco Partners, L.P. Francisco Partners, L.P.’s managing directors include Dipanjan Deb, David Stanton, Benjamin Ball, Neil Garfinkel, David Golob, Sanford Robertson, Gerald Morgan and Keith Geeslin. The voting and investment power belongs to a group and not to any individual managing director. Each of these managing directors disclaims beneficial ownership of the securities held by Francisco Partners, L.P., except with respect to his pecuniary interest in Francisco Partners, L.P.

(2)	Francisco Partners, L.P.’s managing directors include Dipanjan Deb, David Stanton, Benjamin Ball, Neil Garfinkel, David Golob, Sanford Robertson, Gerald Morgan and Keith Geeslin.

(3)	Mr. Deb is a managing director of Francisco Partners, L.P. and disclaims beneficial ownership of the shares held by Francisco Partners, L.P., except with respect to his pecuniary interest in Francisco Partners, L.P.

(4)	Mr. ibnAle is a principal of Francisco Partners, L.P. and disclaims beneficial ownership of the shares held by Francisco Partners, L.P., except with respect to his pecuniary interest in Francisco Partners, L.P.

(5)	Excludes Dr. Krishnan, as she is not an executive officer.

On November 15, 2002, Ultra Clean Holdings, Inc., which is owned by FP-Ultra Clean, LLC (95.2%) and by some of our key employees (4.8%), acquired Ultra Clean Technology Systems and Service, Inc. After completion of this offering, FP-Ultra Clean, LLC will own approximately % of our outstanding common stock, assuming no exercise of the underwriters’ over-allotment option. Two of our directors, Messrs. Deb and ibnAle, are employees of Francisco Partners. Set forth below is a brief description of the existing relationships and agreements between us and Francisco Partners.

In connection with the Ultra Clean acquisition, we issued and sold to FP-Ultra Clean, LLC, in a series of transactions from November 15, 2002 through December 2, 2002, an aggregate of $29,250,000 of our Series A Senior Notes. The notes bear interest at a rate of 5% per annum which is payable in cash, semi-annually, on June 15 and December 15 and can be repaid, in whole or in part, without penalty. We expect to repurchase these notes with a portion of the net proceeds of this offering. See “Use of Proceeds.”

In connection with the Ultra Clean acquisition, we paid an advisory fee of $2.0 million to Francisco Partners Management, LLC, an affiliate of Francisco Partners, L.P. In addition, subject to the completion of this offering, we have agreed to pay Francisco Partners Management, LLC, also an affiliate of Francisco Partners, a one-time fee of $2.0 million for advisory services performed in connection with our initial public offering. We are not required to pay any additional advisory services or other similar fees to Francisco Partners or any of its affiliates.

We and FP-Ultra Clean, LLC have entered into a stockholder’s agreement. The stockholder’s agreement covers matters of corporate governance, restrictions on transfer of our securities and information rights.

Corporate Governance. The stockholder’s agreement provides that FP-Ultra Clean, LLC has the right to nominate for election members of our board of directors as set forth under “Management — Board Structure and Compensation.”

The stockholder’s agreement also provides that our board of directors may not take certain significant actions without the approval of FP-Ultra Clean, LLC as long as it owns at least 25% of our outstanding common stock. These actions include:


	•	mergers, acquisitions or certain sales of assets;

	•	any liquidation, dissolution or bankruptcy;

	•	issuances of securities;

	•	determination of compensation and benefits for our chief executive officer and chief financial officer;

	•	appointment or dismissal of any of the chairman of our board of directors, chief executive officer, chief financial officer or any other executive officer in any similar capacity;

	•	amendments to the stockholder’s agreement or exercise or waiver of rights under the stockholders’ agreement;

	•	amendments to our charter or bylaws;

	•	any increase or decrease in the number of directors that comprise our board of directors;


	•	the declaration of dividends or other distributions;

	•	any incurrence or refinancing of indebtedness in excess of $10 million;

	•	approval of our business plan, budget and strategy; and

	•	modification of our long-term business strategy.

All of the provisions of the stockholder’s agreement are expressly subject to any requirements as to governance imposed by rules of the Securities and Exchange Commission, The Nasdaq National Market or any other exchange on which our securities are listed.

Restrictions on Transfer. Generally, FP-Ultra Clean, LLC is prohibited from transferring its securities of Ultra Clean Holdings, Inc. without complying with restrictions relating to the timing of the transfer, the number of securities subject to the transfer and the transferee of such securities.

Information Rights. So long as FP-Ultra Clean, LLC holds any of our securities, it has the right to receive from us financial information, monthly management reports, reports from our independent public accountants and such additional information regarding our financial position or business as it reasonably requests.

FP-Ultra Clean, LLC has registration rights with respect to our common stock pursuant to the registration rights agreement dated December 2, 2002.

Demand Registration. The registration rights agreement provides that, after we have completed this offering and upon the expiration of the lock-up period imposed by the underwriters, we can be required to effect additional registration statements, or demand registrations, registering the securities held by FP-Ultra Clean, LLC. We are required to pay the registration expenses in connection with each demand registration. We may decline to honor any of these demand registrations if the aggregate gross proceeds expected to be received does not equal or exceed $5.0 million or if we have effected a demand registration within the preceding ninety days. If a demand registration is underwritten and the managing underwriter advises us that the number of securities offered to the public needs to be reduced, priority of inclusion in the demand registration shall be such that first priority shall be given to FP-Ultra Clean, LLC and its permitted transferees.

Incidental Registration. In addition to our obligations with respect to demand registrations, if we propose to register any of our securities, other than a registration on Form S-8 or S-4 or successor forms to these forms, whether or not such registration is for our own account, FP-Ultra Clean LLC will have the opportunity to participate in such registration. Expenses relating to these “incidental registrations” are required to be paid by us.

If an incidental registration is underwritten and the managing underwriter advises us that the number of securities offered to the public needs to be reduced, priority of inclusion shall be such that first priority shall be given to us and second priority shall be given to FP-Ultra Clean, LLC and its permitted transferees. We and the stockholders selling securities under a registration statement are required to enter into customary indemnification and contribution arrangements with respect to each registration statement. FP-Ultra Clean, LLC has agreed not to exercise its registration rights without the prior written consent of Credit Suisse First Boston LLC for a period of 180 days after the date of this prospectus.

In connection with the Ultra Clean acquisition, we issued and sold an aggregate of 715,900 shares of our common stock at a purchase price of $0.25 per share and $536,900 aggregate principal amount of our Series A Senior Notes to some of our key employees, including Messrs. Granger, Griffin and Wier and Dr. Krishnan. The notes were issued and sold on the same terms as the notes issued and sold to FP-Ultra Clean, LLC. See “— Relationship with Francisco Partners — Series A Senior Notes.” We also granted an

aggregate of 1,074,100 shares of our common stock and $805,500 aggregate principal amount of our Series A Senior Notes to these same members of our management, which we refer to as bonus securities. See “Management — Restricted Securities Purchase Agreements.” The bonus securities vest at a rate of 25% annually over a four year period, subject to continued employment, and become fully vested upon a change in control. The first 25% of the bonus securities vested in November 2003. The purchase by and grant of securities to each of the members of our management was made pursuant to a Restricted Securities Purchase Agreement, each dated as of November 26, 2002. We expect to repurchase the vested portion of our Series A Senior Notes with a portion of the net proceeds of this offering. See “Use of Proceeds.” Unvested shares and notes will continue to vest pursuant to the terms of the Restricted Securities Purchase Agreements.

Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have shares of common stock outstanding, assuming no exercise of any stock options outstanding as of December 31, 2003. Of these shares, the shares sold in this offering will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by one of our “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock are “restricted shares” as defined in Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 of the Securities Act. As a result of the contractual 180-day lock-up period described below and the provisions of Rules 144 and 701, these shares will be available for sale in the public market as follows:

In general, under Rule 144 as currently in effect, beginning 90 days after this offering, a person, or persons whose shares are aggregated, who owns shares that were purchased from us, or any affiliate, at least one year previously, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of our then-outstanding shares of common stock, which will equal approximately shares immediately after this offering, or the average weekly trading volume of our common stock on The Nasdaq National Market during the four calendar weeks preceding the filing of a notice of the sale on Form 144. Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the stockholder and other factors.

Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who owns shares within the definition of “restricted securities” under Rule 144 that were purchased from us, or any affiliate, at least two years previously, would be entitled to sell shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements described above.

In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to resell such shares 90 days after the

The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than “affiliates,” as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by “affiliates” under Rule 144 without compliance with its one-year minimum holding period requirement.

Upon completion of this offering, FP-Ultra Clean, LLC, the holder of shares of common stock, or its transferees, will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For further information regarding these registration rights, see “Certain Relationships and Related Party Transactions — Relationship with Francisco Partners — Registration Rights Agreement.”

As of December 31, 2003, options to purchase a total of shares of common stock were outstanding. All of the shares subject to options are subject to lock-up agreements. As of December 31, 2003, an additional shares of common stock were available for future option grants under our Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering.

Upon completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering all shares of common stock subject to outstanding options or issuable pursuant to our Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering. Subject to Rule 144 volume limitations applicable to affiliates, shares registered under the Form S-8 registration statement will be available for sale in the open market, beginning 90 days after the date of the prospectus, except to the extent that the shares are subject to vesting restrictions with us or the contractual restrictions described below.

Our officers, directors and substantially all of our security holders have entered into the lock-up agreements described in “Underwriting.”

The following description summarizes the material terms of our capital stock. This information does not purport to be complete and is subject in all respects to the applicable provisions of our amended and restated certificate of incorporation and bylaws.

Upon completion of this offering, our authorized capital stock will consist of shares of common stock and shares of undesignated preferred stock. After giving effect to this offering and the filing of our amended and restated certificate of incorporation, we will have shares of common stock and no shares of preferred stock outstanding.

Our amended and restated certificate of incorporation provides that we may issue shares of common stock, par value $0.001 per share. As of December 31, 2003, we had record holders of our common stock. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. All shares of our common stock are entitled to share equally in any dividends our board of directors may declare from legally available sources. We will apply to have our common stock listed for quotation on The Nasdaq National Market under the symbol “UCTT.”

Upon the closing of this offering, our board of directors will be authorized, subject to any limitations imposed by law, without stockholder approval, from time to time to issue up to a total of shares of preferred stock, par value $0.001 per share, in one or more series, each series to have rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as our board of directors may determine. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our voting stock outstanding. We have no present plans to issue any shares of preferred stock.

Delaware law and provisions of our charter documents could discourage potential acquisition proposals and could delay, deter or prevent a change in control. The anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. However, we have elected not to be governed by Section 203 of Delaware law, which means that we have elected not to take advantage of anti-takeover protection related to transactions with interested stockholders. Additionally, provisions of our amended and restated certificate of incorporation and bylaws to be effective on the completion of this offering could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders. These provisions include:


	•	a requirement that special meetings of stockholders may be called only by our board of directors, the chairman of our board of directors (if any), our president or our secretary;

	•	advance notice requirements for stockholder proposals and nominations; and

	•	the authority of our board of directors to issue, without stockholder approval, preferred stock with such terms as our board of directors may determine.

In addition to the anti-takeover measures described above, provisions of our stockholder’s agreement with FP-Ultra Clean, LLC could deter, delay or prevent a third party from acquiring us. See “Certain

Wells Fargo Shareowner Services will serve as the transfer agent and registrar for our common stock. The transfer agent’s address is 161 North Concord Exchange, South St. Paul, Minnesota 55075-1139 and the telephone number is (800) 468-9716.

The following is a general discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of common stock by a beneficial owner that is a “non-U.S. holder” and that does not own, and is not deemed to own, more than 5% of our common stock. A “non-U.S. holder” is a person or entity that, for U.S. federal income tax purposes, is a:


	•	non-resident alien individual, other than certain former citizens and residents of the United States subject to tax as expatriates,

	•	foreign corporation or

	•	foreign estate or trust.

A “non-U.S. holder” does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange or other disposition of common stock.

This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), and administrative pronouncements, judicial decisions, and final and temporary Treasury Regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to non-U.S. holders in light of their particular circumstances and does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Prospective holders are urged to consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of common stock, including the consequences under the laws of any state, local or foreign jurisdiction.

As discussed under “Dividend Policy” above, we do not currently expect to pay dividends. In the event that we do make distributions, however, distributions made to a non-U.S. holder of common stock out of our current or accumulated earnings and profits generally will constitute dividends for U.S. tax purposes and generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, a non-U.S. holder will be required to provide an Internal Revenue Service Form W-8BEN certifying its entitlement to benefits under a treaty. To the extent distributions exceed our current and accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock (but not below zero) and then will be treated as gain from the sale of common stock.

The withholding tax does not apply to dividends paid to a non-U.S. holder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. holder were a U.S. resident. A non-U.S. corporation receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate).

A non-U.S. holder generally will not be subject to U.S. federal income tax on gain realized on a sale or other disposition of common stock unless:


	•	the gain is effectively connected with a trade or business of the non-U.S. holder in the United States, subject to an applicable treaty providing otherwise, or


	•	we are or have been a U.S. real property holding corporation, as defined in the Code, at any time within the five-year period preceding the disposition or the non-U.S. holder’s holding period, whichever period is shorter, and our common stock has ceased to be traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs.

We believe that we are not, and do not anticipate becoming, a U.S. real property holding corporation.

Information returns will be filed with the Internal Revenue Service in connection with payments of dividends. Unless you comply with certification procedures to establish that you are not a United States person, information returns may be filed with the Internal Revenue Service in connection with the proceeds from a sale or other disposition of common stock and you may be subject to backup withholding tax on payments of dividends or on the proceeds from a sale or other disposition of common stock. The certification procedures required to claim a reduced rate of withholding under a treaty will satisfy the certification requirements necessary to avoid the backup withholding tax as well. The amount of any backup withholding from a payment to you will be allowed as a credit against your United States federal income tax liability and may entitle you to a refund, provided that the required information is furnished to the Internal Revenue Service.

An individual non-U.S. holder who is treated as the owner of, or has made certain lifetime transfers of, an interest in the common stock will be required to include the value of the stock in his gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.

Under the terms and subject to the conditions contained in an underwriting agreement dated , 2004, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston LLC, J.P. Morgan Securities Inc., Banc of America Securities LLC and Piper Jaffray & Co. are acting as representatives, the following respective numbers of shares of common stock:

The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

The selling stockholder has granted to the underwriters a 30-day option to purchase on a pro rata basis up to an aggregate of additional outstanding shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/ dealers. After the initial public offering, the representatives may change the public offering price and concession and discount to broker/ dealers.

The following table summarizes the compensation and estimated expenses we and the selling stockholder will pay:

The representatives have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston LLC for a period of 180 days after the date of this prospectus, except for up to $15,000,000 in value of shares of common stock we may issue in connection with an acquisition provided that the recipients of such shares agree to be bound by the terms of the foregoing agreement.

Our officers, directors and holders of our outstanding securities have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston LLC for a period of 180 days after the date of this prospectus. Notwithstanding the foregoing, our officers, directors and security holders subject to lock-up agreements may transfer shares of our common stock or securities convertible into or exchangeable or exercisable for shares of our common stock as a bona fide gift or to family trusts, provided that the transferee agrees to the lock-up terms applicable to the transferor.

We and the selling stockholder have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

We will apply to list the shares of common stock for quotation on The Nasdaq National Market under the symbol “UCTT.”

Some of the underwriters have provided investment banking and advisory services for us from time to time for which they have received customary fees and expenses. The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business.

Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiation between us and the underwriters and does not necessarily reflect the market price for the common stock following the offering. The principal factors that were considered in determining the public offering price included:


	•	the history of and prospects for our industry and for semiconductor companies generally;

	•	an assessment of our management;

	•	our present operations;

	•	our historical results of operations;

	•	our earnings prospects;

	•	the general condition of the securities markets at the time of this offering; and

	•	recent market prices of, and the demand for, publicly traded common stock of generally comparable companies.

We cannot be sure that the initial public offering price will correspond to the price at which the common stock will trade in the public market following this offering or that an active trading market for the common stock will develop and continue after this offering.

In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.


	•	Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

	•	Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number


		of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.

	•	Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over- allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

	•	Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members on the same basis as other allocations.

The distribution of our common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of our common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of our common stock.

By purchasing our common stock in Canada and accepting a purchase confirmation a purchaser is representing to us and the dealer from whom the purchase confirmation is received that


	•	the purchaser is entitled under applicable provincial securities laws to purchase our common stock without the benefit of a prospectus qualified under those securities laws,

	•	where required by law, that the purchaser is purchasing as principal and not as agent, and

	•	the purchaser has reviewed the text above under Resale Restrictions.

Under Ontario securities legislation, a purchaser who purchases our common stock offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the shares, for rescission against us in the event that this prospectus contains a misrepresentation. A purchaser will be deemed to have relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the shares. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the shares. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which our common stock was offered to the purchaser and if the purchaser is shown to have purchased our common stock with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of our common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.

All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.

Canadian purchasers of our common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in our common stock in their particular circumstances

The validity of the shares of common stock being offered will be passed upon for us by Davis Polk & Wardwell, Menlo Park, California. Selected legal matters in connection with this offering will be passed on for the underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.

The consolidated financial statements as of December 31, 2001 and 2000, and for the years ended December 31, 2000 and 2001, and the periods from January 1, 2002 through November 15, 2002 and November 16, 2002 through December 31, 2002, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

We have filed a registration statement regarding this offering on Form S-1, including all amendments and supplements thereto, with the Securities and Exchange Commission under the Securities Act of 1933, as amended. This prospectus, which constitutes a part of the registration statement, does not contain all of the information included in the registration statement, certain items of which are contained in schedules and exhibits to the registration statement as permitted by the rules and regulations of the Securities and Exchange Commission. You should refer to the registration statement and its exhibits to read that information. Statements made in this prospectus as to any of our contracts, agreements or other documents referred to are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. You may read and copy information omitted from this prospectus but contained in the registration statement at the public reference facilities maintained by the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also request copies of all or any portion of such material from the Public Reference Section of the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference room. In addition, materials filed electronically with the Securities and Exchange Commission are available at the Securities and Exchange Commission’s web site at http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing or telephoning us at: Ultra Clean Technology, 150 Independence Drive, Menlo Park, California 94025, (650) 323-4100.

We intend to furnish to our stockholders annual reports containing audited financial statements and quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information, in each case prepared in accordance with generally accepted accounting principles.

We have audited the accompanying balance sheet of Ultra Clean Technology Systems and Service, Inc. (“Predecessor”) as of December 31, 2001, and the related statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2000 and 2001 and for the period from January 1, 2002 through November 15, 2002 (date of disposition) and the accompanying consolidated balance sheet of Ultra Clean Holdings, Inc. and subsidiary (“Ultra Clean”)(together with Predecessor, the “Company”), successor company, as of December 31, 2002, and the related statements of operations, stockholders’ equity and cash flows for the period from November 16, 2002 (date of acquisition) through December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Predecessor as of December 31, 2001, and the related statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2000 and 2001 and for the period from January 1, 2002 through November 15, 2002 and the consolidated financial position of the Ultra Clean, successor company, as of December 31, 2002, and the related statements of operations, stockholders’ equity and cash flows for the period from November 16, 2002 through December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

Organization — Ultra Clean Technology Systems and Service, Inc. (the “Predecessor”) was incorporated in 1991 in California. The Predecessor was formed to manufacture and sell gas delivery systems to the U.S. semiconductor capital equipment industry. The Predecessor was acquired on November 15, 2002 in a transaction accounted for under the purchase method of accounting (see Note 2) by Ultra Clean Holdings, Inc. (“Ultra Clean”) (together with Predecessor, the “Company”). Ultra Clean was incorporated in 2002 in Delaware and is headquartered in Menlo Park, California with additional manufacturing facilities in Austin, Texas and Tualatin, Oregon. Ultra Clean had no significant operations prior to the purchase of Predecessor.

Principles of Consolidation — The accompanying financial statements include the accounts of the predecessor company, Ultra Clean Technology Systems and Service, Inc. for the period from January 1, 2002 through November 15, 2002, the nine months ended September 30, 2002 and for the years ended December 31, 2000 and 2001 and the accounts of the successor company, Ultra Clean Holdings, Inc., since inception including the period from November 16, 2002 through December 31, 2002 and for the nine months ended September 30, 2003. All intercompany accounts and transactions are eliminated in consolidation.

Concentration of Credit Risk — Financial instruments which subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company sells its products to semiconductor capital equipment manufacturers in the United States. The Company performs credit evaluations of its customers’ financial condition and generally requires no collateral.

When combined, these same significant customers represented 91%, 94% and 91% of trade accounts receivable at December 31, 2001 and 2002 and September 30, 2003, respectively.

Use of Accounting Estimates — The presentation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts may differ from those estimates.

Fiscal Year — Effective January 1, 2003, Ultra Clean adopted a 52-53 week fiscal year ending on the Friday nearest to December 31. This change did not have a significant effect on the Company’s consolidated financial statements. For presentation purposes, the Company presents each fiscal year as if it ended on December 31. Using the 52-53 year end, fiscal year 2002 would have ended on December 27, 2002. All references to years refer to fiscal years.

Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. The Company evaluates the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis. Obsolete inventory or inventory in excess of management’s estimated usage is written-down to its estimated market value less costs to sell, if less than its cost. Inherent in the estimates of market value are management’s estimates related to economic trends, future demand for products, and technological obsolescence of the Company’s products.

Equipment and leasehold improvements are stated at cost, or, in the case of equipment under capital leases, the present value of future minimum lease payments at inception of the related lease. Depreciation and amortization are computed using the straight-line method over the lesser of the estimated useful lives of the assets or the terms of the leases. Useful lives range from three to seven years.

Product Warranty — The Company provides a warranty on its products for a period of up to two years, and provides for warranty costs at the time of sale based on historical activity. The determination of such provisions requires the Company to make estimates of product return rates and expected costs to repair or replace the products under warranty. If actual return rates and/or repair and replacement costs differ significantly from these estimates, adjustments to recognize additional cost of sales may be required in future periods. Components of the reserve for warranty costs consisted of the following (in thousands):

Income Taxes — Income taxes are provided using an asset and liability approach which requires recognition of deferred tax liabilities and assets, net of valuation allowances, for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards.

Stock-Based Compensation — The Company accounts for its employee stock option plan in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 44, Accounting for Certain Transactions Involving Stock Compensation. Accordingly, no compensation is recognized for employee stock options granted with exercise prices greater than or equal to the fair value of the underlying common stock at the date of grant. In accordance with FASB Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, the Company computed the fair values of the Company’s stock-based awards to employees.

The Company amortizes deferred stock-based compensation on the straight-line method over the vesting periods of the stock options, generally four years. Had compensation expense been determined based on the fair value at the grant date for all employee awards, consistent with the provisions of SFAS

No. 123, the Company’s pro forma net income (loss) and net income (loss) per share would be as follows (in thousands):

SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure of pro forma net income as though the Company had adopted the fair value method since the inception of the Company. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from the Company’s stock option awards. These models also require the use of subjective assumptions, including expected time to exercise, which greatly affect the calculated values. The Company’s calculations were made using the minimum value method with the following assumptions: expected life of five years and no dividends during the expected term. The risk free interest rate assumption used was 6.8% in 2000, 4.7% in 2001, 3.9% in 2002 and 2.7% in 2003. The Company’s calculations are based on a single option valuation approach, and forfeitures are recognized as they occur.

Goodwill and Intangible Assets — As part of the Ultra Clean acquisition in November 2002, the Company allocated the purchase price to the tangible and intangible assets acquired, liabilities assumed, and in-process research and development based on their estimated fair values (see Note 2). A third-party appraisal firm assisted management in determining the fair values of the assets acquired and the liabilities assumed. Such valuations required management to make significant estimates and assumptions, especially with respect to intangible assets. Estimates associated with accounting for the acquisition may change as additional information becomes available regarding the assets acquired and liabilities assumed. In particular, a claim by the Company for a refund of approximately $470,000 of the purchase price remains unresolved. Any payment of this unresolved amount will decrease the recorded goodwill.

Critical estimates in valuing certain intangible assets include, but are not limited to: future expected cash flows from customer contracts, acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from

the projects when completed; and the trade name and the market position of the acquired products and assumptions about the period of time the trade name will continue to be used in Ultra Clean’s product portfolio. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain.

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The provisions of SFAS No. 142 also require an annual goodwill impairment test. Management performed the annual goodwill impairment test as of December 31, 2002 and determined that goodwill was not impaired.

Long-Lived Assets — In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates the impairment of long-lived assets based on the projection of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values

Revenue Recognition — Revenue from the sale of gas delivery systems is generally recorded upon shipment. The Company recognizes revenue when persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability is reasonably assured. If we have not substantially completed or fulfilled the terms of a sales agreement at the time of shipment, revenue recognition is deferred until completion. Our standard arrangement for our customers includes a signed purchase order or contract and no right of return of delivered products.

The Company assesses collectibility based on the credit worthiness of the customer and past transaction history. The Company performs on-going credit evaluations of customers and does not require collateral from customers.

Reclassifications — Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 2003 presentation. Such reclassifications had no effect on previously reported results of operations or retained earnings.

Net Income (Loss) per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding for the period (excluding 1,074,100 shares subject to repurchase at December 31, 2002 and September 30, 2003). Diluted net income (loss) per share earnings is calculated by dividing net income (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options and vested restricted stock using the treasury method, except when antidilutive. The antidilutive common equivalent shares from stock options were 4,179,000 at September 30, 2003.

Unaudited Interim Financial Information — The interim financial information for the nine months ended September 30, 2002 and 2003 is unaudited and has been prepared on the same basis as the audited financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation of the interim financial information. Operating results for the nine months ended September 30, 2003 are not necessarily indicative of results to be expected for the year ending December 31, 2003.

Comprehensive Income — In accordance with SFAS No. 130, Reporting Comprehensive Income, the Company reports by major components and as a single total, the change in its net assets during the period from nonowner sources. Comprehensive income for the years ended December 31, 2000 and 2001 and the

period from January 1, 2002 through November 15, 2002 and the period from November 16, 2002 through December 31, 2002 was the same as net income.

Recently Adopted Accounting Standards — In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (“EITF”) Issue No. 94-3. The provisions of SFAS No. 146 are applicable for restructuring activities initiated after December 28, 2002. SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for an exit cost was recognized at the date of the commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The adoption of SFAS No. 146 on January 1, 2003 did not have a material effect on the Company’s consolidated financial statements.

In November 2002, the FASB issued FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation specifies the disclosures to be made by a guarantor in its interim and annual financial statements concerning its obligations under certain guarantees that it has issued. FIN No. 45 also requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations it has undertaken in issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for interim and annual periods ending after December 15, 2002. The initial recognition and initial measurement requirements of FIN No. 45 are effective for guarantees issued or modified after December 31, 2002. The adoption of these provisions did not have a material effect on the Company’s consolidated financial statements.

In December 2002, the EITF reached a consensus on EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. This Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This Issue addresses when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. The guidance in this Issue is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material effect on the Company’s consolidated financial statements.

In January 2003 the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of FIN No. 46 are effective immediately for all arrangements entered into after January 31, 2003. The Company does not expect the adoption of FIN No. 46 to have a material effect on the Company’s consolidated financial statements.

At the close of business on November 15, 2002, the Company acquired all of the outstanding shares of Predecessor, Ultra Clean Technology Systems and Service, Inc., in a transaction accounted for using the purchase method of accounting. Ultra Clean incurred approximately $3,121,000 in acquisition expenses,

including financial advisory and legal fees and other direct transaction costs, which were included as a component of the purchase price. Approximately $2,000,000 of such acquisition costs were paid to Francisco Partners Management, LLC, a related party.

The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as follows (in thousands):

Accounting principles generally accepted in the United States of America require purchased in-process research and development with no alternative future use to be recorded and charged to expense in the period acquired. Accordingly, the results of operations for the period from November 16, 2002 through December 31, 2002, include the write-off of $889,000 of purchased in-process research and development that had not yet reached technological feasibility and had no alternative future use.

In accordance with EITF Issue No. 85-45, Business Combinations: Settlement of Stock Options and Awards, the buyout of $2,547,000 of stock options prior to the effective date of the acquisition was recorded by Predecessor as an expense in the period from January 1, 2002 through November 15, 2002. The buyout is included within general and administrative expenses in that period. In addition, an officer of Predecessor did not exercise options with a value of $1,329,000. Accordingly, the $1,329,000 was recorded as an expense in the period from January 1, 2002 through November 15, 2002 within general and administrative expenses with a corresponding entry to contributed capital.

Certain executives of the Predecessor signed employment agreements with Ultra Clean. Under the terms of these arrangements, Ultra Clean recorded $741,000 for executive bonuses within general and administrative expenses for the period from November 16, 2002 through December 31, 2002. Certain payments under these arrangements were deferred (see Note 9).

In connection with the purchase accounting transaction, the Company recorded a step-up in the inventory value of $113,000.

The operating results of the Company have been included in the statements of operations from the date of acquisition.

The Company issued Series A Senior Notes for the principal sums of $24,130,000, $2,730,000 and $3,733,000 on November 15, 2002, November 26, 2002 and December 2, 2002, respectively. These notes can be repaid, in whole or in part, with outstanding accrued interest at any time without penalty. As of December 31, 2002 and September 30, 2003, all Series A Senior Notes were held by related parties and employees of the Company.

Of the Series A Senior Notes issued on November 26, 2002, $1,342,000 were granted to key employees of the Company. As of September 30, 2003, $806,000 of these notes were unvested. The agreements governing the issuance of the notes indicate that such amounts vest, in equal annual installments, over four years subsequent to the date of grant. In the period from November 16, 2002 through December 31, 2002 and for the nine months ended September 30, 2003, $25,000 and $151,000, respectively, was charged to compensation expense related to the accretion of such debt amounts. The unvested portion is subject to forfeiture, until the debt instrument becomes vested.

In July 2003, Ultra Clean entered into a secured line of credit arrangement which permits borrowing of up to $10,000,000 based upon defined borrowing base and bearing interest, at our option, at a rate equal to 2% per annum plus LIBOR or at 0.25% per annum plus the reference rate established from time to time by the lender. Interest is payable monthly and the line expires on June 15, 2004. The arrangement

contains financial covenants requiring the maintenance of minimum working capital, no successive quarterly net losses and tangible net worth ratios as well as a prohibition from paying cash dividends. In addition, the arrangement requires that Francisco Partners, LLP retain at least 50% ownership of Ultra Clean. The Series A Senior Notes are subordinated to any borrowings under this credit arrangement.

The benefit (provision) for taxes on income consisted of the following (in thousands):

Significant components of net deferred tax assets for federal and state income taxes were as follows (in thousands):

At December 31, 2002, Ultra Clean had approximately $180,000 and $110,000 of net operating loss carryforwards available for federal and state income tax purposes, which will expire in 2022 and 2013, respectively. The extent to which federal and state net operating loss carryforwards can be used to offset future taxable income may be limited depending on the extent of future ownership changes as defined by tax regulations.

A remaining tax receivable of approximately $653,000 at September 30, 2003 represents payments in excess of estimated current tax liabilities for federal, California, Oregon and Texas for 2002.

The Company leases certain equipment under capital lease arrangements. In addition, the Company leases its corporate and regional offices as well as some of its office equipment under noncancelable operating leases. Future minimum lease payments under these leases are as follows (in thousands):

Rental expense for the years ended December 31, 2000 and 2001 and the periods from January 1, 2002 through November 15, 2002 and November 16, 2002 through December 31, 2002 was $835,000,

$918,000, $840,000 and $137,000, respectively. Included within capital lease obligations and other liabilities in 2002 and 2001 was $227,000 and $274,000 of deferred rent, respectively.

In connection with letters of credit required for the leases of certain facilities, the Company held $120,000, $310,000 and $310,000 on deposit in restricted cash accounts as of December 31, 2001 and 2002 and September 30, 2003, respectively. The restricted cash balance is included in other long term assets.

The Company had commitments to purchase inventory totaling $3,176,000 at December 31, 2002.

Under the 1999 Stock Option Plan (the “1999 Option Plan”), the Predecessor had reserved 1,700,000 common shares for issuance under options granted to employees. Options were generally granted at fair value at the date of grant as determined by the Board of Directors, had terms up to ten years and generally vested over four years. At November 15, 2002, prior to the sale of Predecessor, Predecessor had 594,500 shares available for future grants under the 1999 Option Plan and options exercisable for 777,625 shares were vested at a weighted average exercise price of $2.44. Outstanding options were settled in connection with the sale of Predecessor and the 1999 Option Plan was terminated.

On February 20, 2003, Ultra Clean adopted the Ultra Clean Holdings, Inc. Stock Incentive plan (the “Ultra Clean Plan”) and reserved 5,065,139 shares of its common stock for issuance under the Ultra Clean Plan. Options are generally granted at fair value at the date of grant as determined by the Board of Directors, have terms up to ten years and generally vest over four years.

Option activity under the 1999 Option Plan and the Ultra Clean Plan is as follows:

On November 15, 2002, all outstanding shares of Predecessor were purchased by Ultra Clean.

On November 26, 2002, Ultra Clean granted 1,074,100 shares of common stock to certain key employees. These shares vest over a four year period from the date of grant, and any unvested shares are subject to repurchase at fair market value by Ultra Clean upon termination of the employee’s service to

Ultra Clean. For the period from November 16, 2002 to December 31, 2002 and the nine months ended September 30, 2003, Ultra Clean charged $8,000 and $50,000, respectively, to compensation expense related to the vesting of such restricted stock. The unvested amount is subject to forfeiture, until the common stock is fully vested. At September 30, 2003, no shares were vested and 1,074,100 shares were subject to repurchase.

The Company sponsors a 401(k) savings and profit sharing plan (the “401(k) Plan”) for all employees who meet certain eligibility requirements. Participants could elect to contribute to the 401(k) Plan, on a pre-tax basis, from 2-19% of their salary up to a maximum of $11,000. The Company may make matching contributions up to 6% of employee contributions based upon eligibility. The Company made approximately $48,000, $147,000, $145,000 and $23,000 in discretionary employer contributions to the 401(k) Plan in the years ended December 31, 2000 and 2001, the period January 1, 2002 through November 15, 2002 and the period from November 16, 2002 through December 31, 2002, respectively.

In addition to the related party transactions previously described, Ultra Clean entered into an agreement with a key executive of Ultra Clean on November 15, 2002 to defer payment of $265,000 in compensation until November 15, 2009. Under this arrangement Ultra Clean pays interest of 2.7% per annum, payable on June 30 and December 31 of each year. The amounts owed under this arrangement may be prepaid by Ultra Clean at the discretion of the board of directors. The principal amount owed under this arrangement is contained within capital lease obligations and other liabilities on the balance sheet of Ultra Clean.

The following table indicates the expenses to be incurred in connection with the offering described in this registration statement. All amounts are estimates, other than the registration fee, the NASD fee, and The Nasdaq National Market listing fee.

Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to Ultra Clean Holdings, Inc. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for any breach of the director’s duty of loyalty to the corporation or its stockholders, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or for any transaction from which the director derived an improper personal benefit.

Article 8 of Ultra Clean Holdings, Inc.’s amended and restated certificate of incorporation, to be effective immediately prior to the closing of the offering, provides that a director of Ultra Clean Holdings, Inc. shall not be liable to Ultra Clean Holdings, Inc. or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware law. In addition, Article 8 of Ultra Clean Holdings, Inc.’s amended and restated certificate of incorporation provides that each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director of

Ultra Clean Holdings, Inc. or is or was serving at the request of Ultra Clean Holdings, Inc. as a director of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by Ultra Clean Holdings, Inc. to the fullest extent permitted by Delaware law. The right to indemnification conferred in Article 8 also includes the right to be paid by Ultra Clean Holdings, Inc. the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Delaware law.

Article 8 of Ultra Clean Holdings, Inc.’s amended and restated certificate of incorporation provides that Ultra Clean Holdings, Inc. may, by action of its board of directors, provide indemnification to such of the officers, employees and agents of Ultra Clean Holdings, Inc. to such extent and to such effect as its board of directors shall determine to be appropriate and authorized by Delaware law. Article 8 also provides that Ultra Clean Holdings, Inc. shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of Ultra Clean Holdings, Inc. or is or was serving at the request of Ultra Clean Holdings, Inc. as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of his status as such, whether or not Ultra Clean Holdings, Inc. would have the power to indemnify him against such liability under Delaware law.

The Registrant also entered into indemnification agreements with its directors and officers. The indemnification agreements provide indemnification to such directors and officers under certain circumstances for acts or omissions which may not be covered by directors’ and officers’ liability insurance. The Registrant also intends to obtain directors’ and officers’ liability insurance, which insures against liabilities that its directors or officers may incur in such capacities.

Section 2.04 of the Registration Rights Agreement dated as of December 2, 2002 between Ultra Clean Holdings, Inc. and FP-Ultra Clean, LLC, the Registrant’s majority shareholder (the “Registration Rights Agreement”), provides that Ultra Clean Holdings, Inc. will indemnify and hold harmless FP-Ultra Clean, LLC and certain other persons (together, the “Shareholders”) holding securities covered by a registration statement (“Registrable Securities”), its officers, directors, employees, partners and agents, and each person, if any, who controls such Shareholder within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses) (“Damages”) caused by or relating to any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if Ultra Clean Holdings, Inc. shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by or relating to any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such Damages are caused by or related to any such untrue statement or omission or alleged untrue statement or omission so made based upon information furnished in writing to Ultra Clean Holdings, Inc. by such Shareholder or on such Shareholder’s behalf expressly for use therein, provided that, with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the person asserting any such Damages at or prior to the written confirmation of the sale of the Registrable Securities concerned to such person if it is determined that Ultra Clean Holdings, Inc. has provided such prospectus to such Shareholder and it was the responsibility of such Shareholder to provide such person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have

cured the defect giving rise to such Damages. Ultra Clean Holdings, Inc. also agreed to indemnify any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended, on substantially the same basis as that of the indemnification of the Shareholders as provided above.


	(1) On October 28, 2002, the Registrant issued to FP-Ultra Clean, LLC 1,000 shares of common stock for a purchase price of $1.00.

	(2) On November 15, 2002, the Registrant issued to FP-Ultra Clean, LLC 32,173,100 shares of common stock for a purchase price of $8,043,275 and $24,129,810 principal amount of 5.0% Series A Senior Notes for a purchase price of $24,129,810.

	(3) On November 26, 2002, the Registrant issued to FP-Ultra Clean, LLC 1,850,000 shares of common stock for a purchase price of $462,500 and $1,387,500 principal amount of 5.0% Series A Senior Notes for a purchase price of $1,387,500. Also on November 26, 2002, the Registrant issued to members of its management an aggregate of 715,900 shares of common stock for an aggregate purchase price of $178,975 and $536,900 aggregate principal amount of 5.0% Series A Senior Notes for an aggregate purchase price of $536,900.

	(4) On December 2, 2002, the Registrant issued to FP-Ultra Clean, LLC 4,976,900 shares of common stock for a purchase price of $1,244,225 and $3,732,690 principal amount of 5.0% Series A Senior Notes for a purchase price of $3,732,690.

	(5) On February 20, 2003, the Registrant issued to Clarence L. Granger, its Chief Executive Officer, 190,580 shares of common stock for a purchase price of $47,645.

The sales of these securities were exempt from registration under the Securities Act pursuant to Section 4(2).

The Registrant has issued, and plans to continue issuing from time to time, stock options pursuant to its Amended and Restated 2003 Stock Incentive Plan, as amended immediately prior to the completion of this offering. None of these stock options have been exercised, and none of the common stock issuable upon exercise of these options has been issued to date. The options were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on Rule 701 of that Act. The Registrant’s Amended and Restated 2003 Stock Incentive Plan is a written compensatory benefit plan for the benefit of its employees and directors.

(a) The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under “Item 14 — Indemnification of Directors and Officers” above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, 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 whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.


	(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

	(2) For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Menlo Park, State of California, on January 14, 2004.


	By:	/s/ CLARENCE L. GRANGER



	Name: Clarence L. Granger
	Title: Chief Executive Officer and Director

Each person whose signature appears below constitutes and appoints Clarence L. Granger and Kevin L. Griffin, and each of them, his true and lawful attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this registration statement, including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.


*	To be filed by amendment

EX-2.1 3 f95546orexv2w1.txt EXHIBIT 2.1 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER dated as of October 30, 2002 among ULTRA CLEAN HOLDINGS, INC. ULTRA CLEAN TECHNOLOGY SYSTEMS & SERVICE, INC. MITSUBISHI CORPORATION MITSUBISHI INTERNATIONAL CORPORATION and CLEAN MERGER COMPANY TABLE OF CONTENTS

Section 4.13. Finders' Fees ......................................... 19 Section 4.14. Consents .............................................. 19 Section 4.15. Employee Benefit Plans ................................ 19 Section 4.16. Properties ............................................ 21 Section 4.17. Intentionally Left Blank. ............................. 22 Section 4.18. Intellectual Property ................................. 22 Section 4.19. Insurance Coverage .................................... 25 Section 4.20. Licenses and Permits .................................. 25 Section 4.21. Receivables ........................................... 26 Section 4.22. Debt .................................................. 26 Section 4.23. Employees ............................................. 26 Section 4.24. Labor Matters ......................................... 26 Section 4.25. Environmental Matters ................................. 26 Section 4.26. Certain Interests. .................................... 27 Section 4.27. Customers; Suppliers .................................. 28 Section 4.28. Books And Records ..................................... 29 Section 4.29. Inventories ........................................... 29 Section 4.30. State Takeover Statutes ............................... 29 ARTICLE 5 Representations and Warranties of Parent Section 5.01. Corporate Existence and Power ......................... 29 Section 5.02. Corporate Authorization ............................... 30 Section 5.03. Governmental Authorization ............................ 30 Section 5.04. Non-contravention ..................................... 30 Section 5.05. Finders' Fees ......................................... 31 Section 5.06. Financing ............................................. 31 Section 5.07. Litigation ............................................ 31 Section 5.08. Solvency .............................................. 31 ARTICLE 6 Covenants of the Company and Sellers Section 6.01. Conduct of the Company ................................ 31 Section 6.02. Shareholder Approval .................................. 34 Section 6.03. Access to Information ................................. 34 Section 6.04. No Solicitation ....................................... 34 Section 6.05. Notices of Certain Events ............................. 35 Section 6.06. Resignations .......................................... 35 Section 6.07. Noncompetition ........................................ 35 Section 6.08. Intercompany Accounts ................................. 36 Section 6.09. Company Stock Option Plan ............................. 36 Section 6.10. Applied Materials ..................................... 37 Section 6.11. Voting Of Common Stock; Proxy ......................... 37

ii ARTICLE 7 Covenants of Parent Section 7.01. Obligations Of Merger Subsidiary ...................... 37 Section 7.02. Confidentiality ....................................... 37 ARTICLE 8 Covenants of Parent, Merger Subsidiary, the Sellers and the Company Section 8.01. Reasonable Efforts .................................... 37 Section 8.02. Certain Filings ....................................... 38 Section 8.03. Public Announcements .................................. 38 Section 8.04. Further Assurances .................................... 38 Section 8.05. Notifications ......................................... 38 ARTICLE 9 Conditions to the Merger Section 9.01. Conditions to Obligations of Each Party ............... 39 Section 9.02. Conditions to the Obligations of Parent and Merger Subsidiary ..................................... 39 Section 9.03. Conditions to Obligations of the Company and the Sellers ............................................... 41 ARTICLE 10 Termination Section 10.01. Termination ........................................... 42 Section 10.02. Effect of Termination ................................. 43 ARTICLE 11 Miscellaneous Section 11.01. Notices ............................................... 43 Section 11.02. Survival of Representations and Warranties; Indemnification ....................................... 45 Section 11.03. Defense Of Claims ..................................... 47 Section 11.04. Amendments; No Waivers ................................ 48 Section 11.05. Expenses .............................................. 48 Section 11.06. Successors and Assigns ................................ 49 Section 11.07. Governing Law ......................................... 49 Section 11.08. Jurisdiction .......................................... 49 Section 11.09. WAIVER OF JURY TRIAL .................................. 49 Section 11.10. Counterparts; Effectiveness; Benefit .................. 49 Section 11.11. Entire Agreement ...................................... 49 Section 11.12. Captions .............................................. 50 Section 11.13. Severability .......................................... 50 Section 11.14. Specific Performance .................................. 50 Section 11.15. Arbitration ........................................... 50

iii ARTICLE 12 Tax Matters Section 12.01. Tax Definition ........................................ 50 Section 12.02. Tax Representations ................................... 51 Section 12.03. Covenants ............................................. 53 Section 12.04. Tax Sharing ........................................... 54 Section 12.05. Filing of Tax Returns; Cooperation On Tax Matters ..... 54 Section 12.06. Tax Indemnification ................................... 56 Section 12.07. Certain Disputes ...................................... 57 Section 12.08. Purchase Price Adjustment ............................. 57 Section 12.09. Survival .............................................. 57

iv AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of October 30, 2002, among Ultra Clean Technology Systems & Service, Inc., a California corporation (the "COMPANY"), Mitsubishi Corporation, a Japanese corporation ("MC")and Mitsubishi International Corporation, a New York corporation ("MIC")(each a "SELLER," collectively, the "SELLERS"), Ultra Clean Holdings, Inc., a Delaware corporation ("PARENT"), and Clean Merger Company, a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUBSIDIARY"). WHEREAS, upon the terms and subject to the conditions of this Agreement and in accordance with California Law, Parent and the Company will enter into a business combination transaction pursuant to which Merger Subsidiary will merge with and into the Company; WHEREAS, the Board of Directors of the Company has determined that the business combination transaction is consistent with and in furtherance of the long-term business strategy of the Company and fair to, and in the best interests of, the Company and its shareholders and has approved and adopted this Agreement and the transactions contemplated by this Agreement and has recommended the approval and adoption of this Agreement by the shareholders of the Company; WHEREAS, Sellers own all of the outstanding shares of common stock, no par value, of the Company; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Subsidiary, Sellers and the Company hereby agree as follows: ARTICLE 1 Definitions Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "ACQUISITION PROPOSAL" means, other than the transactions contemplated by this Agreement, any Third Party offer, proposal or inquiry relating to, or any Third Party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 5% or more of the assets of the Company or 5% or more of any class of equity or voting securities of the Company, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in any Third Party beneficially owning 5% or more of any class of equity or voting securities of the Company or (iii) a merger, consolidation, share exchange, business combination, sale of all or substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. "BUSINESS DAY" means a day other than Saturday, Sunday or any day on which commercial banks in San Francisco, California are authorized or required by law to close. "CALIFORNIA LAW" means the California Corporations Code. "CLOSING DATE" means the date upon which the Closing occurs. "CODE" means the Internal Revenue Code of 1986, as amended. "COMPANY BALANCE SHEET" means the consolidated balance sheet of the Company as of December 31, 2001 and the footnotes thereto. "COMPANY COMMON STOCK" means the shares of common stock, no par value, of the Company. "COMPANY BALANCE SHEET DATE" means December 31, 2001. "COMPANY STOCK OPTIONS" shall mean all outstanding options to purchase the Company's equity securities granted pursuant to the Company Stock Option Plan. "COMPANY STOCK OPTION PLAN" shall mean the Ultra Clean Technology Systems & Services, Inc. 1999 Stock Option Plan. "DEBT REPAYMENT AMOUNT" shall mean the outstanding principal, any accrued interest and any other amounts outstanding (including any fees, penalties or other amounts payable) under the Existing Debt. "DELAWARE LAW" means the General Corporation Law of the State of Delaware. "ENVIRONMENTAL LAWS" means any federal, state, local or foreign law (including common law), treaty, judicial decision, regulation, rule, judgment, order, decree, injunction, permit or governmental restriction or requirement or any agreement with any governmental authority or other third party, relating to human health and safety, the environment or to pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substances, wastes or materials. "ENVIRONMENTAL PERMITS" means all permits, licenses, franchises, certificates, approvals and other similar authorizations of governmental 2 authorities relating to or required by Environmental Laws and affecting, or relating in any way to, the business of the Company as currently conducted. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA AFFILIATE" of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code. "EXISTING DEBT" shall mean: (a) the Loan Agreement between the Company and MIC dated January 1, 2002 relating to a facility of $14,000,000; (b) the Revolving Uncommitted Availability Facility Agreement between the Company and Mizuho Corporate Bank, Ltd., a Japanese banking corporation acting through its Los Angeles agency ("MBL") dated May 1, 2002, and; (c) the General Transaction Agreement between the Company and Mitsubishi Trust & Banking Corporation, a Japanese banking corporation acting through its Los Angeles agency ("MTB") dated May 3, 1999 (each of MIC, MBL and MTB a "LENDER" and collectively the "LENDERS," and each agreement referenced above a "LOAN AGREEMENT" and collectively, the "LOAN AGREEMENTS.") "INTELLECTUAL PROPERTY RIGHTS" means (i) inventions, whether or not patentable, reduced to practice or made the subject of one or more pending patent applications, (ii) national and multinational statutory invention registrations, patents and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof) registered or applied for in the United States and all other nations throughout the world, all improvements to the inventions disclosed in each such registration, patent or patent application, (iii) trademarks, service marks, trade dress, logos, domain names, trade names and corporate names (whether or not registered) in the United States and all other nations throughout the world, including all variations, derivations, combinations, registrations and applications for registration of the foregoing and all goodwill associated therewith, (iv) copyrights (whether or not registered) and registrations and applications for registration thereof in the United States and all other nations throughout the world, including all derivative works, moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or hereafter provided by law, regardless of the medium of fixation or means of expression, (v) rights in computer software (including source code, object code, firmware, operating systems and specifications), (vi) rights in trade secrets and, to the extent protectable as trade secrets or proprietary information, business information (including pricing and cost information, business and marketing plans and customer and supplier lists) and know-how (including manufacturing and production processes and techniques and research and development information), (vii) rights in industrial designs (whether or not registered), (viii) rights in databases and data collections, (ix) rights in mask works, (x) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, (xi) all rights in all of the foregoing provided by treaties, conventions and common law and (xii) all rights of the Company to sue or recover and retain damages and costs and attorneys' fees incurred by the 3 Company for past, present and future infringement or misappropriation by Third Parties of any of the foregoing. "INTERIM BALANCE SHEET" means the unaudited balance sheet of the Company as of September 30, 2002. "INTERIM BALANCE SHEET DATE" means September 30, 2002. "KNOWLEDGE" of any Person that is not an individual means the knowledge of such Person's Officers after reasonable inquiry; provided that the knowledge of the Company or Sellers shall mean the knowledge, of Yoshifusa Nikaido, Clarence Granger, Kevin Griffin, Bruce Wier, Sowmya Krishnan, Deborah Hayward and Keith Cheung, after reasonable inquiry. "LICENSED INTELLECTUAL PROPERTY RIGHTS" means all Intellectual Property Rights owned by a Person other than the Company and licensed or sublicensed to the Company. "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien, any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material adverse effect on the condition (financial or otherwise), business, assets or results of operations of such Person and its Subsidiaries, taken as a whole, other than as a result of general economic conditions or events affecting the Person's industry generally but which do not materially disproportionately affect the Person. "MERGER CONSIDERATION" means the quotient obtained by dividing (A) thirty-four million six hundred eighty thousand dollars ($34,680,000) minus the Debt Repayment Amount and the Spread Payment Amount by (B) the total number of shares of Company Common Stock issued and outstanding at the Effective Time, rounded to the fourth decimal place. "MINIMUM WORKING CAPITAL" means $11,230,000 plus $750,000, less cash payments related to capital expenditures (excluding any capital leases) incurred during October 2002; provided, however, that under no circumstance shall Minimum Working Capital be less than $11,230,000. "1933 ACT" means the Securities Act of 1933, as amended. "1934 ACT" means the Securities Exchange Act of 1934. "OFFICER" of any Person means any executive officer of such Person. 4 "OPTION TERMINATION AGREEMENTS" means those agreements between the Company and Persons holding options having an exercise price per share less than the Merger Consideration which provide for the cancellation of such options in exchange for a cash settlement. "OWNED INTELLECTUAL PROPERTY RIGHTS" means all Intellectual Property Rights owned by the Company. "PERSON" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "SEC" means the Securities and Exchange Commission. "SHARES" means the shares of Common Stock, no par value, of the Company. "SPREAD PAYMENT AMOUNT" means the aggregate amount of payments made by the Company pursuant to the Option Termination Agreements. "SUBSIDIARY" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person. "TAX BENEFIT ITEM" shall mean $440,852, provided that the Tax Benefit Item shall be reduced to the extent of any cash payment received from any Taxing Authority in respect of any component benefit item of the Tax Benefit Item between the date hereof and the Closing Date. Schedule I shall set forth the items used to determine the Tax Benefit Item (the "TAX BENEFIT ITEM SCHEDULE"). "TAX LIABILITY ITEM" shall mean $457,053, provided that the Tax Liability Item shall be reduced to the extent of any cash payment made to any Taxing Authority in satisfaction of any component liability item of the Tax Liability Item between the date hereof and the Closing Date. Schedule II shall set forth the items used to determine the Tax Liability Item (the "TAX LIABILITY ITEM SCHEDULE"). "THIRD PARTY" means any Person as defined in this Agreement or in Section 13(d) of the 1934 Act, other than Parent or any of its Affiliates. Any reference in this Agreement to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder. (b) Each of the following terms is defined in the Section set forth opposite such term: 5
TERM SECTION ---- ------- Accounting Referee Section 12.07 Buyer Indemnitee Section 12.01 CERCLA Section 4.25 Certificates Section 2.03 Closing Section 2.01 Closing Balance Sheet Section 2.05 Closing Working Capital Section 2.05 Company Securities Section 4.05 Confidentiality Agreement Section 6.03 Consents Section 4.14 Effective Time Section 2.01 Employee Plans Section 4.15 End Date Section 10.01 Exchange Agent Section 2.03 Final Working Capital Section 2.06 GAAP Section 4.07 Governmental Authority Section 9.02 Indemnity Cap Section 11.02 Indemnified Party Section 11.02 Indemnifying Party Section 11.02 Loss Section 11.02 Material Contracts Section 4.11 Merger Section 2.01 Motoyama Section 4.18 Multiemployer Plan Section 4.15 Outstanding Common Section 4.05 Parent Indemnified Parties Section 11.02 Permits Section 4.20 Post-Closing Tax Period Section 12.01 Pre-Closing Tax Period Section 12.01 Seller Indemnified Parties Section 11.02 Surviving Corporation Section 2.01 Tax Section 12.01 Tax Asset Section 12.01 Taxing Authority Section 12.01 Tax Loss Section 12.06 Tax Sharing Agreements Section 12.01 Transfer Taxes Section 12.03
ARTICLE 2 The Merger Section 2.01. The Merger. (a) At the Effective Time, Merger Subsidiary shall be merged (the "MERGER") with and into the Company in accordance with California Law, whereupon the separate existence of Merger Subsidiary shall 6 cease, and the Company shall be the surviving corporation (the "SURVIVING CORPORATION"). (b) As soon as practicable after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger, the Company and Merger Subsidiary will file an agreement of merger with the Secretary of State of the State of California, a certificate of merger with the Delaware Secretary of State, and make all other filings or recordings required by California Law or Delaware Law in connection with the Merger. The Merger shall become effective at such time (the "EFFECTIVE TIME") as the agreement of merger is accepted by the Secretary of State of the State of California or at such later time as is specified in the agreement of merger. Immediately prior to the filing of the agreement of merger, a closing (the "CLOSING") will be held at the offices of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park, California 94025 (or such other place as the parties may agree). (c) From and after the Effective Time, the Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of the Company and Merger Subsidiary, all as provided under California Law. Section 2.02. Conversion of Shares. At the Effective Time: (a) except as otherwise provided in Section 2.02(b) or Section 2.04, each Share outstanding immediately prior to the Effective Time shall be converted into the right to receive the Merger Consideration in cash without interest; (b) each Share held by the Company as treasury stock or owned by Parent or any of its Subsidiaries immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto; and (c) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation. Section 2.03. Surrender and Payment. (a) Parent will act as exchange agent (the "EXCHANGE AGENT") for the purpose of exchanging certificates representing Shares (the "CERTIFICATES") for the Merger Consideration. Upon the Closing, Parent will make available the Merger Consideration to be paid by wire transfer in respect of the Shares. On the Closing Date, Sellers will surrender the Certificates to the Exchange Agent for cancellation together with a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates to the Exchange Agent) for use in such exchange. 7 (b) Each holder of Shares that have been converted into the right to receive the Merger Consideration will be entitled to receive, upon surrender to the Exchange Agent of a Certificate, together with a properly completed letter of transmittal, the Merger Consideration payable for each Share represented by such Certificate. Until so surrendered, each such Certificate shall represent after the Effective Time for all purposes only the right to receive such Merger Consideration. (c) If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. (d) After the Effective Time, there shall be no further registration of transfers of Shares. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article 2. (e) Parent shall not be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Immediately prior to such time when amounts remaining unclaimed by holders of Shares would otherwise escheat to or become property of any governmental authority, such unclaimed amounts shall become, to the extent permitted by applicable law, the property of Parent free and clear of any claims or interest of any Persons previously entitled thereto. (f) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.03(a) to pay for Shares for which dissenter's rights have been perfected shall be returned to Parent, upon demand. Section 2.04. Dissenting Shares. Notwithstanding Section 2.02, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with California Law shall not be converted into a right to receive the Merger Consideration, but the holder thereof shall only be entitled to such rights as are provided by California Law, unless such holder fails to perfect, withdraws or otherwise loses its right to appraisal. If, after the Effective Time, such holder fails to perfect, withdraws or loses its right to appraisal, such Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares, and Parent shall have the right 8 to participate in all negotiations and proceedings with respect to such demands. Except with the prior written consent of Parent, the Company shall not make any payment with respect to, or settle or offer to settle, any such demands. Section 2.05. Closing Balance Sheet. (a) As promptly as practicable, Parent will cause to be prepared and delivered to Sellers the Closing Balance Sheet, together with an unqualified audit report of Deloitte & Touche thereon, and a certificate based on such Closing Balance Sheet setting forth Parent's calculation of Closing Working Capital. The Closing Balance Sheet ("CLOSING BALANCE SHEET") shall (x) fairly present the financial position of the Company at the close of business on the Closing Date in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the Company Balance Sheet, (y) include line items substantially consistent with those in the Company Balance Sheet, and (z) be prepared in accordance with accounting policies and practices consistent with those used in the preparation of the Company Balance Sheet. "CLOSING WORKING CAPITAL" means the excess of current assets over current liabilities of the Company as shown on the Closing Balance Sheet, with the following adjustments: (i) [intentionally left blank]; (ii) excluding the effect (including the Tax effect) of the payment of the Spread Payment Amount and any exercise of employee stock options occurring between the date hereof and the Closing Date; (iii) excluding the Existing Debt and payoff of the Existing Debt; and (iv) reflecting no items in respect of Taxes other than the Tax Benefit Item and the Tax Liability Item. (b) If Sellers disagree with Parent's calculation of Closing Working Capital delivered pursuant to Section 2.05(a), Sellers may, within thirty (30) days after delivery of the documents referred to in Section 2.05(a), deliver a notice to Parent disagreeing with such calculation and setting forth Sellers' calculation of such amount. Any such notice of disagreement shall specify those items or amounts as to which Sellers disagree, and Sellers shall be deemed to have agreed with all other items and amounts contained in the Closing Balance Sheet and the calculation of Closing Working Capital delivered pursuant to Section 2.05(a). (c) If a notice of disagreement shall be delivered pursuant to Section 2.05(b), Parent and Sellers shall, during the thirty (30) days following such delivery, use their reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the amount of Closing Working Capital, which amount shall not be less than the amount thereof shown in Parent's calculations delivered pursuant to Section 2.05(a) nor more than the amount thereof shown in Sellers' calculation delivered pursuant to Section 2.05(b). If, during such period, Parent and Sellers are unable to reach such agreement, they shall promptly thereafter cause independent accountants of nationally recognized standing reasonably satisfactory to Parent and Sellers (who shall not have any material relationship with Parent or Sellers), promptly to review this Agreement and the disputed items or amounts for the purpose of calculating Closing Working Capital. In making such calculation, such independent accountants shall consider only those items or amounts in the 9 Closing Balance Sheet or Parent's calculation of Closing Working Capital as to which Sellers have disagreed. Such independent accountants shall deliver to Parent and Seller, as promptly as practicable, a report setting forth such calculation. Such report shall be final and binding upon Parent and Sellers. The cost of such review and report shall be borne by Parent if the difference between Final Working Capital and Parent's calculation of Closing Working Capital delivered pursuant to Section 2.05(a) is greater than the difference between Final Working Capital and Sellers' calculation of Closing Working Capital delivered pursuant to Section 2.05(b), by Sellers if the first such difference is less than the second such difference and otherwise equally by Parent and Sellers. (d) Parent and Sellers agree that they will, and agree to cause their respective independent accountants and the Company to cooperate and assist in the preparation of the Closing Balance Sheet and the calculation of Closing Working Capital and in the conduct of the audits and reviews referred to in this Section, including without limitation, the making available to the extent necessary of books, records, work papers and personnel. Section 2.06. Adjustment of Purchase Price. (a) If Minimum Working Capital exceeds Final Working Capital, Sellers shall pay to Parent, as an adjustment to the Purchase Price, in the manner and with interest as provided in Section 2.06(b), the amount of such excess; provided, however, that in no circumstances shall any such payment exceed one million four hundred eighty-five thousand dollars ($1,485,000). "FINAL WORKING CAPITAL" means Closing Working Capital as shown in Parent's calculation delivered pursuant to Section 2.05(a), if no notice of disagreement with respect thereto is duly delivered pursuant to Section 2.05(b); or if such a notice of disagreement is delivered, as agreed by Parent and Sellers pursuant to Section 2.05(c) or in the absence of such agreement, as shown in the independent accountant's calculation delivered pursuant to Section 2.05(c); provided that, in no event shall Final Working Capital be less than Parent's calculation of Closing Working Capital delivered pursuant to Section 2.05(a) or more than Sellers' calculation of Closing Working Capital delivered pursuant to Section 2.05(b). (b) If Sellers are obligated to make a payment pursuant to Section 2.06(a), such payment shall be paid within ten days after the date Final Working Capital has been determined by delivery by Sellers of a certified or official bank check payable in immediately available funds to Parent or by causing such payments to be credited to such account of Parent as may be designated by Parent. The amount of any payment to be made pursuant to this Section shall bear interest from and including the Closing Date to but excluding the date of payment at a rate per annum equal to the Prime rate as published in the Wall Street Journal, Eastern Edition in effect from time to time during the period from the Closing Date to the date of payment. Such interest shall be payable at the same time as the payment to which it relates and shall be calculated daily on the basis of a year of 365 days and the actual number of days elapsed. 10 Section 2.07. Existing Debt. Upon Closing, Parent shall, on behalf of the Company, pay by wire transfers to the Lenders an amount equal, in the aggregate, to the Debt Repayment Amount (net of any applicable withholding taxes, which Parent shall withhold and remit to the appropriate Taxing Authority), in full satisfaction of the Existing Debt, the Loan Agreements shall terminate, and there shall be no further financial obligations nor any amounts outstanding under the Loan Agreements. Section 2.08. Adjustments. If, during the period between the date of this Agreement and the Effective Time, any change in the outstanding Shares shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of Shares, or stock dividend thereon with a record date during such period, the Merger Consideration and any other amounts payable pursuant to this Agreement shall be appropriately adjusted. Section 2.09. Withholding Rights. Each of the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration or payable to any Person pursuant to this Article 2 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax law. If the Surviving Corporation or Parent, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares, in respect of which the Surviving Corporation or Parent, as the case may be, made such deduction and withholding. Section 2.10. Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration, to be paid in respect of the Shares represented by such Certificate, as contemplated by this Article 2. ARTICLE 3 The Surviving Corporation Section 3.01. Articles of Incorporation. The articles of incorporation of the Company in effect at the Effective Time shall be the articles of incorporation of the Surviving Corporation until amended in accordance with applicable law, provided that, at the Effective Time, such articles of incorporation shall be amended as set forth in Exhibit A. 11 Section 3.02. Bylaws. The bylaws of Merger Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law. Section 3.03. Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, (i) the directors of Merger Subsidiary at the Effective Time shall be the directors of the Surviving Corporation and (ii) the officers of the Company at the Effective Time, other than Yoshifusa Nikaido, who shall resign effective as of the Closing, shall be the officers of the Surviving Corporation. ARTICLE 4 Representations and Warranties of the Company and Sellers The Company and Sellers each jointly and severally represent and warrant to Parent, subject to such exceptions as are disclosed in the attached disclosure schedule (which disclosure schedule shall reference the corresponding appropriate section and paragraph numbers to which disclosure relates), that: Section 4.01. Corporate Existence and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. Schedule 4.01 contains a complete and accurate list of every jurisdiction in which the Company is qualified to do business. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for jurisdictions where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect on the Company. The Company has heretofore delivered to Parent true and complete copies of the articles of incorporation and bylaws of the Company as currently in full force and effect. The Company is not in violation of any of the provisions of its articles of incorporation or bylaws. Section 4.02. Corporate Authorization. (a) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby are within the Company's corporate powers and, except for the affirmative vote of the holders of a majority of the outstanding Shares in connection with the consummation of the Merger, has been duly authorized by all necessary corporate action on the part of the Company. This Agreement, assuming due authorization, execution and delivery by the other parties hereto and thereto, constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency, reorganization, arrangement, moratorium and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 12 (b) The execution, delivery and performance by each Seller of this Agreement, and the consummation by each Seller of the transactions contemplated hereby is within each Seller's corporate powers and has been duly authorized by all necessary corporate action on the part of each Seller. This Agreement, assuming due authorization, execution and delivery by the other parties hereto and thereto, constitutes a valid and binding agreement of each Seller enforceable against each Seller in accordance with its terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency, reorganization, arrangement, moratorium and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. Section 4.03. Governmental Authorization. (a) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby requires no action on the part of the Company by or in respect of, or filing with, any governmental body, agency, official or authority, domestic, foreign or supranational, other than the filing of an agreement of merger with respect to the Merger with the Secretary of State of the State of California, the filing of a certificate of merger with the Delaware Secretary of State, and the filing of appropriate documents with the relevant authorities of other states in which the Company is qualified to do business. (b) The execution, delivery and performance by each Seller of this Agreement and the consummation by each Seller of the transactions contemplated hereby requires no action on the part of either Seller by or in respect of, or filing with, any governmental body, agency, official or authority, domestic, foreign or supranational. Section 4.04. Non-contravention. The execution, delivery and performance by the Company and the Sellers of this Agreement, and the consummation of the transactions contemplated hereby does not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the Articles of Incorporation or bylaws (or comparable document in the case of Mitsubishi Corporation) of the Company or the Sellers, (ii) assuming compliance with the matters referred to in Section 4.03, contravene, conflict with, or result in a material violation or breach of any provision of any applicable law, statute, ordinance, rule, regulation, judgment, injunction, order or decree, (iii) require any consent or other action by any Person under, constitute a default, or an event that, with or without notice or lapse of time or both, could become a default, under, or cause or permit the termination, cancellation, acceleration or other change of any material right or obligation or the loss of any material benefit to which the Sellers or the Company are entitled under any provision of any agreement or other instrument binding upon the Sellers or the Company or any material license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of the Sellers or the Company or (iv) 13 result in the creation or imposition of any Lien on any asset of the Sellers or the Company other than Permitted Liens. Section 4.05. Capitalization. (a) The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock, no par value. There are issued and outstanding 3,680,000 shares of Company Common Stock, all of which are owned by the Sellers (the "OUTSTANDING COMMON"). All outstanding shares of capital stock of the Company are duly authorized and validly issued, and are fully paid and nonassessable. Schedule 4.05 contains a complete and accurate list of every holder of Company Common Stock and the number of shares each such holder holds. (b) At the Effective Time there will be no outstanding (i) shares of capital stock or voting securities of the Company other than the Outstanding Common, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (iii) options, warrants or other rights to acquire from the Company or other obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company or (iv) phantom stock, tracking stock or other securities or rights to receive economic value equivalent to the capital stock of the Company (the items in clauses (i), (ii), (iii) and (iv) being referred to collectively as the "COMPANY SECURITIES"). There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any of the Company Securities. (c) At the Effective Time, all options granted under the Company Stock Option Plan will terminate, expire and be of no further force or effect pursuant to the terms of the Company Stock Option Plan and the holders of such options will have no rights with respect thereto. (d) None of the Shares were issued or will be issued in violation of the 1933 Act, California Law or other state securities laws or regulations or any preemptive rights. Section 4.06. Subsidiaries. The Company does not have, and has never had, any subsidiaries, nor does it own any equity interest in any other Person. Section 4.07. Financial Statements. The audited balance sheets as of December 31, 1999, 2000 and 2001 and related audited statements of income and cash flows for each of the years ended December 31, 1999, 2000 and 2001 and unaudited interim financial statements for the nine months ended September 30, 2002 (subject to normal reconciling adjustments) of the Company provided to Parent and attached hereto as Schedule 4.07 fairly present, in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated in the notes thereto), the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject only to normal year-end adjustments and an 14 absence of footnotes in the case of any unaudited interim financial statements). Such financial statements include all adjustments that are necessary for a fair presentation of the financial position and results of operations of the Company as of the dates thereof and for the periods covered thereby. Section 4.08. Absence of Certain Changes. Since the Company Balance Sheet Date, the business of the Company has been conducted in all material respects in the ordinary course consistent with past practices and there has not been: (a) any event, occurrence, development or state of circumstances or facts that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company; (b) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company, or any repurchase, redemption or other acquisition by the Company of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company; (c) any amendment of any material term of any outstanding security of the Company; (d) any incurrence, assumption or guarantee by the Company of any indebtedness for borrowed money except for draws by the Company under the Loan Agreements; (e) any creation or other incurrence by the Company of any Lien on any asset, other than Permitted Liens; (f) any making of any loan, advance or capital contributions to or investment in any Person, except for reasonable advances to employees and consultants for travel and business expenses in the ordinary course of business consistent with past practices; (g) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company; (h) any transaction or commitment made, or any contract or agreement entered into, by the Company relating to its assets or business (including the acquisition or disposition of any assets) or any relinquishment by the Company of any contract or other right, in either case, material to the Company other than those contemplated by this Agreement and transactions and commitments in the ordinary course of business consistent with past practices; 15 (i) any change in any method of accounting, method of tax accounting or accounting principles or practice by the Company, except for any such change required by reason of a concurrent change in GAAP; (j) any (i) grant of any severance or termination pay to (or amendment to any existing arrangement with) any director, officer or employee of the Company, (ii) increase in benefits payable under any existing severance or termination pay policies or employment agreements, (iii) entering into any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Company, (iv) establishment, adoption or amendment (except as required by applicable law) of any collective bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, stock option, restricted stock or other benefit plan or arrangement covering any director, officer or employee of the Company, or (v) increase in compensation, bonus or other benefits payable to any director or officer or, other than in the ordinary course of business consistent with past practices, any other employee of the Company; (k) any labor dispute, other than routine individual grievances, or, to the Knowledge of the Company or Sellers, any activity or proceeding by a labor union or representative thereof to organize any employees of the Company, which employees were not subject to a collective bargaining agreement at the Company Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; (l) any payment, reimbursement, refund, or other fund transfer to Sellers or any Affiliate, other than the payment of salaries to officers or employees and payments for excess liability insurance and employee medical and dental insurance provided by MIC, all made in the ordinary course of business consistent with past practices; or (m) any agreement or commitment to do any of the foregoing. Section 4.09. No Undisclosed Liabilities. There are no liabilities or obligations of the Company of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances that could reasonably be expected to result in such a liability or obligation, other than: (a) liabilities or obligations disclosed and provided for in the Company Balance Sheet or in the notes thereto, and (b) liabilities or obligations incurred since the Company Balance Sheet Date that could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company. 16 Section 4.10. Compliance with Laws and Court Orders. The business of the Company is and has been conducted in compliance in all material respects with, and to the Knowledge of the Company and the Sellers is not under investigation with respect to, and has not been threatened to be charged with or given notice of any violation of, any material applicable law, statute, ordinance, rule, regulation, judgment, injunction, order or decree. Section 4.11. Material Contracts. (a) Except for the Contracts disclosed in Schedule 4.11 (the "MATERIAL CONTRACTS"), the Company is not a party to or bound by: (i) any lease or sublease (whether of real or personal property) providing for annual rentals of $15,000 or more; (ii) any agreement (including purchase orders) for the purchase of materials, supplies, goods, services, equipment or other assets providing for either (A) annual payments by the Company of $50,000 or more or (B) aggregate payments by the Company of $75,000 or more; (iii) any sales, distribution or other similar agreement providing for the sale or license by the Company of materials, supplies, goods, services, equipment or other assets or license that provides for either (A) annual payments to the Company of $15,000 or more or (B) aggregate payments to the Company of $25,000 or more; (iv) any partnership, joint venture or other similar agreement or arrangement; (v) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); (vi) any agreement relating to indebtedness for borrowed money or the deferred purchase price of property (in either case, whether incurred, assumed, guaranteed or secured by any asset), except any such agreement with an aggregate outstanding principal amount not exceeding $10,000 and which may be prepaid on not more than 30 days notice without the payment of any penalty; (vii) any material option, license, franchise or similar agreement; (viii) any material agency, dealer, sales representative, marketing, distribution or other similar agreement; (ix) any agreement that limits the freedom of the Company to compete in any line of business or with any Person or in any area or which 17 could reasonably be expected to so limit the freedom of the Company after the Closing Date; (x) any agreement with any Affiliate of the Company, with any director or officer of the Company, or with any "associate" or any member of the "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the 1934 Act) of any such director or officer; (xi) any employment agreement, or any agreement with severance, change in control or similar arrangements that will result in any obligation (absolute or contingent) of the Company to make any payment as a result of the consummation of the Merger, termination of employment or both; or (xii) any other agreement, commitment, arrangement or plan not made in the ordinary course of business that is material to the Company, including, without limitation, any agreement involving annual payments by any customer to the Company in excess of $500,000. (b) Each agreement, contract, plan, lease, arrangement or commitment disclosed in any Schedule to this Agreement or required to be disclosed pursuant to this Section is a valid and binding agreement of the Company and is in full force and effect with respect to the Company and, to the Knowledge of the Sellers and the Company, any other party thereto, and neither the Company nor, to the Knowledge of the Sellers and the Company, any other party thereto is in default or breach in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment, and no event or circumstance has occurred that, with notice or lapse of time or both, could reasonably be expected to constitute any material event of default thereunder. True and complete copies of each such agreement, contract, plan, lease, arrangement or commitment have been delivered or made available to Parent. (c) The Company has fulfilled in all material respects all obligations required pursuant to each Material Contract to have been performed by the Company prior to the date hereof, and the Sellers and the Company have no reason to believe that the Company will not be able to fulfill, when due, all of its obligations under the Material Contracts that remain to be performed after the date hereof. (d) The Company has complied with all terms contained in any Material Contract that provide for pricing or other contract terms on a "most favored nation" or similar basis, and no refunds of any past payments are or will become due. Section 4.12. Litigation. There is no action, suit, investigation or proceeding (or, to the Knowledge of the Company or the Sellers, are there any facts or conditions that could reasonably be expected to be the basis therefore) 18 pending against, or, to the Knowledge of the Sellers or the Company, threatened against or affecting, the Company, any present or former officer, director or employee of the Company or any other Person for whom the Company may be liable or any of their respective properties or that in any manner challenges or seeks to prevent, enjoin, alter or materially delay the Merger or any of the other transactions contemplated hereby before any court or arbitrator or before or by any governmental body, agency or official, domestic, foreign or supranational. Section 4.13. Finders' Fees. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Sellers or the Company who might be entitled to any fee or commission from the Company or any of its Affiliates in connection with the transactions contemplated by this Agreement. Section 4.14. Consents. Schedule 4.14 sets forth each material agreement, contract or other instrument (including, without limitation, any Material Contract) binding upon Sellers or the Company requiring a consent or other action by any Person as a result of the execution, delivery and performance of this Agreement (the "CONSENTS"). Section 4.15. Employee Benefit Plans. (a) Schedule 4.15(a) contains a correct and complete list identifying each "employee benefit plan", as defined in Section 3(3) of ERISA, each employment, severance or similar contract, plan, arrangement or policy and each other plan or arrangement (written or oral) providing for compensation, bonuses, profit-sharing, stock option or other stock related rights or other forms of incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangements), health or medical benefits, employee assistance program, disability or sick leave benefits, workers' compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance benefits) which is maintained, administered or contributed to by the Company or any ERISA Affiliate and covers any employee or former employee of the Company, or with respect to which the Company has any liability. Copies of such plans (and, if applicable, related trust or funding agreements or insurance policies) and all amendments thereto and written interpretations thereof have been furnished or made available to Parent together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto) and tax return (Form 990) prepared in connection with any such plan or trust. Such plans are referred to collectively herein as the "EMPLOYEE PLANS". (b) Neither the Company nor any ERISA Affiliate nor any predecessor thereof sponsors, maintains or contributes to, or has in the past sponsored, maintained or contributed to, any Employee Plan subject to Title IV of ERISA. (c) Neither the Company nor any ERISA Affiliate nor any predecessor thereof contributes to, or has in the past contributed to, any multiemployer plan, as defined in Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"). 19 (d) Each Employee Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination or opinion letter, as applicable, or has pending or has time remaining in which to file, an application for such determination from the Internal Revenue Service, and the Company is not aware of any reason why any such determination or opinion letter should be revoked or not be issued. The Company has made available to Parent copies of the most recent Internal Revenue Service determination or opinion letters with respect to each such Employee Plan. Each Employee Plan has been maintained in material compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations, including but not limited to ERISA and the Code, which are applicable to such Employee Plan. No material events have occurred with respect to any Employee Plan that could result in payment or assessment by or against the Company of any material excise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E or 5000 of the Code. (e) The consummation of the transactions contemplated by this Agreement will not (either alone or together with any other event) entitle any employee, former employee or independent contractor of the Company to severance pay, bonus, retirement, job security or similar benefit or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any Employee Plan or any other employment or benefit arrangement. There is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of the Company that, individually or collectively, could entitle any employee or former employee to any severance or other payment solely as a result of the transactions contemplated hereby, or could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G or 162(m) of the Code. (f) The Company has no liability in respect of post-retirement health, medical or life insurance benefits for retired, former or current employees of the Company except as required to avoid excise tax under Section 4980B of the Code. (g) To the Knowledge of the Company and the Sellers, there has been no amendment to, written interpretation or announcement (whether or not written) by the Company or any of its Affiliates relating to, or change in employee participation or coverage under, an Employee Plan which could increase materially the expense of maintaining such Employee Plan above the level of the expense incurred in respect thereof for the fiscal year ended December 31, 2001. (h) The Company is not a party to or subject to, or is currently negotiating in connection with entering into, any collective bargaining agreement or other contract or understanding with a labor union or organization. 20 (i) All contributions and payments accrued under each Employee Plan, determined in accordance with prior funding and accrual practices, as adjusted to include proportional accruals for the period ending as of the date hereof, have been discharged and paid on or prior to the date hereof except to the extent reflected as a liability on the Company Balance Sheet. (j) There is no action, suit, investigation, audit or proceeding pending against or involving or, to the Knowledge of the Company and the Sellers, threatened against or involving, any Employee Plan before any court or arbitrator or any state, federal or local governmental body, agency or official. (k) Except as set forth in Schedule 4.15, the Company has not engaged in any workforce reduction within the last 90 days which, alone or when aggregated with any other workforce reduction before or after the date hereof, would trigger obligations under the Worker Adjustment and Retraining Notification Act with respect to its employees. Section 4.16. Properties. (a) The Company has good and marketable, indefeasible, fee simple title to, or in the case of leased property and assets have valid leasehold interests in, all property and assets (whether real, personal, tangible or intangible) reflected on the Company Balance Sheet or acquired after the Company Balance Sheet Date, except for (i) such imperfections of title and encumbrances, if any, which do not materially detract from the value or interfere with the use of the property subject thereto or affected thereby and (ii) properties and assets sold since the Company Balance Sheet Date in the ordinary course of business consistent with past practices. None of such property or assets is subject to any Lien, except for the Permitted Liens, which are defined as: (i) Liens disclosed on the Company Balance Sheet; (ii) Liens for taxes not yet due or being contested in good faith (and for which adequate accruals or reserves have been established on the Company Balance Sheet); (iii) Mechanics', materialmen's, worker's and other like liens in respect of amounts that are not yet due and payable; or (iv) Such Liens, if any, which do not materially detract from the value or interfere with the use of the property subject thereto or affected thereby. (b) There are no developments affecting any such property or assets pending or, to the Knowledge of the Sellers or the Company threatened, which could reasonably be expected to materially detract from the value, materially interfere with any present or intended use or materially adversely affect the marketability of any such property or assets. 21 (c) All leases of such real property and material personal property are in good standing and are valid, binding and enforceable in accordance with their respective terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency, reorganization, arrangement, moratorium and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and there does not exist under any such lease any material default by the Company or any event which with notice or lapse of time or both could reasonably be expected to constitute a material default by the Company thereunder, or, to the Knowledge of the Company or Sellers, any other party thereto. (d) The plants, buildings, structures and equipment owned or leased by the Company have no material defects, are in good operating condition and repair and have been reasonably maintained consistent with standards generally followed in the industry (giving due account to the age and length of use of same, ordinary wear and tear excepted), are adequate and suitable for their present uses and, in the case of plants, buildings and other structures (including, without limitation, the roofs thereof), are structurally sound, except for such defects that do not have, and can not reasonably be expected to have, a Material Adverse Effect. (e) The plants, buildings and structures owned or leased by the Company currently have access to (i) public roads or valid easements over private streets or private property for such ingress to and egress from all such plants, buildings and structures and (ii) water supply, storm and sanitary sewer facilities, telephone, gas and electrical connections, fire protection, drainage and other public utilities, in each case as is necessary in all material respects for the conduct of the businesses of the Company as heretofore conducted and as presently planned to be conducted by Parent. None of the structures on any such owned or leased real property encroaches upon real property of another Person, and no structure of any other Person substantially encroaches upon any of such owned or leased real property. (f) Such real property, and its continued use, occupancy and operation as currently used, occupied and operated, does not constitute a material nonconforming use under any applicable building, zoning, subdivision and other land use and similar law, regulation or ordinance. (g) The property and assets owned or leased by the Company, or which they otherwise have the right to use, constitute all of the property and assets used or held for use in connection with the businesses of the Company and are adequate to conduct such businesses as currently conducted. Section 4.17. Intentionally Left Blank. Section 4.18. Intellectual Property. (a) Schedule 4.18(a) contains a true and complete list of each of the registrations, applications for registration made by 22 or on behalf of the Company with any governmental authority anywhere in the world of any patents, copyrights, mask works, trademarks, service marks or rights in Internet or World Wide Web domain names or URL or addresses, specifying as to each such registration, application or Intellectual Property Right, as applicable, (i) the nature of such Intellectual Property Right, (ii) the owner of such Intellectual Property Right, (iii) the jurisdictions by or in which such Intellectual Property Right has been issued or registered or in which an application for such issuance or registration has been filed, (iv) the registration or application numbers thereof, (v) the termination or expiration dates thereof and (vi) all agreements related to such Intellectual Property Right, including (A) the date of any license or agreement, (B) the identity of all parties thereto, (C) a description of the nature and subject matter thereof, and (D) the term thereof. (b) The Licensed Intellectual Property Rights and the Owned Intellectual Property Rights together constitute all of the material Intellectual Property Rights necessary for, or used or held for use in, the conduct of the business of the Company as currently conducted. Except as set forth on Schedule 4.18(a), there exist no restrictions on the disclosure, use or transfer of the Owned Intellectual Property Rights that materially adversely affects the business of the Company as currently conducted. The consummation of the transactions contemplated by this Agreement will not, in any material respect, alter, impair or extinguish any Owned Intellectual Property Rights or Licensed Intellectual Property Rights. The conduct of the Company's business as currently conducted does not infringe upon any intellectual property of Motoyama Engineering Works, Ltd. ("MOTOYAMA"), nor require any license or other right to use intellectual property owned by Motoyama. (c) Except pursuant to written agreements substantially in the form of the Company's standard form sale agreement (a copy of which is set forth in Schedule 4.18(c)) or as set forth in Schedule 4.18(c), the Company has not given an indemnity in connection with any Intellectual Property Right to any Person. (d) The Company has not infringed, misappropriated or otherwise violated any Intellectual Property Right of any Third Party except such violations as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company. There is no claim, action, suit, investigation or proceeding pending against, or, to the Knowledge of the Sellers or the Company, threatened against or affecting, the Company, or any present or former officer, director or employee of the Company (i) based upon, or challenging or seeking to deny or restrict, the rights of the Company in any of the Owned Intellectual Property Rights and the Licensed Intellectual Property Rights, (ii) alleging that the use by the Company of the Owned Intellectual Property Rights or the Licensed Intellectual Property Rights or any services provided, processes used or products manufactured, used, imported or sold by the Company do or may conflict with, misappropriate, infringe or otherwise violate any Intellectual Property 23 Right of any Third Party or (iii) alleging that the Company has infringed, misappropriated or otherwise violated any Intellectual Property Right of any Third Party. Except as set forth in Schedule 4.18(d)), the Company has not received any offer for a license of Intellectual Property Rights from any Third Party. (e) None of the Owned Intellectual Property Rights and Licensed Intellectual Property Rights has been adjudged invalid or unenforceable in whole or part. (f) The Company holds all right, title and interest in and to all Owned Intellectual Property Rights and all of the Company's rights to use the Licensed Intellectual Property Rights (except with respect to Patents for which this representation is the right to exclude the use by others), free and clear of any Lien, except for Permitted Liens and where the failure to hold such right, title and interest would not have a Material Adverse Effect on the Company. In each case where a patent or patent application, trademark registration or trademark application, service mark registration or service mark application, or copyright registration or copyright application included in the Owned Intellectual Property is held by assignment, the assignment has been duly recorded with the governmental authority from which the patent or registration issued or before which the application or application for registration is pending. The Company has taken all commercially reasonable actions necessary to maintain and protect the Owned Intellectual Property Rights and their rights in the Licensed Intellectual Property Rights, including payment of applicable maintenance fees and filing of applicable statements of use. (g) To the Knowledge of the Sellers and the Company, no Person has infringed, misappropriated or otherwise violated any material Owned Intellectual Property Right or material Licensed Intellectual Property Right. The Company has taken commercially reasonable steps in accordance with normal industry practice to maintain the confidentiality of all of the Company's material trade secrets included in the Owned Intellectual Property Rights and the Licensed Intellectual Property Rights. None of the material Intellectual Property Rights of the Company, the value of which to the Company is contingent upon maintaining the confidentiality thereof, has been disclosed other than to employees, representatives and agents of the Company all of whom are bound by written confidentiality agreements substantially in the form previously disclosed to Parent. (h) The Company has taken reasonable steps in accordance with normal industry practice to preserve and maintain reasonably complete (i) notes and records relating to the Owned Intellectual Property Rights and (ii) evidence of the Company's rights in the Licensed Intellectual Property Rights. (i) With respect to pending applications and applications for registration of the Owned Intellectual Property Rights and the Licensed Intellectual Property Rights, neither the Sellers nor the Company is aware of any reason that could reasonably be expected to prevent any such application or 24 application for registration from being granted with coverage substantially equivalent to the latest amended version of the pending application or application for registration. None of the trademarks, service marks, applications for trademarks and applications for service marks included in the Owned Intellectual Property Rights have been the subject of an opposition or cancellation procedure. None of the patents and patent applications included in the Owned Intellectual Property Rights have been the subject of an interference, protest, public use proceeding or Third Party reexamination request. (j) All products sold or licensed by the Company, or any licensee of the Company and covered by a patent, trademark or copyright included in the Owned Intellectual Property Rights have been marked with the notice (applicable as of the date hereof) of all nations requiring such notice in order to collect damages except to extent that failure to do so would not reasonably be expected to have a Material Adverse Effect on the Company. (k) All directors, officers, employees and contractors of the Company have entered into Proprietary Rights, Confidentiality and Non-Competition Agreements with the Company in a form substantially similar to that provided to Parent. Section 4.19. Insurance Coverage. Schedule 4.19 contains a complete and accurate list of, and the Company has furnished or made available to Parent true and complete copies of, all insurance policies and fidelity bonds relating to the assets, business, operations, employees, officers or directors of the Company. There is no material claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights. All premiums payable under all such policies and bonds have been timely paid and the Company has otherwise complied fully with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) have been in effect since 1996 and remain in full force and effect. Neither the Sellers nor the Company have Knowledge of any threatened termination of, premium increase with respect to, or material alteration of coverage under, any of such policies or bonds. The Company shall after the Closing continue to have coverage under such policies and bonds with respect to events occurring prior to the Closing. Section 4.20. Licenses and Permits. Schedule 4.20 correctly describes each material license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of the Company, including Environmental Permits (the "PERMITS"), together with the name of the government agency or entity issuing such Permit. The Permits are valid and in full force and effect. The Company is not in material default under, and no condition exists that with notice or lapse of time or both could constitute a material default under, the Permits. None of the Permits will be terminated or 25 impaired or become terminable, in whole or in part, as a result of the transactions contemplated hereby. The Company has made all filings with governmental entities and has received all material permits, registrations, licenses, franchises, certifications and other approvals necessary to conduct and operate its business as currently conducted or operated by it and to permit the Company to own or use its assets in the manner in which such assets are currently owned or used. Section 4.21. Receivables. All accounts, notes receivable and other receivables (other than receivables collected since the Company Balance Sheet Date or Interim Balance Sheet Date) reflected on the Company Balance Sheet and Interim Balance Sheet are, and all accounts and notes receivable arising from or otherwise relating to the business of the Company as of the Closing Date will have arisen in the ordinary course of business and represent good faith claims against the debtors thereof. All accounts, notes receivable and other receivables arising out of or relating to the business of the Company as of the Company Balance Sheet Date or Interim Balance Sheet Date have been included in the Company Balance Sheet and Interim Balance Sheet and all reserves for doubtful accounts reflected thereon were taken in accordance with GAAP applied on a consistent basis. Section 4.22. Debt. Schedule 4.22 contains a complete and accurate list of the outstanding principal, any accrued interest, and any other amounts outstanding under any loan agreement, line of credit, note, indebtedness for borrowed money, advances, guarantees or any other debt of the Company (including, but not limited to, the Loan Agreements). Section 4.23. Employees. The Company has previously provided to Parent a schedule setting forth a true and complete list of the names, titles, annual salaries and other compensation of all officers of the Company and all other employees of the Company. Neither the Sellers nor the Company have Knowledge that any of such employees or any other key employee of the Company other than Yoshifusa Nikaido intends to resign or retire as a result of the transactions contemplated by this Agreement or otherwise within one year after the Closing Date. Section 4.24. Labor Matters. The Company is in material compliance with all currently applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and are not engaged in any unfair labor practice. There is no unfair labor practice complaint pending or, to the Knowledge of the Sellers or the Company, threatened against the Company before the National Labor Relations Board. Section 4.25. Environmental Matters. (a) Except as disclosed in Schedule 4.25: (i) no notice, notification, demand, request for information, citation, summons or order has been received, no complaint has been filed, 26 no unresolved penalty has been assessed, and no investigation, action, claim, suit, proceeding or review is pending or, to the Knowledge of the Sellers or the Company, is threatened by any governmental entity or other Person relating to or arising out of any Environmental Law; (ii) the Company is and has been in material compliance with all Environmental Laws and all Environmental Permits; (iii) no property now or previously owned or operated by the Company nor any property to which the Company has, directly or indirectly, transported or arranged for the transportation of any Hazardous Substances is listed or, to the Company's or Seller's Knowledge, proposed for listing, on the National Priorities List promulgated pursuant to the Comprehensive, Environmental Response, Conservation and Liability Act ("CERCLA") or CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up; and (iv) there are no material liabilities or obligations of the Company of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise arising under or relating to any Environmental Law, and there are no facts, conditions, situations or set of circumstances that could reasonably be expected to result in or be the basis for any such material liability or obligation. (b) There has been no environmental investigation, study, audit, test, review or other analysis conducted of which the Sellers or the Company have Knowledge in relation to the current or prior business of the Company or any property or facility now or previously owned or operated by the Company that has not been delivered to Parent at least ten days prior to the date hereof. (c) For purposes of this Section 4.25, the terms "Company" shall include any entity that is, in whole or in part, a predecessor of the Company. Section 4.26. Certain Interests. (a) To the Knowledge of the Sellers or the Company, none of the Shareholders of the Company or any officer or director of the Company and no spouse of any such Person: (i) Has been an officer, director or shareholder of any significant supplier or customer of the Company, or of any company which holds, directly or indirectly, 50% or more of the outstanding shares of any such supplier or customer, provided, however, that the ownership of securities representing not more than 5% of the outstanding voting power of any supplier or customer, and which are listed on any national securities exchange or traded actively in the national over-the-counter market, shall not be deemed to be a "shareholder" as long as the person owning such 27 securities has no other connection or relationship with such supplier or customer; (ii) owns, directly or indirectly, in whole or in part, or has any other interest in any tangible or intangible property which the Company uses or has used in the conduct of its business or otherwise (except for any such ownership or interest resulting from the ownership of securities in a public company); or (iii) has any outstanding indebtedness to the Company. (b) Except for the payment of employee compensation in the ordinary course of business, payments owed for excess liability insurance and employee medical and dental insurance provided by MIC and the Loan Agreement with MIC, the Company has no material liability or any other obligation of any nature whatsoever to any shareholder of the Company or any affiliate thereof, or to any officer or director of the Company, or, to the Knowledge of the Sellers or the Company, to any immediate relative or spouse (or immediate relative of such spouse) of any such officer or director. (c) There have been no material transactions between the Company and any Affiliate since the Company Balance Sheet Date, other than the payment of salaries to officers or employees and payments for excess liability insurance and employee medical and dental insurance provided by MIC, all made in the ordinary course of business consistent with past practices. There are no material agreements or understandings now in effect between the Company and any Affiliate. The Company Disclosure Schedule (x) states the amounts due from the Company to any Affiliate and the amounts due from any Affiliate to the Company, (y) describes the transactions out of which such amounts arose and (z) describes any interest of any Affiliate in any supplier or customer of, or any other entity that has had business dealings with the Company since the Company Balance Sheet Date. After the Closing, there will be no obligations or other liabilities, including inter-company obligations, between the Company, on the one hand, and any of its Affiliates, on the other hand. Section 4.27. Customers; Suppliers. (a) Schedule 4.27 sets forth the names of the ten most significant customers (by dollar amount of sales) of the Company for the year ended December 31, 2001, and the period from January 1, 2002 through September 30, 2002, and the dollar amount of sales for each such customer during such periods. Neither the Sellers nor the Company have received notice and have no Knowledge that any such significant customer of the Company has ceased, will cease, or is reasonably likely to cease to purchase the products of the Company, or has substantially reduced, intends to substantially reduce, or is reasonably likely to substantially reduce the purchase of such products from the Company other than as a result of general economic conditions or events affecting the Company's industry generally. 28 (b) Other than as disclosed on Schedule 4.27(b), within the past one (1) year, neither the Sellers nor the Company have received any communication from any such significant customer regarding any material complaints or concerns regarding or related to the Company's products, performance or services (including with respect to their quality or conformity with specifications), or regarding or related to the pricing or other contract terms contained in any agreement between such significant customer and the Company. Section 4.28. Books And Records. The books of account and other financial records of the Company have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. The minute books of the Company contain complete, correct and accurate records of all corporate action taken by the shareholders, the Boards of Directors and any committees of the Board of Directors of the Company. At the Closing, all of those books and records will be in the possession of the Company. The Company has previously disclosed all of these books, records and accounts to Parent. Section 4.29. Inventories. The inventories set forth in the Interim Balance Sheet were properly stated therein at the lesser of cost or fair market value determined in accordance with generally accepted accounting principles consistently maintained and applied by the Company. Since the Interim Balance Sheet Date, the inventories related to the Business have been maintained in the ordinary course of business. All such inventories are owned free and clear of all Liens. All of the inventories recorded on the Interim Balance Sheet consist of, and all inventories related to the Business on the Closing Date will consist of, items of a quality usable or saleable in the normal course of the Business consistent with past practices and are and will be in quantities sufficient for the normal operation of the Business in accordance with past practice. Section 4.30. State Takeover Statutes. The Board of Directors of the Company has taken all action necessary to ensure that any restrictions on business combinations contained in the California Law will not apply to the Merger and the other transactions contemplated by this Agreement. No other state takeover statute is applicable to the Merger or the other transactions contemplated by this Agreement. ARTICLE 5 Representations and Warranties of Parent Parent represents and warrants to the Company that: Section 5.01. Corporate Existence and Power. Each of Parent and Merger Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all governmental licenses, authorizations, permits, consents and 29 approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not have, individually or in the aggregate, a Material Adverse Effect on Parent. Since the date of its incorporation, Merger Subsidiary has not engaged in any activities other than in connection with or as contemplated by this Agreement or in connection with arranging any financing related to the transactions contemplated hereby. Neither Parent nor Merger Subsidiary has conducted any business activities except for entering into this Agreement and matters related thereto. Section 5.02. Corporate Authorization. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby are within the corporate powers of Parent and Merger Subsidiary and have been duly authorized by all necessary corporate action. This Agreement constitutes a valid and binding agreement of each of Parent and Merger Subsidiary enforceable against Parent and Merger Subsidiary in accordance with its terms. Section 5.03. Governmental Authorization. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental body, agency, official or authority, domestic, foreign or supranational, other than (i) the filing of an agreement of merger with respect to the Merger with the Secretary of State of the State of California, a certificate of merger with the Delaware Secretary of State, and appropriate documents with the relevant authorities of other states in which Parent is qualified to do business, (ii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable securities or takeover laws, whether state or foreign, and (iii) any actions or filings the absence of which could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on Parent or materially to impair the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by this Agreement. Section 5.04. Non-contravention. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of Parent or the certificate of incorporation or bylaws of Merger Subsidiary, (ii) result in a breach of or default under any term or provision of any contract or agreement to which Parent or any of its Affiliates is a party, which breach or default would prevent Parent from consummating the transactions contemplated by this Agreement, and (iii) assuming compliance with the matters referred to in Section 5.03, contravene, conflict with, or result in any violation or breach of any provision of any law, rule, regulation, judgment, injunction, order or decree, 30 except for such contraventions, conflicts and violations that would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on Parent or materially to impair the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by this Agreement. Section 5.05. Finders' Fees. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Parent who might be entitled to any fee or commission from the Company, Sellers or any of their Affiliates upon consummation of the transactions contemplated by this Agreement. Section 5.06. Financing. Parent has cash on hand or has received a commitment from Francisco Partners (the "COMMITMENT") to provide, in the aggregate, monies sufficient to fund the consummation of the transactions contemplated by this Agreement, and to satisfy all other costs and expenses arising in connection therewith (the "FINANCING"). The Commitment is in full force and effect, and there is no breach or default by any party thereto existing, or which, with notice or the passage of time, or both, may exist under the Commitment. Parent does not need to obtain the consent of any Third Party to fulfill its obligations hereunder with respect to payment of the Merger Consideration. Section 5.07. Litigation. To the Knowledge of Parent, there are no actions, suits, claims investigations or proceedings pending or threatened in writing) against Parent or any Affiliate of Parent which: (a) if adversely determined, would reasonably be expected to hinder or impair the ability of Parent to perform its obligations hereunder, or (b) that seek to enjoin or obtain damages in respect of the consummation of the transactions contemplated hereby. None of Parent or any of its Affiliates is subject to any outstanding orders, rulings, judgments or decrees that would have a material adverse effect on the ability of Parent to perform its obligations under this Agreement. Section 5.08. Solvency. Immediately after the Effective Time, and based in part upon the representations and warranties of the Company and Sellers, Parent expects the Company to be able to pay its debts as they become due in the ordinary course of business and to be adequately capitalized. ARTICLE 6 Covenants of the Company and Sellers The Company and Sellers agree that: Section 6.01. Conduct of the Company. Except as contemplated by this Agreement or as set forth on Schedule 6.01, or with the prior written consent of Parent, from the date hereof until the Effective Time, the Company shall conduct its business in the ordinary course consistent with past practice and shall use its 31 commercially reasonable efforts to preserve intact its business organizations and relationships with third parties, maintain the properties in good operating condition, and keep available the services of its present officers and employees. Without limiting the generality of the foregoing, from the date hereof until the Effective Time, except as contemplated by this Agreement or as set forth in Schedule 6.01, or with the prior written consent of Parent, the Company will not: (a) adopt or propose any change to its articles of incorporation or bylaws; (b) except for the issuance of Shares upon the exercise of Company Stock Options in accordance with their terms, issue, sell, pledge, license, dispose of, grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest), of the Company, or (ii) any assets, securities or property of the Company other than inventory in the ordinary course of business consistent with past practices, or pursuant to contracts or commitments which have been disclosed to Parent; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; (d) make any payment, reimbursement, refund, or other fund transfer to Sellers or any Affiliate, other than the payment of salaries to officers or employees in the ordinary course consistent with past practices; (e) reclassify, combine, split, subdivide or redeem, purchase, repurchase or otherwise acquire, directly or indirectly, any of its capital stock; (f) acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership, other business organization or any division thereof or any assets (except for assets which are both not material and are acquired in the ordinary course of business consistent with past practices); (g) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, except for indebtedness incurred in the ordinary course of business and consistent with past practice; (h) repay, pay down or otherwise reduce any existing debt (including, but not limited to, the Loan Agreements, but excluding trade payables incurred in the ordinary course of business consistent with past practices) of the Company; 32 (i) enter into any contract or agreement material to the business, results of operations or financial condition of the Company (including, without limitation, agreements with customers) other than in the ordinary course of business, consistent with past practice; (j) authorize or enter into any agreements or commitments with respect to any capital expenditure in excess of $750,000, individually or in the aggregate; (k) shorten or lengthen the customary payment terms or other terms of any contracts with customers or suppliers; (l) amend any contract, agreement, commitment or arrangement in such a way that, if fully performed, would not be permitted under this Section 6.01; (m) increase the compensation payable or to become payable to its officers or, except in the ordinary course of business consistent with past practice, other employees, or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of the Company (except that Parent shall not unreasonably withhold its consent with respect to the hiring of new employees and the Company entering into employment agreements or arrangements with such new employees in the ordinary course of business consistent with past practice), or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; (n) enter into any material licensing, distribution, sponsorship, advertising, merchant program or other similar contracts, agreements, or obligations, other than end-user license and maintenance contracts and agreements with customers in the ordinary course of business consistent with past practice; (o) take any action to prevent, or fail to take any action to cause, the accelerated vesting, exercisability, expiration and cancellation of any and all Company Stock Options as provided under the terms of the Company Stock Option Plan; (p) take any action, other than actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures except for any such action required by a concurrent change in GAAP; (q) merge or consolidate with any other Person; (r) enter into any lease, contract or agreement with regard to real property; 33 (s) except as required by applicable law, take any action that would make any representation and warranty of the Company hereunder inaccurate in any respect or, as of any time prior to the Effective Time or knowingly omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time; or (t) agree or commit to do any of the foregoing. Section 6.02 Shareholder Approval. The Company shall submit this Agreement and the Merger to its shareholders as soon as reasonably practicable for approval and adoption. Unless California Law does not require such a vote for consummation of the Merger, the Company shall seek the affirmative vote of the holders of a majority of the outstanding Shares. The Board of Directors of the Company shall recommend approval and adoption of this Agreement and the Merger by the Company's shareholders. In connection with such meeting or action by written consent, the Company will (a) use its reasonable efforts to obtain the necessary approvals by shareholders of the Company of this Agreement and the transactions contemplated hereby and (b) otherwise comply with all applicable legal requirements. Section 6.03. Access to Information. From the date hereof until the Effective Time and subject to applicable law and the confidentiality provisions of the letter agreement dated as of August 6, 2002 between the Company, Sellers and Francisco Partners, L.P. (the "CONFIDENTIALITY AGREEMENT"), the Company and Sellers shall (i) give Parent, its counsel, financial advisors, auditors and other authorized representatives reasonable access to the offices, properties, books, work papers, assets, contracts and records of the Company (including access to perform physical examinations), (ii) furnish or make available to Parent, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such Persons may reasonably request and (iii) instruct the employees, counsel, financial advisors, auditors and other authorized representatives of the Sellers and the Company to cooperate with Parent in its investigation of the Company. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the Company. No information or Knowledge obtained by Parent in any investigation pursuant to this Section shall affect or be deemed to modify any representation or warranty made by the Company or the Sellers hereunder. Section 6.04. No Solicitation. Neither the Sellers nor the Company shall, nor shall the Sellers or the Company authorize, and the Sellers and the Company shall use reasonable efforts to prevent, any of their officers, directors, employees, investment bankers, attorneys, accountants, consultants or other agents or advisors to, directly or indirectly, (i) solicit, initiate or take any action which has as one of its purposes or reasonably likely consequences to facilitate or encourage the submission of any Acquisition Proposal, (ii) enter into or participate in any discussions or negotiations with, furnish any information relating to the Company 34 or afford access to the business, properties, assets, books or records of the Company to, otherwise cooperate in any way with, or knowingly assist, participate in, facilitate or encourage any effort by any Third Party that is believed by the Sellers or the Company to be seeking to make, can be reasonably expected to make, or has made, an Acquisition Proposal, or (iii) grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company. The Company and Sellers shall notify Parent promptly if any such proposal or offer, or any inquiry or other contract with any Person with respect thereto is made and shall in any such notice to Parent indicate in reasonable detail the identity of the Person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or other contract. Section 6.05. Notices of Certain Events. The Company and the Sellers shall promptly notify Parent of: (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement; (c) any actions, suits, claims, investigations or proceedings commenced or, to the Knowledge of the Company or the Sellers, threatened against, relating to or involving or otherwise affecting the Company that, if pending on the date of this Agreement, could have been required to have been disclosed pursuant to Section 4.12, Section 4.15, Section 4.16, Section 4.18, Section 4.24, Section 4.25, or Article 12 as the case may be, or that relate to the consummation of the transactions contemplated by this Agreement; and (d) any Person holding options or other rights to acquire equity securities of the Company electing to or attempting to exercise those rights. Section 6.06. Resignations. The Company and the Sellers will deliver to Parent the resignations of all officers and directors of the Company who will be officers, directors or employees of either Seller or any of their Affiliates after the Effective Time from their positions with the Company at or prior to the Effective Time. Section 6.07. Noncompetition. (a) MC, for itself only, and limited to the activities conducted by the Metals Group of Mitsubishi Corporation or any successor agrees that for a period of two (2) full years from the Effective Time, the Metals Group of Mitsubishi Corporation shall not engage, either directly or indirectly, as a principal or for its own account or solely or jointly with others, or as stockholders in any corporation or joint stock association, in the business of 35 manufacturing gas panels for use in semiconductor manufacturing equipment, as conducted by the Company on the Closing Date; provided that nothing herein shall prevent the Sellers or their Affiliates from purchasing or holding up to 5% of any publicly traded corporation engaged in such business. (b) Each Seller agrees that for a period of two (2) full years from the Effective Time, neither it nor any of its Affiliates shall employ or solicit, or receive or accept the performance of services by any current employee of the Company other than Yoshifusa Nikaido; provided, however, that no general solicitation that is not designed to or intended to solicit employees of the Company shall be considered a solicitation for purposes of this covenant. (c) If any provision contained in this Section shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Section, but this Section shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. It is the intention of the parties that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable law, a court of competent jurisdiction shall construe and interpret or reform this Section to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such applicable law. Each Seller acknowledges that Parent would be irreparably harmed by any breach of this Section and that there would be no adequate remedy at law or in damages to compensate Parent for any such breach. Each Seller agrees that Parent shall be entitled to injunctive relief requiring specific performance by either Seller of this Section, and each Seller consents to the entry thereof. Section 6.08. Intercompany Accounts. Except for the Existing Debt, which shall be addressed as provided in Section 2.07, all intercompany accounts between either Seller or their Affiliates, on the one hand, and the Company, on the other hand, as of the date hereof shall be settled (irrespective of the terms of payment of such intercompany accounts) in the manner provided in this Section. At least ten business days prior to the Effective Time, Sellers shall prepare and deliver to Parent a statement setting out in reasonable detail the calculation of all such intercompany account balances and, to the extent requested by Parent, provide Parent with supporting documentation to verify the underlying intercompany charges and transactions. All such intercompany account balances shall be paid in full in cash at least five business days prior to the Effective Time. Section 6.09. Company Stock Option Plan. Sellers and the Company will terminate the Company Stock Option Plan, effective at the Effective Time. 36 Section 6.10. Applied Materials. The Company will not enter into any new Global Supply Agreement or similar agreement with Applied Materials, Inc. without the consent of Parent, such consent not to be unreasonably withheld. Section 6.11. Voting Of Common Stock; Proxy. (a) Sellers and each of their Affiliates will vote all shares of Common Stock of the Company which such Person is entitled to vote to approve this Agreement and the transactions contemplated hereby at any meeting or meetings of the stockholders of the Company, and at any adjournment thereof or through any written consent, at which this Agreement or any amended version thereof are submitted for the consideration and vote of the stockholders of the Company. (b) Neither Sellers nor any of their Affiliates will (i) vote any shares of Common Stock of the Company in favor of the approval of any other sale of stock, merger, consolidation, sale of assets, reorganization, recapitalization, liquidation or winding up of the Company or any other extraordinary transaction involving the Company or any matters in connection therewith, or any corporate action the consummation of which would either frustrate the purposes of, or prevent or delay the consummation of, the transactions contemplated by this Agreement or (ii) sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect sale, assignment, transfer, encumbrance or other disposition of, any shares of Common Stock of the Company. ARTICLE 7 Covenants of Parent Parent agrees that: Section 7.01. Obligations Of Merger Subsidiary. Parent will take all action necessary to cause Merger Subsidiary to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. Section 7.02. Confidentiality. Parent will comply, and will cause Merger Subsidiary and any Affiliate of Parent to comply with the Confidentiality Agreement. ARTICLE 8 Covenants of Parent, Merger Subsidiary, the Sellers and the Company The parties hereto agree that: Section 8.01. Reasonable Efforts. Subject to the terms and conditions of this Agreement, the Company, Merger Subsidiary, the Sellers and Parent will use 37 all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Section 8.02. Certain Filings. The Company, Merger Subsidiary, Sellers and Parent shall cooperate with one another (i) in determining whether any action by or in respect of, or filing with, any governmental body, agency, official, or authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement and (ii) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers. Section 8.03. Public Announcements. Parent, Merger Subsidiary, the Sellers and the Company will consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and each party will not issue any such press release or make any such public statement without the consent of the other parties to this Agreement, such consent not to be unreasonably withheld. Section 8.04. Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of the Company or Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Merger Subsidiary, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of the Company acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. Section 8.05. Notifications. From the date hereof through the Effective Time, (a) the Company will promptly notify Parent in writing if the Sellers or the Company become aware of any fact or condition that could reasonably be expected to cause any of Parent's conditions to the Merger not to be satisfied or which constitutes a breach of any of the representations and warranties or covenants of the Sellers or the Company and (b) Parent will promptly notify Sellers and the Company in writing if Parent becomes aware of any fact or condition that could reasonably be expected to cause any of the Company's or Seller's conditions to the Merger not to be satisfied or which constitutes a breach of any of the representations, warranties or covenants of Parent. 38 ARTICLE 9 Conditions to the Merger Section 9.01. Conditions to Obligations of Each Party. The obligations of the Company, Parent, Merger Subsidiary and the Sellers to consummate the Merger are subject to the satisfaction of the following conditions: (a) if required by California Law, this Agreement shall have been approved and adopted by the holders of a majority of the Shares, in accordance with such law; and (b) no provision of any applicable law or regulation and no judgment, injunction, order or decree issued by any court or governmental body having competent jurisdiction shall prohibit the consummation of the Merger. Section 9.02. Conditions to the Obligations of Parent and Merger Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following further conditions: (a) Each of the representations and warranties of the Company and the Sellers contained in this Agreement shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as if made as of the Closing Date, other than such representations and warranties as are made as of another date, which shall be true and correct in all material respects as of such date (provided, however, that if any portion of any representation or warranty is already qualified by materiality or Material Adverse Effect for purposes of determining whether Section 9.02(a) has been satisfied with respect to such portion of such representation or warranty, such portion of such representation or warranty as so qualified must be true and correct in all respects and provided further that the representations and warranties contained in Sections 4.05, 4.08(b), 4.08(d), 4.08(f), 4.08(l), 4.22 and 4.27 shall be true and correct when made and true and correct as of the Closing Date with the same force and effect as if made as of the Closing Date) and each of the covenants and agreements contained in this Agreement to be complied with by the Company and the Sellers on or before the Closing Date shall have been complied with in all material respects, and Parent shall have received a certificate signed by the President and Chief Operating Officer of the Company and a certificate signed by an authorized officer of each of the Sellers to such effect. (b) No claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any United States, federal, state or local or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal or judicial or arbitral body (each, a "GOVERNMENTAL AUTHORITY") shall have been threatened by, or commenced before, any Governmental Authority against the Company, the Sellers, the Merger Subsidiary or Parent, seeking to restrain or materially and adversely alter the 39 transactions contemplated hereby which is reasonably likely to render it impossible or unlawful to consummate the transactions contemplated by this Agreement or which could reasonably be expected to have a Material Adverse Effect on the Company or Parent. (c) There shall not have been any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the Merger by any court, government or governmental authority or agency, domestic or foreign, that, in the reasonable judgment of Parent could, directly or indirectly, result in any of the consequences referred to in Section 9.02(b) above. (d) Parent shall have received an opinion of Falk & Sharp, counsel to the Company, dated the Closing Date in substantially the form attached hereto as Exhibit B. In rendering such opinion, such counsel may rely upon certificates of public officers, as to matters governed by the laws of jurisdictions other than California or the Federal laws of the United States of America, upon opinions of counsel reasonably satisfactory to Parent, and, as to matters of fact, upon certificates of officers of the Company, copies of which opinions and certificates shall be contemporaneously delivered to Parent. (e) The Company shall have received all consents, authorizations or approvals from the governmental agencies referred to in Section 4.03, in each case in form and substance reasonably satisfactory to Parent, and no such consent, authorization or approval shall have been revoked. (f) The Company shall have received all consents and approvals referred to in Section 4.14, including but not limited to Applied Materials and Lam Research or otherwise necessary in connection with the consummation of the transactions contemplated by this Agreement or to enable the Company to continue to carry on its business as currently conducted. (g) Parent shall have received certified articles of incorporation and bylaws, and good standing certificates in respect of the Company and certified board resolutions in respect of the transactions contemplated hereby, all in form and substance reasonably satisfactory to Parent. (h) The Company shall have delivered to Parent a certification pursuant to Treasury Regulations Sections 1.897-2(h) and 1.1445-2(c), signed by the Company and dated not more than 15 days prior to the Closing Date to the effect that the Company is not nor has it been within five (5) years of the date of the certification a "United States real property holding corporation" as defined in Section 897 of the Code. (i) Parent shall have timely received estoppel letters from each of the Lenders establishing the total amount of all principal and accrued interest required to be paid at the Effective Time in order to completely repay and cancel each of 40 the Loan Agreements and certifying that there will be no further financial obligations under the Loan Agreements, and no further payments, penalties or fees due as a result of the payment or prepayment of the Loans. (j) Parent shall have received all documents it may reasonably request relating to the existence of the Sellers or the Company and the authority of the Sellers and the Company for this Agreement, all in form and substance reasonably satisfactory to Parent. (k) Parent shall have received a letter from Motoyama in substantially the form attached hereto as Exhibit C. (l) All Persons holding options having an exercise price per share less than the Merger Consideration shall have entered into Option Termination Agreements in substantially in the form attached hereto as Exhibit D. Copies of each executed Option Termination Agreement shall have been delivered to Parent. At least two days before the Closing, Sellers shall prepare and deliver to Parent a schedule (such schedule to be subject to Parent's reasonable approval) setting forth the amounts due to each person who has entered into an Option Termination Agreement. (m) Parent and the Company shall have received an executed release from U.S. Bancorp Piper Jaffray Inc. confirming that Sellers have paid any fees and expenses due and releasing any and all claims U.S. Bancorp Piper Jaffray Inc. may have for any fees, expenses or other payment due as a result of the Merger or otherwise due from the Company or Parent. Section 9.03 Conditions to Obligations of the Company and the Sellers. The obligation of the Company and the Sellers to consummate the Merger is subject to the satisfaction of the following further conditions: (a) The representations and warranties of Parent contained in this Agreement shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as if made as of the Closing Date other than such representations and warranties as are made as of another date, which shall be true and correct in all material respects as of such date (provided, however, that if any portion of any representation or warranty is already qualified by materiality or Material Adverse Effect for purposes of determining whether Section 9.03(a) has been satisfied with respect to such portion of such representation or warranty, such portion of such representation or warranty as so qualified must be true and correct in all respects), and the covenants and agreements contained in this Agreement to be complied with by Parent on or before the Closing Date shall have been complied with in all material respects and Sellers shall have received a certificate signed by the Chief Executive Officer of Parent to such effect. 41 (b) No claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority shall have been threatened by, or commenced before, any Governmental Authority against the Company, the Sellers, Merger Subsidiary or Parent, seeking to restrain or materially and adversely alter the transactions contemplated hereby which is reasonably likely to render it impossible or unlawful to consummate the transactions contemplated by this Agreement or which could reasonably be expected to have a Material Adverse Effect on the Company or the Sellers. (c) There shall not have been any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the Merger by any court, government or governmental authority or agency, domestic or foreign, that, in the reasonable judgment of Sellers could, directly or indirectly, result in any of the consequences referred to in Section 9.02(b) above. (d) The Company shall have received all consents, authorizations or approvals from the governmental agencies referred to in Section 4.03, in each case in form and substance reasonably satisfactory to Sellers, and no such consent, authorization or approval shall have been revoked. (e) Sellers shall have received certified certificate of incorporation and bylaws, and good standing certificates in respect of Parent and Merger Subsidiary and certified board resolutions in respect of the transactions contemplated hereby, all in form and substance reasonably satisfactory to Sellers. (f) Sellers shall have received all documents it may reasonably request relating to the existence of the Parent and Merger Subsidiary and the authority of Parent and Merger Subsidiary for this Agreement, all in form and substance reasonably satisfactory to Sellers. ARTICLE 10 Termination Section 10.01. Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the shareholders of the Company): (a) by mutual written agreement of the Company, the Sellers, and Parent; (b) by the Company, the Sellers, or Parent, if there shall be any law or regulation that makes acceptance for payment of, and payment for, the Shares pursuant to the Merger illegal or otherwise prohibited or any judgment, injunction, order or decree of any court or governmental body having competent 42 jurisdiction enjoining Merger Subsidiary, the Company, the Sellers, or Parent from consummating the Merger and such judgment, injunction, order or decree shall have become final and nonappealable; (c) by Parent, if a breach of any representation or warranty or failure to perform any covenant or agreement on the part of the Company or the Sellers set forth in this Agreement shall have occurred that would cause the condition set forth in Section 9.02(a) not to be satisfied and, in the reasonable judgment of Parent, such condition is incapable of being satisfied by the End Date, or by Sellers if a breach of any representation or warranty or failure to perform any covenant or agreement on the payment of the Parent set forth in this Agreement shall have occurred that would cause the condition set forth in 9.02(a) not to be satisfied and, in the reasonable judgment of Sellers, such condition is incapable of being satisfied by the End Date; (d) by any party if the Closing has not occurred by 5:00 P.M., California time, on November 27, 2002 (the "END DATE"), or such later date as the Company, the Sellers, and Parent may agree; and (e) provided, however, that the right to terminate this Agreement under Section 10.01(d) shall not be available to any party whose action or failure to act was a principal cause of, or resulted in the failure of, this Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement. The party desiring to terminate this Agreement pursuant to this Section 10.01 shall give three (3) business days prior written notice of such termination to the other party. Section 10.02. Effect of Termination. If this Agreement is terminated pursuant to Section 10.01, this Agreement shall become void and of no effect with no liability on the part of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other party hereto, provided that, if such termination shall result from the willful failure of any party to perform a covenant hereof, such party shall be fully liable for any and all liabilities and damages incurred or suffered by the other party or parties as a result of such failure. The provisions of Section 8.03 and Section 11.05 shall survive any termination hereof pursuant to Section 10.01. ARTICLE 11 Miscellaneous Section 11.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given or made (and shall deemed to have been duly given or made upon receipt) by delivery in person, by cable, telecopy, facsimile, telegram, telex or 43 courier or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11.01): if to Parent or Merger Subsidiary, to: Dipanjan Deb Francisco Partners 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Fax: 650-233-2999 with a copy to: Alan F. Denenberg Davis Polk & Wardwell 1600 El Camino Real Menlo Park, California 94025 Fax: 650-752-2111 if to the Company, to: Clarence L. Granger Ultra Clean Technology Systems and Service, Inc. 150 Independence Drive Menlo Park, CA 94025 Fax: 650-323-7159 with a copy to: Ethan J. Falk Falk & Sharp P.C. 520 S. Grand Avenue, Suite 700 Los Angeles, CA 90071 Fax: 213-622-4486 if to the Sellers, to: Hiroshi Kito Mitsubishi Corporation Steel Products Business Unit 6-3, Marunouchi 2-Chome, Chiyodaku, Tokyo 100-1086 Japan 44 with a copy to: Ethan J. Falk Falk & Sharp P.C. 520 S. Grand Avenue, Suite 700 Los Angeles, CA 90071 Fax: 213-622-4486 or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Section 11.02. Survival of Representations and Warranties; Indemnification. (a) Except as provided in Article 12, the covenants and the representations and warranties contained in this Agreement, shall survive the Effective Time until eighteen (18) months after the Effective Time; provided that the representations and warranties made by Sellers and the Company in Section 4.05 shall survive indefinitely and the representations and warranties made by the Sellers and the Company in Section 4.25 shall survive until the third anniversary of the Effective Time. Neither the period of survival nor the liability of a party hereto with respect to such party's representations and warranties shall be reduced by any investigation made at any time by or on behalf of another party hereto. If written notice of a claim has been given prior to the expiration of the applicable representations and warranties by a party hereto to another party hereto (which notice shall indicate with reasonable specificity the amount and nature of the claim and the representation on which it is based), then the relevant representations and warranties shall survive as to such claim until such claim has been finally resolved. (b) After the Effective Time, Parent and its Affiliates (including, after the Effective Time, the Surviving Corporation), officers, directors, employees, agents, successors and assigns (collectively, the "PARENT INDEMNIFIED PARTIES") shall be jointly and severally indemnified and held harmless by each of the Sellers for any and all liabilities, losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including, without limitation, reasonable attorneys' and consultants' fees and expenses and including any such expenses incurred in connection with investigating, defending against or settling any such claims) actually suffered or incurred by them (including, without limitation, in connection with any action brought or otherwise initiated by any of them) arising out of or resulting from the breach of any representation, warranty or covenant (without giving effect to any qualification as to materiality contained therein in determining the amount of any loss) (hereinafter, a "LOSS"), made by the Company or the 45 Sellers in this Agreement, provided that indemnification in respect of any Tax Loss shall be governed exclusively by the provisions of Article 12. (c) Any Parent Indemnified Party seeking indemnification from the Sellers (the "INDEMNIFYING PARTY") under this Section 11.02 shall give the Sellers notice of any matter which such Parent Indemnified Party has determined has given rise to a right of indemnification under this Agreement, prior to the expiration of the applicable representations and warranties as set forth in this Section 11.02, stating the amount of the Loss, if known, and method of computation thereof, and containing a reference to the specific provisions of this Agreement in respect of which such right of indemnification is claimed or arises. (d) Except as to liability arising out of or relating to the representations and warranties set forth in Article 12, Section 4.05, Section 4.08(b), Section 4.08(d), Section 4.08(f), and Section 4.08(l), or liability arising from or relating to fraud, the Sellers shall have no liability under Section 11.02(b) unless and until the aggregate of all Losses relating thereto exceeds $250,000 and then only to the extent such Losses exceed said amount. Except for liabilities arising out of or relating to the representations and warranties set forth in Article 12, Section 4.05, Section 4.08(b), Section 4.08(d), Section 4.08(f), and Section 4.08(l), or liabilities arising from or relating to fraud, and exclusive of any purchase price adjustment in accordance with Section 2.06, the Sellers shall have no liability under Section 11.02(b) or for any liability arising out of or relating to the representations, warranties and covenants and agreements to be performed by Sellers or the Company hereunder after Sellers have paid Losses in an amount equal to $12,000,000 (the "INDEMNITY CAP"). (e) After the Effective Time, Sellers and their Affiliates, officers, directors, employees, agents, successors and assigns (collectively, the "SELLER INDEMNIFIED PARTIES") shall be jointly and severally indemnified and held harmless by each of Parent and the Surviving Corporation for any and all Losses arising out of or resulting from the breach of any representation, warranty or covenant (without giving effect to any qualification as to materiality contained therein in determining the amount of any Loss), made by Parent in this Agreement, provided, however, that Parent shall have no liability under Section 11.02(e) unless and until the aggregate of all Losses relating thereto exceeds $250,000 and then only to the extent such Losses exceed said amount. Parent shall have no liability under Section 11.02(e) or for any liability arising out of or relating to the representations, warranties and covenants and agreements to be performed by Parent hereunder after Parent has paid Losses in an amount equal to $12,000,000. (f) To the extent that any Claim is covered by insurance held by the Parent Indemnified Party or the Seller Indemnified Party (each, an "INDEMNIFIED PARTY"), such Indemnified Party shall be entitled to indemnification hereunder only with respect to the amount of Losses that are in excess of the cash proceeds received by such Indemnified Party pursuant to such insurance (net of any 46 deductible or copayment). If such Indemnified Party receives such cash insurance proceeds prior to the time such indemnification is paid, then the amount payable by the Indemnifying Party pursuant to such indemnification shall be reduced by the amount of such insurance proceeds. To the extent that any Claim is paid in full or in part by cash insurance proceeds, such cash insurance proceeds shall not be applied to the Indemnity Cap. If such Indemnified Party receives such cash insurance proceeds after such indemnification is paid, then upon receipt by the Indemnified Party of any cash proceeds pursuant to such insurance with respect to such indemnification, such Indemnified Party shall repay any portion of such amount which was previously paid by the Indemnifying Party to the Indemnified Party in satisfaction of such indemnification and such amount will not be applied to the Indemnity Cap. Notwithstanding the foregoing, the amount of any such insurance proceeds shall not reduce the amount of Losses for which the Indemnifying Party is responsible to the extent that the Company can establish that the recovery of such proceeds results in the termination of the applicable insurance policy or a prospective, retrospective or retroactive premium adjustment as a result of such claim. (g) Subsequent to the Effective Time, with respect to any matter as to which indemnification is provided pursuant to this Section 11.02(b), such indemnification shall be the sole remedy available to the indemnified party and the parties hereto waive, to the maximum extent permitted by law, any other remedies available to them; provided, however, that the parties do not waive any rights or remedies for any claim, loss or other action arising from or relating to fraud. Notwithstanding the foregoing the parties hereto may exercise their rights under this Agreement and applicable law to equitable remedies, including, without limitation specific performance and injunction. Section 11.03. Defense Of Claims. In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceeding by a third party, the Indemnified Party shall give the Indemnifying Party prompt notice of such claim and the Indemnifying Party at its sole cost and expense and with counsel reasonably satisfactory to the Indemnified Party may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if (1) the third-party claim does not seek an injunction or other equitable relief against or adversely affecting a Indemnified Party, (2) the Indemnifying Party acknowledges in writing its obligation to indemnify the Indemnified Party against any Losses that may result from the third-party claim, and (3) the Indemnifying Party agrees in writing not to settle such claim or proceeding without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel at its own expense; provided, however, that if there are one or more legal defenses available to the Indemnified Party that conflict with those available to the Indemnifying Party, or the Indemnifying Party fails to take reasonable steps necessary to defend diligently the claim after receiving notice from the 47 Indemnified Party that it believes that the Indemnifying Party has failed to do so, the Indemnified Party may assume the defense of such claim; and provided further, that the Indemnified Party may not settle such claim without the prior written consent of the Indemnifying Party, which consent may not be unreasonably withheld. If the Indemnified Party assumes the defense of the claim, the Indemnified Party shall be reimbursed by the Indemnifying Party on a monthly basis for reasonable fees and expenses of counsel retained by the Indemnified Party and the Indemnifying Party shall be entitled to participate in (but not control) the defense of such claim, with its counsel at its own expense. If the Indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such third party claim or the amount or nature of any such settlement, the Indemnifying Party shall have the burden to prove, by a preponderance of the evidence, that the Indemnified Party did not defend or settle such third-party claim in a reasonable, prudent manner. The parties agree to render, without compensation, to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other, including providing such documents and records as may be pertinent and the time and attention of such personnel as may reasonably be necessary, in order to ensure the proper and adequate defense of any action , suit or proceeding, whether or not subject to indemnification hereunder. Section 11.04. Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective, provided that, after the adoption of this Agreement by the shareholders of the Company and without their further approval, no such amendment or waiver shall reduce the amount or change the kind of consideration to be received in exchange for the Shares. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 11.05. Expenses. (a) All fees and expenses (or other payments due) of Falk & Sharp, P.C., MC Financial Services, Ltd. and U.S. Bancorp Piper Jaffray shall be paid by Sellers; all fees and expenses of the Company and the Sellers related to, arising out of, or connected to the Merger and the transactions contemplated by this Agreement (including, but not limited to, the fees and expenses of Fenwick & West and Deloitte & Touche) shall be paid by the Sellers. (b) Except as otherwise provided in this Section, or as provided in Sections 2.05(c) or 12.07, all other costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense; provided, however, that if any action or arbitration is brought with regards to any 48 dispute arising out of or in connection with this Agreement, the losing party in any such action or arbitration shall be required to pay all reasonable expenses of both parties, including any expenses or fees of the arbitrator or arbitrators. Section 11.06. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. Section 11.07. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law rules of such state. Section 11.08. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal court located in the State of California, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient form. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.01 shall be deemed effective service of process on such party. Section 11.09. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 11.10. Counterparts; Effectiveness; Benefit. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. No provision of this Agreement is intended to confer any rights, benefits, remedies, obligations, or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns. Section 11.11. Entire Agreement. This Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior 49 agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. Section 11.12. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 11.13. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. Section 11.14. Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of California or any California state court, in addition to any other remedy to which they are entitled at law or in equity. Section 11.15. Arbitration. (a) Any dispute arising out of or in connection with this Agreement shall be submitted to arbitration. The arbitration shall be conducted according to the Commercial Arbitration Rules of the American Arbitration Association. The place of arbitration shall be San Jose, California or such other place as may be agreed upon by the parties. Both parties shall attempt to agree upon one arbitrator, but if they are unable to agree, each shall appoint an arbitrator and these two shall appoint a third arbitrator. Expenses of the arbitrator(s) shall be divided equally between the parties. (b) Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, and shall be enforceable against the parties in accordance with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as amended. ARTICLE 12 Tax Matters Section 12.01. Tax Definition. The following terms, as used herein, have the following meanings: 50 "BUYER INDEMNITEE" means Parent, any of its Affiliates and, effective upon the Closing, the Company. "POST-CLOSING TAX PERIOD" means any Tax period beginning after the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period beginning after the Closing Date. "PRE-CLOSING TAX PERIOD" means any Tax period ending on or before the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period ending on the Closing Date. "TAX" means (i) any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, withholding on amounts paid to or by any Person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (a "TAXING AUTHORITY") responsible for the imposition of any such tax (domestic or foreign), and any liability for any of the foregoing as transferee, (ii) in the case of the Company, liability for the payment of any amount of the type described in clause (i) as a result of being or having been before the Closing Date a member of an affiliated, consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability of the Company to a Taxing Authority is determined or taken into account with reference to the activities of any other Person, and (iii) liability of the Company for the payment of any amount as a result of being party to any Tax Sharing Agreement or with respect to the payment of any amount imposed on any person of the type described in (i) or (ii) as a result of any existing express or implied agreement or arrangement (including, but not limited to, an indemnification agreement or arrangement). "TAX ASSET" means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other credit or tax attribute that could be carried forward or back to reduce Taxes (including without limitation deductions and credits related to alternative minimum Taxes). "TAX SHARING AGREEMENTS" means all existing agreements or arrangements (whether or not written) binding the Company that provide for the allocation, apportionment, sharing or assignment of any Tax liability or benefit, or the transfer or assignment of income, revenues, receipts, or gains for the purpose of determining any person's Tax liability. Section 12.02. Tax Representations. The Company and Sellers represent and warrant to Parent and Merger Subsidiary as of the date hereof and as of the Closing Date that: (a) Filing and Payment. Except as set forth on Schedule 12.02(a), (i) all Tax returns, statements, reports, elections, declarations, disclosures, schedules and 51 forms (including estimated tax or information returns and reports) filed or required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of the Company (collectively, the "Returns"), have, to the extent required to be filed on or before the date hereof, been filed when due in accordance with all applicable laws; (ii) as of the time of filing, the Returns were true and complete in all material respects; and (iii) all Taxes shown as due and payable on the Returns that have been filed have been timely paid, or withheld and remitted to the appropriate Taxing Authority. (b) Financial Records. Except as set forth on Schedule 12.02(b), (i) the charges, accruals and reserves for Taxes with respect to the Company reflected on the books of the Company (excluding any provision for deferred income taxes reflecting either differences between the treatment of items for accounting and income tax purposes or carryforwards) are adequate to cover Tax liabilities accruing through the end of the last period for which the Company ordinarily records items on its books; and (ii) since the end of the last period for which the Company ordinarily records items on its books, the Company has not engaged in any transaction, or taken any other action, other than in the ordinary course of business, except for this Agreement. (c) Procedure and Compliance. Except as set forth on Schedule 12.02(c), (i) all material Returns filed with respect to all Tax years of the Company have been examined and closed or are Returns with respect to which the applicable period for assessment under applicable law, after giving effect to extensions or waivers, has expired; (ii) the Company is not delinquent in the payment of any Tax or has requested any extension of time within which to file any Return and has not yet filed such Return; (iii) there is no claim, audit, action, suit, proceeding, or investigation now pending or threatened against or with respect to the Company in respect of any Tax or Tax Asset and (iv) during the five-year period ending on the date hereof, the Company has not made or changed any tax election, changed any annual tax accounting period, or adopted or changed any method of tax accounting, nor has it filed any amended Return, entered into any closing agreement, settled any Tax claim or assessment, or surrendered any right to claim a Tax refund, offset or other reduction in Tax liability. (d) Taxing Jurisdictions. Schedule 12.02(d) contains a list of all jurisdictions (whether foreign or domestic) in which the Company regularly files Returns. The Company is not required to regularly file Returns in any jurisdiction other than those set forth on Schedule 12.02(d), and no jurisdiction in which the Company does not regularly file Returns has asserted that the Company is required to do so. (e) Tax Sharing, Consolidation and Similar Arrangements. Except as set forth on Schedule 12.02(e), (i) the Company has not been a member of an affiliated, consolidated, combined or unitary group other than one of which the Company was the common parent; (ii) the Company is not party to any Tax 52 Sharing Agreement or to any other agreement or arrangement referred to in clause (ii) or (iii) of the definition of "Tax"; (iii) no amount of the type described in clause (ii) or (iii) of the definition of "Tax" is currently payable by either the Company, regardless of whether such Tax is imposed on the Company; and (iv) the Company has not entered into any agreement or arrangement with any Taxing Authority with regard to the Tax liability of the Company affecting any Tax period for which the applicable statute of limitations, after giving effect to extensions or waivers, has not expired. (f) Certain Elections, Agreements and Arrangements. Except as set forth on Schedule 12.02(f), (i) no election has been made under Treasury Regulations Section 1.7701-3 or any similar provision of Tax law to treat the Company as an association, corporation or partnership; (ii) the Company is not disregarded as an entity for Tax purposes; and (iii) during the five-year period ending on the date hereof, the Company was not a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code. (g) Property and Leases. Except as set forth on Schedule 12.02(g), (i) the Company does not own an interest in real property in any jurisdiction in which a Tax is imposed, or the value of the interest is reassessed, on the transfer of an interest in real property and which treats the transfer of an interest in an entity that owns an interest in real property as a transfer of the interest in real property. Section 12.03. Covenants. (a) Without the prior written consent of Parent, the Company shall not, nor shall Sellers cause or permit the Company, on or prior to the Closing Date, to, make or change any Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, file any amended Return, enter into any closing agreement, settle any Tax claim or assessment, surrender any right to claim a Tax refund, offset or other reduction in Tax liability, consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment or take or omit to take any other action, if any such action or omission would have the effect of increasing the Tax liability or reducing any Tax Asset of the Company. (b) The Company shall not, nor shall Sellers cause or permit the Company to, on or prior to the Closing Date, make any payment of, or in respect of, any Tax to any person or any Taxing Authority, except to the extent such payment is in respect of a Tax that is due or payable or has been properly estimated in accordance with applicable law as applied in a manner consistent with past practice of the Company. (c) Without the prior written consent of Sellers, which consent shall not be unreasonably withheld, the Company shall not, and Parent shall not permit the Company to, file any amended Return or make any election, in each case with respect to any Pre-Closing Tax Period, that would have the effect of increasing 53 the liability of the Company for Taxes in any Pre-Closing Tax Period for which Sellers would be required to indemnify any Buyer Indemnitee under this Agreement unless required to do so by any Taxing Authority. (d) Parent shall pay, or cause the Company to pay, to Sellers an amount equal to any refund of Taxes of the Company in respect of any Pre-Closing Tax Period except to the extent that the accrual or receipt of any such refund (u) arises out of or relates to any Tax benefit that is reflected in the Tax Benefit Item Schedule, (v) arises out of or relates to any Tax benefit that gave rise to a reduction in any amount otherwise payable by Sellers to Parent under Section 12.06, (w) arises out of or relates to any Tax benefit that is offset by any increase in Taxes of the Company in respect of any Post-Closing Tax Period, (x) arises out of or relates to any Tax benefit that results in the reduction of any Tax Asset or the ability of the Company to utilize any Tax Asset in respect of any Post-Closing Tax Period, (y) arises out of or relates to the utilization or realization of any deduction or Tax benefit arising out of or related to any act, event or occurrence described in clause (ii) of the adjustments to the definition of "Closing Working Capital" or (z) arises out of or relates to the carryback of any Tax Asset of the Company from a Post-Closing Tax Period. To the extent that any refund that would otherwise be payable to Sellers pursuant to this paragraph is offset by any corresponding increase in Taxes or reduction in any Tax Asset, in each case, of any Buyer Indemnitee in respect of any Pre-Closing Period that would be subject to indemnification by Sellers under this Article 12, Parent may, instead of paying such refund to Sellers, offset the amount of such payment against the amount of such indemnification obligation. If any refund in respect of which Parent or the Company has made payment to Sellers is subsequently disallowed by the relevant Taxing Authority, Sellers jointly and severally agree to pay to Parent (or, at the direction of Parent, to the Company) an amount equal to the amount of such disallowance, plus any applicable interest and penalties. (e) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with transactions contemplated by this Agreement (including any real property transfer tax and any similar Tax) ("TRANSFER TAXES") shall be borne by Sellers. Sellers shall pay any such Transfer Taxes when due, and will file all necessary Tax returns and other documentation with respect to all such Taxes and fees. If required by applicable law, Parent will, and will cause its Affiliates to, join in the execution of any such Tax returns and other documentation. Section 12.04. Tax Sharing. Any and all existing Tax Sharing Agreements shall be terminated as of the Closing Date. After the Closing Date, the Company shall not have any further rights or liabilities thereunder. This Agreement shall be the sole Tax sharing agreement relating to the Company. Section 12.05. Filing of Tax Returns; Cooperation On Tax Matters. (a) Sellers shall, consistent with past practices of the Company, prepare, or cause to 54 be prepared, all income tax Returns relating to taxable periods that end on or prior to the Closing Date and shall provide a draft of each such Return and all accompanying workpapers to Parent on or prior to March 1, 2003. If Parent, within 30 days of its receipt of such draft Return and the accompanying workpapers, notifies Sellers in writing that it objects to any of the items reflected on such draft Return, the parties shall attempt in good faith to resolve the dispute and, if they are unable to do so, the disputed items shall be resolved (within a reasonable time, taking into account the deadline for filing the relevant Return), by the Accounting Referee. The Accounting Referee's determination of the disputed items shall be binding on the Company, Buyer and Sellers, and the costs of engaging the Accounting Referee for this purpose shall be borne equally by Buyer and Sellers. Parent shall timely file the relevant Return with the appropriate Taxing Authority, provided that, if there are any disputed items that have not been resolved by the time of the filing of any Return, then, if necessary, an amended Return shall be filed promptly after such disputed items are resolved. (b) Parent agrees to give prompt notice to Sellers of the assertion of any claim or the commencement of any audit, action or proceeding by any Taxing Authority relating to any actual or potential Tax Loss in respect of which indemnity may be sought under Section 12.06. Sellers may, at their own cost and expense, participate in and, upon acknowledgment of their joint and several liability to indemnify Parent pursuant to Section 12.06 in respect of any Tax Loss arising out of such claim, audit, action or proceeding, assume the defense of such claim, audit, action or proceeding, provided, that no Seller shall agree to settle any liability for any such Tax Loss if such settlement would increase any Tax liability or reduce any Tax Asset of the Company unless Sellers jointly and severally agree to indemnify and hold harmless the Buyer Indemnitees in respect of such increased Tax liability or to compensate Parent and the Company for the reduction of such Tax Asset. If Sellers assume any such defense, Parent shall have the right (but not the obligation), at its own cost and expense, to participate in such defense. The failure of Parent to notify Sellers under this paragraph shall not relieve Sellers of their indemnification obligations under this Article except to the extent such failure shall have adversely prejudiced Sellers. (c) Parent and Sellers shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the preparation and filing of any Tax return, statement, report or form (including any report required pursuant to Section 6043 of the Code and all Treasury Regulations promulgated thereunder), any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Parent and Sellers agree (i) to retain all books and records with respect to Tax matters pertinent to the Company relating to any Pre-Closing Tax Period, and to abide by all record retention agreements entered 55 into with any Taxing Authority, and (ii) to give the other party reasonable written notice prior to destroying or discarding any such books and records and, if the other party so requests, Parent or Sellers, as the case may be, shall allow the other party to take possession of such books and records. (d) Parent and Sellers further agree, upon request, to use all reasonable efforts to obtain any certificate or other document from any governmental authority or customer of the Company or any other person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including but not limited to with respect to the transactions contemplated hereby). Section 12.06. Tax Indemnification. (a) Sellers hereby jointly and severally indemnify each Buyer Indemnitee against and agrees to hold each Buyer Indemnitee harmless from any (u) Tax of the Company described in clause (i) of the definition of Tax related to a Pre-Closing Tax Period, (v) Tax described in clause (ii) or (iii) of the definition of Tax, (w) Tax of the Company resulting from a breach of the provisions of Section 12.02 or any of Section 12.03(a), 12.03(b) or 12.03(e), (x) Tax resulting from the application of Section 280G of the Code to any payment made pursuant to this Agreement or to any payment made as a result of, or in connection with, any transaction contemplated by this Agreement, (y) any reduction or disallowance of any Tax Benefit item that is reflected in the Tax Benefit Item Schedule, and (z) liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and attorneys' fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any Tax described in (u), (v), (w), (x), (y) or (z), (each of (u), (v), (w), (x), (y) and (z) being referred to herein as a "TAX LOSS"); provided that in the case of a Tax Loss attributable to any Tax, Sellers shall have no liability for the payment of such Tax Loss to the extent that such Tax Loss is set forth in the Tax Liability Item Schedule. The calculation of any Tax Loss described in this Section 12.06(a) that is subject to indemnification hereunder shall (A) be made on a hypothetical basis without taking into account (x) the Tax effect of any act, event or occurrence described in clause (ii) of the adjustments to the definition of "Closing Working Capital" or (y) any carryback of any Tax Asset from a Post-Closing Tax Period and (B) shall be reduced to the extent that the payment of such Tax Loss to the relevant Taxing Authority gives rise to a deduction, credit or similar Tax benefit in the taxable year in which such payment is made that actually reduces Taxes that would otherwise have been payable by any Buyer Indemnitee in respect of such taxable year. (b) For purposes of this Section 12.06, in the case of any Taxes that are imposed on a periodic basis and are payable for a Tax period that includes (but does not end on) the Closing Date, the portion of such Tax related to the portion of such Tax period ending on and including the Closing Date shall (x) in the case of any Taxes other than gross receipts, sales or use Taxes and Taxes based upon or related to income, be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction the numerator of which is the number of days in the Tax period ending on and including the Closing Date and the denominator of 56 which is the number of days in the entire Tax period, and (y) in the case of any Tax based upon or related to income and any gross receipts, sales or use Tax, be deemed equal to the amount which would be payable if the relevant Tax period ended on and included the Closing Date. All determinations necessary to give effect to the allocation set forth in the foregoing clause (y) shall be made in a manner consistent with prior practice of the Company. (c) Not later than five (5) days after receipt by Sellers of written notice from Parent stating that any Tax Loss has been incurred by a Buyer Indemnitee and the amount thereof and of the indemnity payment requested, Sellers shall discharge their obligation to indemnify the Buyer Indemnitee against such Tax Loss by paying to Parent an amount equal to the amount of such Tax Loss. Notwithstanding the foregoing, if Parent provides Sellers with written notice of the accrual of a Tax Loss at least 30 days prior to the date on which the relevant Tax Loss is required to be paid by any Buyer Indemnitee, within that 30-day period Sellers shall discharge their obligation to indemnify the Buyer Indemnitee against such Tax Loss by making payments to the relevant Taxing Authority or Parent, as directed by Parent, in an aggregate amount equal to the amount of such Tax Loss. If Sellers elect, pursuant to Section 12.05(b), to assume the defense of any claim, audit, action or proceeding with respect to any Tax Loss, Sellers may, in lieu of making an advance payment in the manner described in the preceding sentence, make a deposit or similar payment to the relevant Tax Authority in order to toll the accrual of interest in respect of such Tax Loss while such claim, audit, action or proceeding is being contested. The payment by a Buyer Indemnitee of any Tax Loss shall not relieve Sellers of their obligations under this Section 12.06. (d) Any claim of any Buyer Indemnitee (other than Parent) under this Section may be made and enforced by Parent on behalf of such Buyer Indemnitee. Section 12.07. Certain Disputes. Disputes arising under Section 12.06 and not resolved by mutual agreement within 30 days shall be resolved by a nationally recognized accounting firm with no material relationship with Parent, Sellers or their Affiliates (the "ACCOUNTING REFEREE"), chosen and mutually acceptable to both Parent and Sellers within five days of the date on which the need to choose the Accounting Referee arises. The Accounting Referee shall resolve any disputed items within 30 days of having the item referred to it pursuant to such procedures as it may require. The costs, fees and expenses of the Accounting Referee shall be borne equally by Buyer Indemnitee and Sellers. Section 12.08. Purchase Price Adjustment. Any amount paid by Sellers or Parent under Section 2.06, Article 11 or this Article 12 will be treated as an adjustment to the Merger Consideration. Section 12.09. Survival. Notwithstanding anything in this Agreement to the contrary, the provisions of this Article 12 shall survive for the full period of all 57 applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof). 58 IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of Merger to be duly executed by their respective authorized officers as of the day and year first above written. ULTRA CLEAN TECHNOLOGY SYSTEMS & SERVICE, INC. By: /s/ Yoshifusa Nikaido ----------------------------------------- Name: Yoshifusa Nikaido Title: Chairman and Chief Executive Officer MITSUBISHI CORPORATION By: /s/ Yoshifusa Nikaido ----------------------------------------- Name: Yoshifusa Nikaido Title: Authorized Agent MITSUBISHI INTERNATIONAL CORPORATION By: /s/ Yoshifusa Nikaido ----------------------------------------- Name: Yoshifusa Nikaido Title: Authorized Agent ULTRA CLEAN HOLDINGS, INC. By: /s/ David ibnAle ----------------------------------------- Name: David ibnAle Title: Secretary and Treasurer CLEAN MERGER COMPANY By: /s/ David ibnAle ----------------------------------------- Name: David ibnAle Title: Secretary EX-3.1 4 f95546orexv3w1.txt EXHIBIT 3.1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Ultra Clean Holdings, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "CORPORATION"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation has adopted a resolution setting forth an amendment of the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and advising the stockholders of the Corporation approve such amendment. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended by changing Article "FOURTH" so that, as amended the Article shall read as follows: "The Corporation is authorized to issue one class of stock to be designated "Common Stock". The total number of shares of Common Stock which the Corporation shall have authority to issue is 60,000,000, and the par value of each such share is $0.001." SECOND: That thereafter, pursuant to the resolution of its Board of Directors, the stockholders of the Corporation in accordance with Article 2, Section 2.07 of the Bylaws of the Corporation unanimously approved the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by David ibnAle, its authorized officer, this ___ day of November, 2002. -------------------------------------------- David ibnAle, Secretary CERTIFICATE OF INCORPORATION OF ULTRA CLEAN HOLDINGS, INC. FIRST: The name of the corporation is Ultra Clean Holdings, Inc. (the "CORPORATION"). SECOND: The address of its registered office in the State of Delaware is 15 East North Street, County of Kent, Delaware 19901. The name of its registered agent at such address is Incorporating Services, Ltd. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("Delaware Law"). FOURTH: The total number of shares of common stock which the Corporation shall have authority to issue is 1,000, and the par value of each such share is $.001. FIFTH: The name and mailing address of the incorporator are:
NAME MAILING ADDRESS - ---- --------------- ~~Rachel Sterling c/o Davis Polk & Wardwell 1600 El Camino Real Menlo Park, CA 94025~~
SIXTH: The Board of Directors shall have the power to adopt, amend or repeal the bylaws of the Corporation. SEVENTH: Election of directors need not be by written ballot unless the bylaws of the Corporation so provide. EIGHTH: (1) A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware Law. (2)(a) Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware Law. The right to indemnification conferred in this ARTICLE EIGHTH shall also include the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Delaware Law. The right to indemnification conferred in this ARTICLE EIGHTH shall be a contract right. (b) The Corporation may, by action of its Board of Directors, provide indemnification to such of the officers, employees and agents of the Corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law. (3) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under Delaware Law. (4) The rights and authority conferred in this ARTICLE EIGHTH shall not be exclusive of any other right which any person may otherwise have or hereafter acquire. (5) Neither the amendment nor repeal of this ARTICLE EIGHTH, nor the adoption of any provision of this Certificate of Incorporation or the bylaws of the Corporation, nor, to the fullest extent permitted by Delaware Law, any modification of law, shall eliminate or reduce the effect of this ARTICLE EIGHTH in respect of any acts or omissions occurring prior to such amendment, repeal, adoption or modification. NINTH: The Corporation reserves the right to amend this Certificate of Incorporation in any manner permitted by Delaware Law and, with the sole exception of those rights and powers conferred under the above ARTICLE EIGHTH, all rights and powers conferred herein on stockholders, directors and officers, if any, are subject to this reserved power. 2 IN WITNESS WHEREOF, I have hereunto signed my name this 28th day of October, 2002. -------------------------------------------- Rachel Sterling, Incorporator 3 EX-3.3 5 f95546orexv3w3.txt EXHIBIT 3.3 EXHIBIT 3.3 BYLAWS OF ULTRA CLEAN HOLDINGS, INC. ARTICLE 1 OFFICES Section 1.01. Registered Office. The registered office shall be in the City of Dover, County of Kent, State of Delaware. Section 1.02. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. Section 1.03. Books. The books of the Corporation may be kept within or without of the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 MEETINGS OF STOCKHOLDERS Section 2.01. Time and Place of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). Section 2.02. Annual Meetings. Unless directors are elected by written consent in lieu of an annual meeting as permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("DELAWARE LAW"), an annual meeting of stockholders, commencing with the year 2003, shall be held for the election of directors and to transact such other business as may properly be brought before the meeting. Stockholders may, unless the certificate of incorporation otherwise provides, act by written consent to elect directors; provided, however, that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action. Section 2.03. Special Meetings. Special meetings of stockholders may be called by the Board of Directors or the Chairman of the Board and shall be called by the Secretary at the request in writing of holders of record of a majority of the outstanding capital stock of the Corporation entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 2.04. Notice Of Meetings And Adjourned Meetings; Waivers Of Notice. (a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by Delaware Law, such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Unless these bylaws otherwise require, when a meeting is adjourned to another time or place (whether or not a quorum is present), 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 Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 2.05. Quorum. Unless otherwise provided under the certificate of incorporation or these bylaws and subject to Delaware Law, the presence, in person or by proxy, of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders present in person or represented by proxy shall adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as 2 originally notified. Section 2.06. Voting. (a) Unless otherwise provided in the certificate of incorporation and subject to Delaware Law, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Any share of capital stock of the Corporation held by the Corporation shall have no voting rights. Unless otherwise provided in Delaware Law, the certificate of incorporation or these bylaws, the affirmative vote of a majority of the shares of capital stock of the Corporation present, in person or by written proxy, at a meeting of stockholders and entitled to vote on the subject matter shall be the act of the stockholders. (b) Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by written proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 2.07. Action By Consent. (a) Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to the Corporation as provided in Section 2.07(b). (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this section and Delaware Law to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in 3 Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Section 2.08. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or in his absence or if one shall not have been elected, the director designated by the vote of the majority of the directors present at such meeting, shall act as chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. Section 2.09. Order Of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting. ARTICLE 3 DIRECTORS Section 3.01. General Powers. Except as otherwise provided in Delaware Law or the certificate of incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 3.02. Number, Election And Term Of Office. Initially, the exact number of directors of the Corporation shall be three (3), two (2) of whom shall be designated by FP-Ultra Clean, L.L.C., and one (1) of whom shall be the Chief Executive Officer of the Corporation, until changed pursuant to this Section 3.02. The number of directors which shall constitute the whole Board shall be fixed from time to time by resolution of the Board of Directors but shall not be less than two (2) nor more than five (5); provided, however that if at any time the Board shall be expanded to a number of directors larger than three (3), FP-Ultra Clean, L.L.C. shall designate such number of directors so that at no time the number of directors designated by FP-Ultra Clean, L.L.C. shall constitute less than a majority of the Board of Directors. The directors shall be elected at the annual meeting of the stockholders by written ballot, except as provided in Section 2.02 and Section 3.12 herein, and each director so elected shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. Directors need not be stockholders. Section 3.03. Quorum And Manner Of Acting. Unless the certificate of incorporation or these bylaws require a greater number, two directors, at least one of whom shall be a designee of FP-Ultra Clean, L.L.C., shall constitute a quorum for the transaction of business of the Board of Directors and the affirmative vote of a majority of the directors present at a meeting at which a quorum is present 4 shall be the act of the Board of Directors; provided that FP-Ultra Clean, L.L.C. shall have the right at any time to increase the number of directors necessary to constitute such quorum; and provided further that any increase in the number of directors necessary to constitute a quorum shall also require that a majority of the quorum be designees of FP-Ultra Clean, L.L.C. When a meeting is adjourned to another time or place (whether or not a quorum is present), 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 Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat shall adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.04. Time And Place Of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). Section 3.05. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 3.07 herein or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice. Section 3.06. Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given. Section 3.07. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, President or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shall be given to each director at least three days before the date of the meeting in such manner as is determined by the Board of Directors. Section 3.08. Committees. The Board of Directors may create and designate executive, compensation, audit and such other committees as it may 5 determine, each such committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by Delaware Law to be submitted to the stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 3.09. Action By Consent. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.10. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 3.11. Resignation. Any director may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.12. Vacancies. If as a result of death, disability, retirement, resignation, removal or otherwise, there shall exist or occur any vacancy on the Board of Directors then (i) if such director was the Chief Executive Officer, then the new Chief Executive Officer or other officer appointed to replace such 6 departing Chief Executive Officer shall be nominated to fill the vacancy and serve as a director on the Board of Directors, and (ii) if such director was designated by FP-Ultra Clean, L.L.C., then FP-Ultra Clean, L.L.C. shall designate another individual to fill such vacancy. Unless otherwise provided in the certificate of incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If there is ever a vacancy on the Board of Directors and an individual has been nominated to fill such vacancy, the first order of business shall be to fill such vacancy. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Each director so chosen shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the certificate of incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of other vacancies. Section 3.13. Removal. Any director or the entire Board of Directors may be removed, with or without cause, at any time by the affirmative vote of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote and the vacancies thus created may be filled in accordance with Section 3.12 herein. Section 3.14. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses. ARTICLE 4 OFFICERS Section 4.01. Principal Officers. The principal officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including one or more 7 Controllers, as the Board may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of President and Secretary. Section 4.02. Election, Term Of Office And Remuneration. The principal officers of the Corporation shall be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine. Section 4.03. Subordinate Officers. In addition to the principal officers enumerated in Section 4.01 herein, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. Section 4.04. Removal. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. Section 4.05. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.06. Powers And Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors. ARTICLE 5 GENERAL PROVISIONS Section 5.01. Fixing The Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of 8 stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by Delaware Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by Delaware Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 9 Section 5.02. Dividends. Subject to limitations contained in Delaware Law and the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation. Section 5.03. Year. The fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year. Section 5.04. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. Section 5.05. Voting Of Stock Owned By The Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. Section 5.06. Amendments. These bylaws or any of them, may be altered, amended or repealed, or new bylaws may be made, by the stockholders entitled to vote thereon at any annual or special meeting thereof or by the Board of Directors. [Remainder of Page Intentionally Left Blank] 10 EX-4.3 6 f95546orexv4w3.txt EXHIBIT 4.3 EXHIBIT 4.3 RESTRICTED SECURITIES PURCHASE AGREEMENT This Restricted Securities Purchase Agreement (this "AGREEMENT") dated as of November 26, 2002 (the "PURCHASE DATE") is made by and between Ultra Clean Holdings, Inc., a Delaware corporation (the "COMPANY"), and the purchaser whose name is set forth on the signature page hereto ("PURCHASER"). Section 1. Purchase and Grant. (a) Pursuant to the Notice of Securities Purchase Right (the "NOTICE"), Purchaser hereby elects to purchase the following securities, in the amounts and at the purchase prices set forth on Schedule I hereto, subject to the terms and conditions of this Agreement: (i) the number of shares of common stock, $0.001 par value (the "COMMON STOCK"), of the Company set forth on Schedule I (the "PURCHASED SHARES"); and (ii) 5.0% unsecured senior debt of the Company evidenced by a promissory note substantially in the form of, and subject to all of the terms and conditions set forth in, Exhibit A hereto (the "SERIES A NOTES"), which is incorporated herein by reference, in the principal amount set forth on Schedule I hereto (the "PURCHASED NOTES" and, together with the Purchased Shares, the "PURCHASED SECURITIES"). (b) In accordance with the terms set forth in the Notice, the Company hereby grants to Purchaser additional shares of Common Stock (the "BONUS SHARES" and, together with the Purchased Shares, the "SHARES") and additional Series A Notes (the "BONUS NOTES" and, together with the Purchased Notes, the "NOTES"; the Notes and Shares collectively being referred to as the "SECURITIES") in the amounts set forth on Schedule I. (c) Purchaser herewith delivers to the Company the aggregate purchase price set forth on Schedule I in respect of the Purchased Securities, together with assignments in the forms attached hereto as Exhibit B-1 and Exhibit B-2 executed by Purchaser in blank with respect to the Bonus Securities (which assignments shall only be used by the Company with respect to Securities remaining subject to forfeiture provisions and only in accordance with the terms set forth herein). Section 2. Vesting of Bonus Securities. Purchaser understands and agrees that the Bonus Shares and the Bonus Notes (the "BONUS SECURITIES") will be subject to the following provisions: (a) The Bonus Securities shall vest on the following schedule, subject to Purchaser's continued employment with the Company or one of its subsidiaries on the applicable vesting date: (i) On each of the first four anniversaries of the Purchase Date, 25% of the Bonus Securities shall become vested. (ii) In the event of a Change in Control, all unvested Bonus Securities shall become fully vested. (b) For purposes of this Agreement, "CHANGE IN CONTROL" means the occurrence of one of the following events: (i) the consummation of a merger or consolidation of the Company with or into any other entity (other than with any entity or group in which Purchaser has not less than a 5% beneficial interest) pursuant to which the holders of outstanding equity of the Company immediately prior to such merger or consolidation hold directly or indirectly 50% or less of the voting power of the equity securities of the surviving entity; (ii) the sale or other disposition of all or substantially all of the Company's assets (other than to any entity or group in which Purchaser has not less than a 5% beneficial interest); or (iii) any acquisition by any person or persons (other than the direct and indirect holders of outstanding equity of the Company as of the Purchase Date and other than any entity or group in which Purchaser has not less than a 5% beneficial interest) of the beneficial ownership of more than 50% of the voting power of the Company's equity securities in a single transaction or series of related transactions; provided, however, that an underwritten public offering of the Company's securities shall not be considered a Change in Control; provided, however, that a transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who directly or indirectly held the Company's securities immediately before such transaction. (c) In the event that Purchaser's employment with the Company or any of its subsidiaries terminates for any reason, all Bonus Securities will be forfeited to the extent that they have not vested before such date of termination. In such event, the unvested Bonus Securities will immediately revert to the Company, and Purchaser will receive no payment for (and, if applicable, no accrued interest on) the unvested Bonus Securities. (d) In the event that Purchaser's employment with the Company or any of its subsidiaries is terminated by the Company for Cause, all Bonus Securities (including vested Bonus Securities) will be forfeited as of the date of such termination. In such event, all Bonus Securities will immediately revert to the Company, and Purchaser will receive no payment for (and, if applicable, no accrued but unpaid interest on) such Bonus Securities. For purposes of this Agreement, "CAUSE" means the occurrence of any one or more of the following: (i) the failure, refusal or willful neglect of Purchaser to perform the services required of Purchaser in his capacity as an employee; 2 (ii) the Company forming a good faith belief that Purchaser has engaged in fraudulent conduct in connection with the business of the Company or its subsidiaries or that Purchaser has committed a felony; (iii) Purchaser's breach of any trade secret or confidential information agreement with the Company or its subsidiaries; or (iv) the Company forming a good faith belief that Purchaser has committed an act of misconduct, violated the Company's or its subsidiaries' anti-discrimination policies prohibiting discrimination or harassment on the grounds of race, sex, age or any other legally prohibited basis, or otherwise has caused material harm to the Company's or its subsidiaries' reputation or goodwill. (e) With respect to the Bonus Notes, Purchaser will not be entitled to receive any accrued interest or other payments made on the Series A Notes until such time as the applicable portion of the Bonus Notes vests. Promptly after any Bonus Notes vest, Purchaser will receive (i) a cash payment for interest accrued on such Bonus Notes prior to the vesting date, (ii) a pro rata cash payment for any repurchase or redemption of such Bonus Notes prior to the vesting date, and (iii) a promissory note with a principal balance equal to the vested portion of such Bonus Notes less any pro rata repurchase or redemption under clause (ii). Section 3. Acknowledgment Of Company's Rights. Purchaser's acquisition of the Securities hereunder is subject to Purchaser signing and delivering to the Company a Securityholders' Agreement in the form attached hereto as Exhibit D (the "SECURITYHOLDERS' AGREEMENT"), which is incorporated herein by reference. Purchaser understands and agrees that all Securities acquired hereunder (including the Bonus Securities as well as the Purchased Securities) are subject to the restrictions on transfer, the rights of repurchase by the Company and the other restrictions set forth herein and in the Securityholders' Agreement. Purchaser understands that all certificates and notes representing unvested Shares and Notes acquired hereunder shall be held in escrow by the Company. Section 4. Tax Consequences. (a) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase, receipt or disposition of the Securities. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase, receipt or disposition of the Securities and that Purchaser is not relying on the Company or any of its affiliates for any tax advice. (b) By purchasing the Purchased Securities and accepting the Bonus Securities, Purchaser agrees that the Company may require Purchaser to enter into an arrangement providing for the payment by Purchaser to the Company of any tax withholding obligation of the Company arising by reason of (1) the grant of the Bonus Shares (if Purchaser makes a Section 83(b) election), (2) the vesting of the Bonus Shares (if Purchaser does not make a Section 83(b) election), (3) the payment of any amounts pursuant to the terms of the Bonus Notes, or (4) any other act, event or occurrence giving 3 rise to a withholding tax obligation of the Company in respect of the Bonus Securities. At any time as requested by the Company, Purchaser hereby authorizes withholding from payroll and any other amounts payable to Purchaser, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company, if any, which arise in connection with the Securities. (c) A sample Form 83(b) is attached as Exhibit C hereto for the convenience of Purchaser if Purchaser wishes to make an election under Section 83(b) of the Internal Revenue Code with respect to the Bonus Shares. Purchaser acknowledges that he has been advised by the Company to consult with his personal tax advisors as to the consequences of filing an election on Form 83(b) with the Internal Revenue Service with respect to the Bonus Shares. Purchaser represents and warrants that he has not received and is not relying upon tax advice from the Company or any of its representatives on the consequences of filing an election on Form 83(b). PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE ANY ELECTION UNDER SECTION 83(b) OF THE CODE IN A TIMELY MANNER EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S BEHALF. IN ORDER TO BE EFFECTIVE, A SECTION 83(b) ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN 30 DAYS OF THE DATE THE BONUS SHARES ARE GRANTED. Section 5. Repurchase Of Securities by the Company. (a) Subject to Section 2(c) hereof in the event of termination for Cause, if Purchaser's employment with the Company or any of its subsidiaries terminates for any reason, the Company shall have the right (the "REPURCHASE RIGHT"), at its option, to repurchase: (i) all vested Shares held by Purchaser or his or her permitted transferees, as applicable, at a purchase price equal to the fair market value thereof (the "FAIR MARKET VALUE"), as conclusively determined in good faith by the Board of Directors of the Company (the "BOARD"); and (ii) all vested Notes held by Purchaser or his or her permitted transferees, as applicable, at a purchase price equal to the then current principal balance of such Notes plus any accrued but unpaid interest on such vested Notes at the time of repurchase. (b) If the Company elects to exercise its Repurchase Right, the Company shall deliver written notice to Purchaser or his or her permitted transferee, as applicable, setting forth the number of Shares and/or principal amount of Notes proposed to be purchased and the then Fair Market Value, principal amount and/or accrued and unpaid interest, as applicable. Upon the consummation of any such purchase, Purchaser shall deliver certificates, as applicable, or other documents satisfactory to the Company in its sole discretion evidencing such Securities duly endorsed, or accompanied by written instruments of transfer, free and clear of any encumbrances against delivery of payment for such Securities. If the Board determines that the Company is unable to repurchase all or some portion of the Securities for cash without breaching the terms of any debt 4 instruments or other agreement to which the Company or any of its subsidiaries is a party, or the Board determines that such repurchase would otherwise have a material adverse effect on the financial condition of the Company, the Company will pay in cash the maximum amount permitted under such debt instruments, or that would not result in such a material adverse effect, and deliver to Purchaser a promissory note for the balance, payable as soon as (and in the maximum amounts that) the terms of such debt instruments or other agreements will permit or that will not have such a material adverse effect and bearing interest at a rate no less than the applicable federal rate. (c) The Repurchase Right shall lapse and be of no further force and effect upon the date that is 12 months after termination of Purchaser's employment; provided, however, that the Repurchase Right shall lapse with respect to the vested Shares upon a Qualified Initial Public Offering (as defined below), if earlier; provided further that in no event shall the Repurchase Right lapse with respect to any Bonus Securities prior to the applicable vesting date of such Securities. Section 6. Restrictions On Transfer. (a) All Notes and, prior to a Qualified Initial Public Offering (as defined below), all Shares that have been or are issued hereunder may not be sold, given, transferred, assigned, or otherwise hypothecated by Purchaser, except to such Purchaser's Allowable Transferees (as defined below). Any attempted transfer in violation of this Section will be void ab initio. Securities held by Allowable Transferees who receive such Securities in accordance with this Section shall be subject to the restrictions in this Agreement and the Securityholders' Agreement as if such Allowable Transferee were the original holder of the Securities transferred to the Allowable Transferee and will be required to execute an acknowledgment to such effect prior to the transfer. (b) For purposes of this Agreement, the following terms have the following meanings: (i) "ALLOWABLE TRANSFEREES", with respect to Purchaser, are limited to (i) those persons who acquire Securities pursuant to such Purchaser's will or the laws of descent and distribution or as a result of other donative transfers to Family Members and (ii) the Company. (ii) "FAMILY MEMBER" means, with respect to Purchaser, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing Purchaser's household (other than a tenant or employee), or a trust for the exclusive benefit of these persons (or Purchaser). (iii) "QUALIFIED INITIAL PUBLIC OFFERING" means the date that is 180 days following the date of the final prospectus in connection with an underwritten public offering of any class of the Company's equity securities with gross proceeds of at least $25,000,000. 5 Section 7. Right Of First Refusal. In the event that the restrictions on transfer in Section 6 above are no longer in effect, the Company shall have the following right of first refusal with respect to all Notes and, prior to a Qualified Initial Public Offering, all Shares: (i) If Purchaser proposes to sell, pledge or otherwise transfer to a third party (other than an Allowable Transferee) any Securities acquired under this Agreement, the Company shall have a right of first refusal with respect to such Securities ("RIGHT OF FIRST REFUSAL"). Purchaser shall give a written notice to the Company describing fully the proposed transfer ("TRANSFER NOTICE"), including the number of Shares or principal amount of Notes proposed to be transferred, the proposed transfer price, the name and address of the proposed transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal or state securities laws. The Transfer Notice shall be signed both by Purchaser and by the proposed transferee and must constitute a binding commitment of both parties to the transfer of the applicable Securities. The Company shall have the right to purchase such Securities on the terms of the proposal described in the Transfer Notice by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice is received by the Company. The Company's rights under this Section shall be freely assignable, in whole or in part. (ii) If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, and subject to Section 6 above, Purchaser may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Securities subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal and state securities laws and not in violation of any other contractual restrictions to which Purchaser is bound. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by Purchaser, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in clause (i) above. If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Securities on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Securities was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Securities with cash or cash equivalents reasonably equal to the present value of the consideration described in the Transfer Notice. (iii) If Purchaser transfers any Securities acquired under this Agreement pursuant to this Section, then this Agreement and the Securityholders' Agreement shall apply to the transferee to the same extent as to Purchaser, and Purchaser shall ensure that the transferee signs an acknowledgment to such effect. 6 Section 8. Restrictive Legends And Stop Transfer Orders. (a) Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares and on the Notes, as applicable, together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE RESTRICTED SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 26, 2002 BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SECURITIES, AND THE SECURITYHOLDERS' AGREEMENT DATED AS OF NOVEMBER 26, 2002, BETWEEN THE ISSUER, THE ORIGINAL HOLDER OF THESE SECURITIES AND THE OTHER PARTIES NAMED THEREIN, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE ISSUER OF THESE SECURITIES OR ANY SUCCESSOR THERETO. SUCH TRANSFER RESTRICTIONS ARE BINDING ON ALLOWABLE TRANSFEREES (AS SPECIFIED THEREIN) OF THESE SECURITIES. (b) Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company acts as transfer agent for its own securities, it may make appropriate notations to the same effect in its own records. (c) The Company shall not be required (i) to transfer on its books any Securities that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner or holder of such Securities or to accord the right to vote or pay dividends or interest, as applicable, to any purchaser or other transferee to whom such Securities shall have been so transferred. Section 9. Lock-up Period. Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters (the "MANAGING UNDERWRITER") in connection with any registration of the offering of any securities of the Company under the Securities Act of 1933, as amended (the "SECURITIES ACT"), Purchaser shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such lesser period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "MARKET STANDOFF PERIOD") 7 following the date of the final prospectus in connection an underwritten offering of the Company's securities. Purchaser further agrees to enter into an agreement with the Managing Underwriter in respect of the preceding sentence if so requested by the Company and/or the Managing Underwriter. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. Section 10. Representations And Warranties Of Purchaser. Purchaser understands that the Securities have not been registered under the Securities Act. Purchaser also understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in this Agreement. Purchaser hereby represents and warrants to the Company as follows: (i) Purchaser has had an opportunity to obtain the advice of counsel prior to executing this Agreement. Purchaser has reviewed this Agreement (including the exhibits hereto) and fully understands all of the provisions hereof and thereof. Purchaser has been given the opportunity to examine all documents and to ask questions of, and to receive answers from, the Company and its representatives concerning the terms and conditions of the acquisition of the Securities and related matters and to obtain all additional information regarding the Company and the Securities which Purchaser deems necessary. (ii) Purchaser is acquiring the Securities for Purchaser's own account for investment only, and not with a view towards, or for sale in connection with, their distribution. Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in this Agreement. (iii) Purchaser represents that he is an accredited investor within the meaning of Regulation D under the Securities Act. (iv) Purchaser is an "executive officer" (as defined in Regulation D under the Securities Act) of the Company or one of its subsidiaries. (v) Purchaser understands that an investment in the Securities is very risky and that Purchaser may lose some or all of his investment. (vi) Purchaser understands the risk that the price at which he disposes of the Bonus Securities, if any, may be less than the amount of taxes withheld or due with respect to such Bonus Securities. (vii) Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that he is capable of evaluating the merits and risks of his investment in the Company and has the capacity to protect his own interests. Purchaser understands he must, and is able to without impairing his financial condition, bear the economic risk of this investment indefinitely and to suffer a complete loss of the value of the Securities. 8 (viii) Purchaser represents that by reason of his business or financial experience, Purchaser has the capacity to protect his own interests in connection with the transactions contemplated in this Agreement. (ix) Purchaser acknowledges and agrees that the Securities have not been registered under the Securities Act and that the Securities must be held indefinitely. Purchaser understands that the Company has no present intention and is under no obligation to register any of the Securities. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available to permit the resale of the Securities and that, even if available, such exemption may not allow Purchaser to transfer all or any portion of the Securities under the circumstances, in the amounts or at the times Purchaser might propose. (x) In addition to the restrictions on transfer set forth herein, Purchaser agrees not to sell, transfer or otherwise dispose of the Securities in violation of the Securities Act, the Securities Exchange Act of 1934, as amended, or the rules promulgated thereunder, including Rule 144 under the Securities Act. Section 11. Spousal Consent. As a condition to the Company's obligations under this Agreement, the spouse of Purchaser, if any, shall execute and deliver to the Company the Consent of Spouse attached hereto as Schedule II. Section 12. Adjustment For Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split (forward or reverse), stock dividend or other change in the shares of Common Stock effected without receipt of consideration by the Company after the date of this Agreement, and all restrictions on Shares set forth herein shall apply to any additional Shares acquired by Purchaser pursuant to such stock split, stock dividend or other change in the Common Stock of the Company. Section 13. No Employment Rights. This Agreement does not confer on Purchaser any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or any of its subsidiaries to determine the terms of Purchaser's employment. Section 14. Interpretation. Any dispute regarding the interpretation of this Agreement shall be promptly submitted by Purchaser or by the Company to the Board, which shall review such dispute at its next regular meeting. The resolution of such dispute by the Board shall be binding, conclusive and final on all parties. Section 15. Notices. All notices, requests and other communications to any party shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile transmission, if to the Company to: 9 Ultra Clean Holdings, Inc. 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Attention: Dipanjan Deb Fax: 650-233-2999 if to Purchaser, to the address set forth on the signature page hereof; or in each case, to such other address as such party may hereafter specify for such purpose by written notice to the other party hereto. All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. Any notice, request or other written communication sent by facsimile transmission shall be confirmed by certified or registered mail, return receipt requested, posted within one business day, or by personal delivery, whether courier or otherwise, made within two business days after the date of such facsimile transmissions. Section 16. Survival Of Terms. This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors. Section 17. Governing Law. This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California. Section 18. Jurisdiction. The parties hereby agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Northern District of California or any California State court sitting in San Jose, California, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any case of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of California, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient form. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 15 shall be deemed effective service of process on such party. Section 19. Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY 10 IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 20. Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Section 21. Entire Agreement. This Agreement, together with the Securityholders' Agreement and the Series A Senior Note, constitute the entire agreement among the parties hereto and supersede all prior and contemporaneous agreements and understandings, both oral and written, among the parties hereto with respect to the subject matter hereof and thereof. Section 22. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. 11 IN WITNESS WHEREOF, this Agreement is deemed made as of the date set forth above. ULTRA CLEAN HOLDINGS, INC. By: ------------------------- Name: Title: PURCHASER: ---------------------- Clarence Granger Address: 12 SCHEDULE I TO RESTRICTED SECURITIES PURCHASE AGREEMENT Date of Purchase: November 26, 2002 To be completed by the Purchaser: Pursuant to the terms and conditions of the foregoing Restricted Securities Purchase Agreement, I have elected to purchase shares of Common Stock and principal amount of Series A Notes in the following aggregate dollar amount: $_____________ (the "ELECTED PURCHASE AMOUNT"). I understand that the Company will allocate my purchase between Common Stock and Series A Notes, and determine the amount and allocation of my Bonus Securities, in accordance with the terms of the Notice of Securities Purchase Right dated November 20, 2002, and that my Elected Purchase Amount and such allocations may be subject to rounding in accordance therewith. Clarence Granger --------------------- (Signature) To be completed by the Company: PURCHASED SECURITIES:
Number of Shares or Initial Principal Purchase Price per Total Purchase Class of Security Amount Unit Price - ----------------- ------ ---- ----- Common Stock 424,800 Shares $0.25 per Share $106,200 Series A Note $318,600 Principal Amount $318,600 -------- Total Purchase $424,800
BONUS SECURITIES:
Number of Shares Total Fair Market or Initial Principal Value or Principal Class of Security Amount Fair Market Value Amount - ----------------- ------ ----------------- ------ Common Stock 637,200 Shares $0.25 per Share $159,300 Series A Note $477,900 Principal Amount $477,900 -------- Total Bonus $637,200
13 SCHEDULE II TO RESTRICTED SECURITIES PURCHASE AGREEMENT CONSENT OF SPOUSE I, ____________________, spouse of ________________, have read and approve the foregoing Agreement. In consideration of granting of the right to my spouse to purchase securities of Ultra Clean Holdings, Inc., as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement (including the provisions of the agreements incorporated therein by reference) insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: _______________, 2002 14 EXHIBIT A TO RESTRICTED SECURITIES PURCHASE AGREEMENT [FORM OF SERIES A NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE MAKER, SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN SECTION 3 HEREOF, AND IN THE RESTRICTED SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 26, 2002, BETWEEN THE MAKER AND THE ORIGINAL HOLDER OF THIS NOTE, AND THE SECURITYHOLDERS' AGREEMENT DATED AS OF NOVEMBER 26, 2002, BETWEEN THE MAKER, THE ORIGINAL HOLDER OF THIS NOTE AND THE OTHER PARTIES NAMED THEREIN, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE MAKER OR ANY SUCCESSOR THERETO. SUCH TRANSFER RESTRICTIONS ARE BINDING ON ALL TRANSFEREES OF THIS NOTE. ANY TRANSFEREE RECEIVING THIS NOTE IN VIOLATION OF SAID TRANSFER RESTRICTIONS SHALL HAVE NO RIGHT TO RECEIVE PAYMENT HEREUNDER AND THE MAKER SHALL BE UNDER NO OBLIGATION TO PAY SUCH TRANSFEREE. SERIES A SENIOR NOTE $__________ Menlo Park, CA [DATE] FOR VALUE RECEIVED, ULTRA CLEAN HOLDINGS, INC., a Delaware corporation (the "MAKER") promises to pay to _________________ (the "HOLDER") on November 15, 2009 (the "MATURITY DATE") at Menlo Park, California or such other place as the Holder may designate, in lawful money of the United States of America in immediately available funds, the principal sum of ________________ dollars ($__________), and to pay interest thereon at the rates and times hereinafter provided. The Maker will pay all amounts due hereunder free and clear of, and without reduction for, any taxes, levies, imposts, deductions, withholding or charges (except as required by applicable law) and without set-off or counterclaim. This Note, issued on _______________ (the "ISSUE DATE") and due on the Maturity Date, is one of the SERIES A SENIOR NOTES of the Maker, each having terms substantially similar to the terms set forth herein, other than with respect to assignments, the provisions for which may vary (each a "NOTE" and, collectively, the "SERIES A NOTES"). 1. Interest Rate. Interest shall accrue on the principal amount hereof from time to time outstanding at a rate equal to five percent (5.0%) per annum, payable in cash on June 15 and December 15 of each year (or, if any such June 15 or December 15 is not a Business Day (as hereinafter defined), on the next succeeding Business Day) beginning June 15, 2003 and on the Maturity Date (each such June 15, December 15, succeeding Business Day and the Maturity Date, an "INTEREST PAYMENT DATE"). Interest payable hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed from and including the preceding Interest Payment Date (or in the case of interest to be paid on the first Interest Payment Date, the Issue Date) to but excluding the Interest Payment Date on which such interest is to be paid. For purposes of this Section 1, the term "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in San Francisco, California are authorized or obligated by law, executive order or governmental decree to be closed. 2. Pro Rata Treatment, Payment and Prepayments. (a) Each payment (including each prepayment) by the Maker on account of the principal of or interest on any of the Series A Notes, including this Note, shall be made pro rata to all holders of the Series A Notes in proportion to the respective outstanding principal amounts of the Series A Notes held by each such holder; provided that any interest paid on any of the Series A Notes on the first Interest Payment Date shall also take into account the number of days in respect of which interest is payable on the outstanding principal amount. (b) Any prepayment by the Maker on account of the principal of and interest on any of the Series A Notes, including this Note, may be made in whole or in part at any time or from time to time, without penalty. Any such prepayments shall be applied first to accrued interest, and then to principal. (c) This Section 2 may not be amended except with the consent of the Maker and upon a vote in favor of such amendment by the holders of 100% of the then outstanding principal amount of the Series A Notes. 3. Assignments. (a) This Note shall be binding upon the Maker and its successors, heirs and legal representatives and is for the benefit of the Holder; provided, however, that the Maker may not assign, pledge or otherwise transfer any of its rights or obligations under this Note (including without limitation by merger or otherwise by operation of law) without the prior written consent of FP-Ultra Clean, L.L.C., a Delaware limited liability company. The Holder may not assign, pledge or otherwise transfer any of its rights or obligations under this Note without the prior written consent of FP-Ultra Clean, L.L.C., except to the Holder's Allowable Transferees (as hereinafter defined). Any attempted transfer in violation of this Section 3 shall be void. Any Allowable Transferee to whom this Note is transferred in accordance with this Section 3 shall be subject to the restrictions in this Section 3 as if such Allowable Transferee were the Holder of this Note. The consent provision of this Section 3 is for the benefit of and enforceable by FP-Ultra Clean, L.L.C. In the event of a transfer by the Holder in accordance with this Section 3(a), the Maker shall have no duty to recognize the transferee as the holder of this Note for purposes of any payments due hereunder or otherwise unless and until the Maker shall have received written notice by the transferor of such transfer, which notice shall include the name and address of the transferee, the principal amount being transferred, and the signature of the transferor and the transferee, together with the original promissory note endorsed to the transferee (or the applicable portion endorsed to the transferee), and the Maker shall have issued a replacement note or notes, as applicable. (b) For purposes of this Section 3, "ALLOWABLE TRANSFEREE(S)" means (i) any persons who acquire this Note, or any interest herein, pursuant to the Holder's will or the laws of descent and distribution or as a result of other donative transfers to Family Members (as hereinafter defined) and (ii) the Maker. For purposes of this Section 3(b), "FAMILY MEMBERS" means, with respect to the Holder, any child, stepchild, grandchild, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing Holder's household (other than a tenant or employee), or a trust for the exclusive benefit of these persons or the Holder. 4. No Waiver. Neither any delay on the part of the Holder in the exercise of any right or remedy hereunder nor the partial exercise by it of any right or remedy hereunder shall preclude the enforcement of this Note or the exercise by the Holder of any right or remedy. 5. Governing Law; Jurisdiction. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE MAKER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA AND OF ANY CALIFORNIA STATE COURT SITTING IN EITHER SANTA CLARA OR SAN MATEO COUNTY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE. THE MAKER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THE MAKER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE MAKER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. 6. Expenses. The Maker agrees to pay all costs and expenses, including reasonable attorneys' fees, incurred by the Holder in connection with the successful enforcement of this Note, as well as all fees and expenses incurred in connection with the successful enforcement of any judgment, and hereby waives presentment for payment, protest, notice of protest, demand for payment and notice of dishonor. ULTRA CLEAN HOLDINGS, INC. By: ----------------------- Name: Title: EXHIBIT B-1 TO RESTRICTED SECURITIES PURCHASE AGREEMENT ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, ________________, hereby sell, assign and transfer to ____________________________________________ (________) shares of the Common Stock of Ultra Clean Holdings, Inc. (the "Company") in my name on the books of the Company represented by Certificate No(s). __________ (or the applicable portion thereof) and do hereby irrevocably constitute and appoint ______________, attorney, to transfer said stock on the books of the Company with full power of substitution in the premises. This Assignment Separate from Certificate may only be used in accordance with the Restricted Securities Purchase Agreement dated as of November 26, 2002. Dated: Signature: _______________________ PLEASE DO NOT FILL IN ANY OF THE BLANKS ON THIS PAGE. PLEASE SIGN ONLY WHERE INDICATED. EXHIBIT B-2 TO RESTRICTED SECURITIES PURCHASE AGREEMENT ASSIGNMENT FOR VALUE RECEIVED I, ________________, hereby sell, assign and transfer to ____________________________________________ $____________ principal amount of the Series A Note(s) of Ultra Clean Holdings, Inc. (the "Company"), or a portion thereof, in my name in the records of the Company and do hereby irrevocably constitute and appoint ______________, attorney, to transfer said note(s) on the books of the Company with full power of substitution in the premises. This Assignment may only be used in accordance with the Restricted Securities Purchase Agreement dated as of November 26, 2002. Dated: Signature: _______________________ PLEASE DO NOT FILL IN ANY OF THE BLANKS ON THIS PAGE. PLEASE SIGN ONLY WHERE INDICATED. EXHIBIT C TO RESTRICTED SECURITIES PURCHASE AGREEMENT ELECTION TO INCLUDE IN GROSS INCOME FOR YEAR OF TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B) OF THE INTERNAL REVENUE CODE FILE ONE COPY WITH YOUR EMPLOYER AND ONE COPY WITH IRS OFFICE WHERE YOU FILE YOUR TAX RETURN WITHIN 30 DAYS OF DATE OF TRANSFER SHOWN IN ITEM 3, BELOW AND ATTACH ONE COPY TO YOUR TAX RETURN FOR THE CURRENT TAX YEAR. THE FILING WITH THE IRS OFFICE SHOULD BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED. The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder: 1. The name, address and taxpayer identification number of the undersigned are: --------------------------------------------------- Name --------------------------------------------------- Address --------------------------------------------------- Social Security Number 2. Description of property with respect to which the election is being made: ___________ shares of Common Stock, par value $0.001 per share, of Ultra Clean Holdings, Inc. ("Common Stock") 3. Date on which property was transferred is November 26, 2002. 4. Nature of restrictions to which property is subject: The property is Common Stock which is subject to a substantial risk of forfeiture within the meaning of Section 83(c)(1) of the Internal Revenue Code upon a termination of employment occurring prior to full vesting of shares. 5. The fair market value at the time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the property with respect to which this election is being made is $0.25 per share. 6. The amount paid by taxpayer for said property is $0 per share. 7. A copy of this statement has been furnished to: Ultra Clean Holdings, Inc. (Name of Employer) Dated: ______ __, 2002 ______________________________ (Signature of Taxpayer) EXHIBIT D TO RESTRICTED SECURITIES PURCHASE AGREEMENT SECURITYHOLDERS' AGREEMENT dated as of November 26, 2002 among ULTRA CLEAN HOLDINGS, INC. FP-ULTRA CLEAN, L.L.C. and CERTAIN OTHER PERSONS NAMED HEREIN TABLE OF CONTENTS
Page ---- ARTICLE 1 Definitions Section 1.01. Definitions 1 ARTICLE 2 Corporate Governance Section 2.01. Composition of the Board 5 Section 2.02. Removal 6 Section 2.03. Vacancies 6 Section 2.04. Meetings 6 Section 2.05. Action by the Board 7 Section 2.06. Charter or Bylaw Provisions 7 ARTICLE 3 Restrictions on Transfer Section 3.01. General Restrictions on Transfer 7 Section 3.02. Legends 8 Section 3.03. Allowable Transferees 9 Section 3.04. Restrictions On Transfer 9 ARTICLE 4 Drag-along Rights; Preemptive Rights Section 4.01. Drag-Along Rights 9 Section 4.02. Additional Conditions to Drag-Along Sales 12 Section 4.03. Preemptive Rights 12 ARTICLE 5 Amendments To The Notes Section 5.01. Amendments to the Notes by FP 14 ARTICLE 6 Certain Covenants and Agreements Section 6.01. Confidentiality 14 Section 6.02. Lock-Up Agreements 15 Section 6.03. Conflicting Agreements 16
ARTICLE 7 Miscellaneous Section 7.01. Binding Effect; Assignability; Benefit 16 Section 7.02. Notices 17 Section 7.03. Waiver; Amendment 17 Section 7.04. Governing Law 18 Section 7.05. Jurisdiction 18 Section 7.06. WAIVER OF JURY TRIAL 18 Section 7.07. Specific Enforcement 18 Section 7.08. Counterparts; Effectiveness 19 Section 7.09. Entire Agreement 19 Section 7.10. Termination 19 Section 7.11. Captions 19 Section 7.12. Severability 19 Exhibit A Joinder Agreement

ii SECURITYHOLDERS' AGREEMENT AGREEMENT (this "AGREEMENT") dated as of November 26, 2002 among (i) Ultra Clean Holdings, Inc., a Delaware corporation (the "COMPANY"), (ii) FP-Ultra Clean, L.L.C. ("FP"), and (iii) certain other Persons listed on the signature pages hereof (the "MANAGEMENT SHAREHOLDERS"). "FP" and "Management Shareholders" shall each mean, if such entities or persons shall have Transferred any of their "Company Securities" to any of their respective "Allowable Transferees" (as such terms are defined below), such entities or persons and such Allowable Transferees, taken together, and any right, obligation or action that may be exercised or taken at the election of such entities or persons may be taken at the election of such entities or persons and such Allowable Transferees. W I T N E S S E T H : WHEREAS, pursuant to the Securities Purchase Agreements, certain parties hereto are or will be acquiring shares of common stock and senior notes of the Company; WHEREAS, the parties hereto desire to enter into this Agreement to govern certain of their rights, duties and obligations after consummation of the transactions contemplated by the Securities Purchase Agreements; NOW, THEREFORE, in consideration of the covenants and agreements contained herein and in the Securities Purchase Agreements, the parties hereto agree as follows: Article 1 Definitions Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of this definition, the term "CONTROL" (including, with correlative meanings, the terms "CONTROLLING", CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AGGREGATE OWNERSHIP" means: (i) with respect to any Shareholder or group of Shareholders, and with respect to any class of equity Company Securities, the total amount of such class of equity Company Securities Beneficially Owned (without duplication) by such Shareholder or group of Shareholders as of the date of such calculation, calculated on a Fully-Diluted basis; and (ii) with respect to any Noteholder or group of Noteholders, and with respect to any class of debt Company Securities (including, but not limited to, the Notes), the total aggregate amount of principal plus accrued but unpaid interest under such debt Company Securities, which are Beneficially Owned by such Noteholder or group of Noteholders as of the date of such calculation. "ALLOWABLE TRANSFEREE" means (i) in the case of FP, any Person, and (ii) in the case of any Other Shareholder, (A) a Person to whom Common Shares are Transferred from such Other Shareholder by will or the laws of descent and distribution or as a result of other donative transfers to Family Members or (B) the Company. "BENEFICIALLY OWED" and "BENEFICIALLY OWN" shall have the meaning ascribed in Rule 13d-3 of the Securities Act. "BOARD" means the board of directors of the Company. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in San Francisco are authorized by law to close. "BYLAWS" means the Bylaws of the Company, as amended from time to time. "CHARTER" means the Amended and Restated Certificate of Incorporation of the Company, as the same may be amended from time to time. "CLOSING DATE" means November 15, 2002. "COMMON SHARES" means shares of Common Stock. "COMMON STOCK" means the common stock, par value $0.001 per share, of the Company and any stock into which such Common Stock may thereafter be converted or changed. "COMPANY SECURITIES" means (i) the Common Stock, (ii) securities convertible into or exchangeable for Common Stock, (iii) any other equity or equity-linked security issued by the Company, (iv) options, warrants or other 2 rights to acquire Common Stock or any other equity or equity-linked security issued by the Company and (v) the Notes. "DRAG-ALONG PORTION" means, with respect to any Other Shareholder and any class of Company Securities, (i) the Aggregate Ownership of such class of Company Securities by such Other Shareholder multiplied by (ii) a fraction the numerator of which is the number of such class of Company Securities proposed to be sold by the Drag-Along Seller in the applicable Drag-Along Sale under Section 4.01 and the denominator of which is the Aggregate Ownership of such class of Company Securities by the Drag-Along Seller. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FAIR MARKET VALUE" means the fair market value of the Company Securities as determined in good faith by the Board. "FAMILY MEMBER" means, with respect to an Other Shareholder, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing such Other Shareholder's household (other than a tenant or employee), or a trust for the exclusive benefit of these persons (or such Other Shareholder). "FULLY-DILUTED" means, with respect to any class of Company Securities, all outstanding shares and all shares issuable in respect of securities convertible into or exchangeable for such shares, all stock appreciation rights, options, warrants and other rights to purchase or subscribe for such Company Securities or securities convertible into or exchangeable for such Company Securities, provided that, if any of the foregoing stock appreciation rights, options, warrants or other rights to purchase or subscribe for such Company Securities are subject to vesting, the Company Securities subject to vesting shall be included in the definition of "Fully-Diluted" only upon and to the extent of such vesting. "NOTEHOLDER" means at any time, any Person (other than the Company) who shall then be a party to or bound by this Agreement, so long as such Person shall Beneficially Own any Notes. "NOTES" means those Series A Senior Notes issued by the Company pursuant to the Securities Purchase Agreements. "OTHER SECURITYHOLDERS" means all Securityholders other than FP. "OTHER SHAREHOLDERS" means all Shareholders other than FP. 3 "PERSON" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PUBLIC OFFERING" means an underwritten public offering of equity securities of the Company pursuant to an effective registration statement under the Securities Act, other than pursuant to a registration statement on Form S-4 or Form S-8 or any similar or successor form. "QUALIFIED PUBLIC OFFERING" means a Public Offering with gross proceeds of at least $25,000,000. "RULE 144" means Rule 144 (or any successor provisions) under the Securities Act. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES PURCHASE AGREEMENT(S)" means the Stock Purchase Agreement(s) dated on or about the Closing Date between FP and the Company with respect to the purchase of Common Stock, the Note Purchase Agreement(s) dated on or about the Closing Date between FP and the Company with respect to the purchase of Notes, and each Restricted Securities Purchase Agreement dated as of November 26, 2002 between the Company and each Management Shareholder, as applicable. "SECURITYHOLDER" means at any time, any Person (other than the Company) who shall then be a party to or bound by this Agreement, so long as such Person shall Beneficially Own any Company Securities. "SHAREHOLDER" means any Securityholder who Beneficially Owns equity Company Securities. "SHARES" means Common Shares. "SUBSIDIARY" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "TRANSFER" means, with respect to any Company Securities, (i) when used as a verb, to sell, assign, dispose of, exchange, pledge, encumber, hypothecate or otherwise transfer such Company Securities or any participation or interest therein, whether directly or indirectly, or agree or commit to do any of the foregoing and (ii) when used as a noun, a direct or indirect sale, assignment, disposition, exchange, pledge, encumbrance, hypothecation, or other transfer of 4 such Company Securities or any participation or interest therein or any agreement or commitment to do any of the foregoing. (b) Each of the following terms is defined in the Section set forth opposite such term:
TERM SECTION - ---- ------- Cause................................... 2.02 Company................................. Preamble Confidential Information................ 6.01(b) Drag-Along Rights....................... 4.01(a) Drag-Along Sale......................... 4.01(a) Drag-Along Sale Notice.................. 4.01(a) Drag-Along Sale Notice Period........... 4.01(a) Drag-Along Sale Price................... 4.01(a) Drag-Along Seller....................... 4.01(a) Drag-Along Transferee................... 4.01(a) Management Shareholders................. Preamble Pro Rata Share.......................... Section 4.03 Replacement Nominee..................... 2.03(a)
Article 2 Corporate Governance Section 2.01. Composition of the Board. (a) The Board shall initially consist of three directors, of whom two shall be designated by FP, and one shall be the then Chief Executive Officer of the Company. The size of the Board may be increased by amendment of the Company's Charter or Bylaws. (b) If at any time the Board shall be expanded to a larger number of directors, a majority of the Board shall be designated by FP; provided that the number of directors to be designated by FP shall be adjusted upwards, if necessary, so that at no time are the number of directors designated by FP less than a majority of the Board. (c) Each Shareholder agrees that, if at any time it is then entitled to vote for the election of directors to the Board, it shall vote its Shares or execute proxies or written consents, as the case may be, and take all other necessary action (including causing the Company to call a special meeting of shareholders) in order to ensure that the composition of the Board is as set forth in this Section 2.01. 5 (d) The Company agrees to cause each individual designated pursuant to Section 2.01(a) or 2.03 to be nominated to serve as a director on the Board, and to take all other necessary actions (including calling a special meeting of the Board and/or shareholders) to ensure that the composition of the Board is as set forth in this Section 2.01. Section 2.02. Removal. Each Shareholder agrees that, if at any time it is then entitled to vote for the removal of directors from the Board, it shall not vote any of its Shares in favor of the removal of any director who shall have been designated pursuant to Section 2.01, unless such removal shall be for Cause or the Person or Persons entitled to designate or nominate such director shall have consented to such removal in writing, provided that, if the Person or Persons entitled to designate any director pursuant to Section 2.01 shall request in writing the removal, with or without Cause, of such director, such Shareholder shall vote its Shares in favor of such removal. Removal for "CAUSE" shall mean removal of a director because of such director's (a) willful and continued failure substantially to perform his or her duties with the Company in his or her established position, (b) willful conduct that is injurious, monetarily or otherwise, to the Company or any of its Subsidiaries, (c) conviction for, or guilty plea to, a felony or a crime involving moral turpitude, (d) abuse of illegal drugs or other controlled substances or habitual intoxication or (e) willful breach of this Agreement. Section 2.03. Vacancies. If, as a result of death, disability, retirement, resignation, removal (with or without Cause) or otherwise, there shall exist or occur any vacancy on the Board: (a) the Person or Persons entitled under Section 2.01 to designate such director whose death, disability, retirement, resignation or removal resulted in such vacancy, subject to the provisions of Section 2.01, may designate another individual (the "REPLACEMENT NOMINEE") to fill such vacancy and serve as a director on the Board; and (b) subject to Section 2.01, each Shareholder then entitled to vote for the election of directors to the Board agrees that it shall vote its Shares, or execute proxies or written consents, as the case may be, in order to ensure that the Replacement Nominee be elected to the Board. Section 2.04. Meetings. The Board shall hold a regularly scheduled meeting at least once every calendar quarter. The Company shall pay all reasonable out-of-pocket expenses incurred by each director in connection with attending regular and special meetings of the Board and any committee thereof, and any such meetings of the board of directors of any Subsidiary of the Company and any committee thereof. 6 Section 2.05. Action by the Board. (a) A quorum of the Board shall consist of two directors, of whom at least one shall be a designee of FP, provided that FP shall have the right at any time to increase the number of directors necessary to constitute such quorum; and provided further that any increase in the number of directors necessary to constitute a quorum shall also require that a majority of the quorum shall be designees of FP. (b) All actions of the Board shall require (i) the affirmative vote of at least a majority of the directors present at a duly-convened meeting of the Board at which a quorum is present or (ii) the unanimous written consent of the Board, provided that, if there is a vacancy on the Board and an individual has been nominated to fill such vacancy, the first order of business shall be to fill such vacancy. (c) The Board may create executive, compensation, audit and such other committees as it may determine. FP shall be entitled to majority representation on any committee created by the Board. Section 2.06. Charter or Bylaw Provisions. Each Shareholder agrees to vote its Shares or execute proxies or written consents, as the case may be, and to take all other actions necessary, to ensure that the Company's Charter and Bylaws (a) facilitate, and do not at any time conflict with, any provision of this Agreement and (b) permit each Shareholder to receive the benefits to which each such Shareholder is entitled under this Agreement. The Charter and Bylaws shall provide for (a) the elimination of the liability of each director on the Board to the maximum extent permitted by applicable law and (b) indemnification of each director on the Board for acts on behalf of the Company to the maximum extent permitted by applicable law. Article 3 Restrictions on Transfer Section 3.01. General Restrictions on Transfer. (a) Each Securityholder understands and agrees that the Company Securities purchased pursuant to its Securities Purchase Agreement have not been registered under the Securities Act and are restricted securities under such Act and the rules and regulations promulgated thereunder. Each Securityholder agrees that it shall not Transfer any Company Securities (or solicit any offers in respect of any Transfer of any Company Securities), except in compliance with the Securities Act, any other applicable securities or "blue sky" laws, the terms and conditions of this Agreement, the terms and conditions of the applicable Securities Purchase Agreement and with any terms and conditions contained in the Company Securities themselves. 7 (b) Any attempt to Transfer any Company Securities not in compliance with this Agreement, with the applicable Securities Purchase Agreement and with any terms and conditions contained in the Company Securities themselves shall be null and void, and the Company shall not, and shall cause any transfer agent not to, give any effect in the Company's stock records or other applicable records to such attempted Transfer. Section 3.02. Legends. (a) In addition to any other legend that may be required, and unless an equivalent legend has been required by the applicable Securities Purchase Agreement, each certificate or promissory note for Company Securities issued to any Securityholder shall bear a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE RESTRICTED SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 26, 2002 BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SECURITIES, AND THE SECURITYHOLDERS' AGREEMENT DATED AS OF NOVEMBER 26, 2002, BETWEEN THE ISSUER, THE ORIGINAL HOLDER OF THESE SECURITIES AND THE OTHER PARTIES NAMED THEREIN, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE ISSUER OF THESE SECURITIES OR ANY SUCCESSOR THERETO. SUCH TRANSFER RESTRICTIONS ARE BINDING ON ALLOWABLE TRANSFEREES (AS SPECIFIED THEREIN) OF THESE SECURITIES. (b) If any Company Securities cease to be subject to all restrictions on Transfer set forth in this Agreement, the Company, upon the request of the written holder thereof, shall issue to such holder a new certificate evidencing such Company Securities without the legend required by Section 3.02(a) endorsed thereon; provided, however, that if a legend is otherwise required by the 8 applicable Securities Purchase Agreement or by the terms of the security itself, this Section 3.02(b) shall not obligate the Company to remove such legend. Section 3.03. Restrictions On Transfer. Except with the prior written consent of the Company and FP, no Securityholder shall Transfer any of its Company Securities, except (i) to one or more of its Allowable Transferees in accordance with Section 3.04, (ii) in accordance with any restrictions contained in the applicable Securities Purchase Agreement, and (iii) in accordance with any restrictions contained in the terms and conditions of the Company Securities themselves. Section 3.04. Allowable Transferees. Notwithstanding anything in this Agreement to the contrary, any Securityholder may at any time Transfer any or all of its Company Securities to one or more of its Allowable Transferees without the consent of the Board or any other Securityholder or group of Securityholders so long as (a) such Allowable Transferee shall have agreed in writing to be bound by the terms of this Agreement in the form of Exhibit A attached hereto, and (b) the Transfer to such Allowable Transferee is in compliance with the Securities Act and any other applicable securities or "blue sky" laws. ARTICLE 4 Drag-along Rights; Preemptive Rights Section 4.01. Drag-Along Rights. (a) Subject to Sections 4.01(e), and 4.02, if FP (the "DRAG-ALONG SELLER") proposes: (i) to Transfer not less than 50% of its Aggregate Ownership of any class of Company Securities to a Third Party (the "DRAG-ALONG TRANSFEREE") in a bona fide sale, or (ii) to Transfer Company Securities in any amount that, together with the Company Securities to be Transferred by the Other Shareholders pursuant to this Section 4.01(a), constitutes more than 50% of the voting power or the outstanding principal, as the case may be, of any class of the Company Securities then outstanding, (each of the Transfers referred to in clauses (i) and (ii) above, a "DRAG-ALONG SALE"), the Drag-Along Seller may at its option require all Other Securityholders (i) to Transfer the Drag-Along Portion of such class of Company Securities ("DRAG-ALONG RIGHTS") then held by every Other Securityholder, and (ii) in the case of a Drag-Along Sale involving Common Shares (but subject to and at the closing of the Drag-Along Sale), to exercise such number of options for Common Shares that are vested (or would become vested on or prior to the consummation 9 of the Drag-Along Sale) held by every Other Securityholder as is required in order that a sufficient number of Common Shares are available to Transfer the relevant Drag-Along Portion of Company Securities of each such Other Securityholder, in each case for the same consideration per unit of the relevant class of Company Securities and otherwise on the same terms and conditions as the Drag-Along Seller, provided that any Other Securityholder that holds such options the exercise price per share of which is greater than the per share price at which the Common Shares are to be Transferred to the Drag-Along Transferee, if required by the Drag-Along Seller to exercise such options, may, in place of such exercise, submit to irrevocable cancellation thereof without any liability for payment of any exercise price with respect thereto. If the Drag-Along Sale is not consummated with respect to any Common Shares acquired upon exercise of such options, or the Drag-Along Sale is not consummated, such options shall be deemed not to have been exercised or canceled, as applicable. The Drag-Along Seller shall provide notice of such Drag-Along Sale to the Other Securityholders (a "DRAG-ALONG SALE NOTICE") not less than 10 Business Days prior to the proposed Drag-Along Sale. The Drag-Along Sale Notice shall identify the transferee, the number and class of Company Securities subject to the Drag-Along Sale, the consideration for which a Transfer is proposed to be made (the "DRAG-ALONG SALE PRICE") and all other material terms and conditions of the Drag-Along Sale. The number of Company Securities to be sold by each Other Securityholder shall be the Drag-Along Portion of the class of Company Securities that such Other Securityholder owns. Each Other Securityholder shall be required to participate in the Drag-Along Sale on the terms and conditions set forth in the Drag-Along Sale Notice and to tender all its Company Securities as set forth below. The price payable in such Transfer shall be the Drag-Along Sale Price. Not later than five Business Days after the date of the Drag-Along Sale Notice (the "DRAG-ALONG SALE NOTICE PERIOD"), each of the Other Securityholders shall deliver to a representative of the Drag-Along Seller (designated in the Drag-Along Sale Notice) the certificates and other applicable instruments representing the Company Securities of such Other Securityholder to be included in the Drag-Along Sale, together with a limited power-of-attorney authorizing the Drag-Along Seller or such representative to Transfer such Company Securities on the terms set forth in the Drag-Along Notice and wire transfer instructions for payment of the cash portion of the consideration to be received in such Drag-Along Sale, or, if such delivery is not permitted by applicable law, an unconditional agreement to deliver such Company Securities pursuant to this Section 4.01(a) at the closing for such Drag-Along Sale against delivery to such Other Securityholder of the consideration therefor. If an Other Securityholder should fail to deliver such certificates to the Drag-Along Seller, the Company (subject to reversal under Section 4.01(b)) shall cause the books and records of the Company to show that such Company Securities are bound by the provisions of this Section 4.01(a) and that such Company Securities shall be 10 Transferred to the Drag-Along Transferee immediately upon surrender for Transfer by the holder thereof. (b) The Drag-Along Seller shall have a period of 180 days from the date of receipt of the Drag-Along Sale Notice to consummate the Drag-Along Sale on the terms and conditions set forth in such Drag-Along Sale Notice, provided that, if such Drag-Along Sale is subject to regulatory approval, such 180-day period shall be extended until the expiration of 10 Business Days after all such approvals have been received, but in no event later than 365 days following the effective date of the Drag-Along Sale Notice. If the Drag-Along Sale shall not have been consummated during such period, the Drag-Along Seller shall return to each of the Other Securityholders the limited power-of-attorney and all certificates and other applicable instruments representing Company Securities that such Other Securityholders delivered for Transfer pursuant hereto, together with any other documents in the possession of the Drag-Along Seller executed by the Other Securityholders in connection with such proposed Transfer, and all the restrictions on Transfer contained in this Agreement or otherwise applicable at such time with respect to such Company Securities owned by the Other Securityholders shall again be in effect. (c) Concurrently with the consummation of the Transfer of Company Securities pursuant to this Section 4.01, the Drag-Along Seller shall give notice thereof to the Other Securityholders, shall remit to each of the Other Securityholders that have surrendered their certificates and other applicable instruments the total consideration (the cash portion of which is to be paid by wire transfer in accordance with such Other Securityholder's wire transfer instructions, or otherwise as directed by such Other Securityholder) for the Company Securities Transferred pursuant hereto and shall furnish such other evidence of the completion and time of completion of such Transfer and the terms thereof as may be reasonably requested by such Other Securityholders. (d) Notwithstanding anything contained in this Section 4.01, there shall be no liability on the part of the Drag-Along Seller to the Other Securityholders (other than the obligation to return the limited power-of-attorney and the certificates and other applicable instruments representing Company Securities received by the Drag-Along Seller) if the Transfer of Company Securities pursuant to this Section 4.01 is not consummated for whatever reason, regardless of whether the Drag-Along Seller has delivered a Drag-Along Sale Notice. Whether to effect a Transfer of Company Securities pursuant to this Section 4.01 by the Drag-Along Seller is in the sole and absolute discretion of the Drag-Along Seller. 11 (e) The provisions of this Section 4.01 shall not apply to any proposed Transfer of Company Securities by the Drag-Along Seller in a Public Offering or pursuant to Rule 144. Section 4.02. Additional Conditions to Drag-Along Sales. Notwithstanding anything contained in Section 4.01 or 4.02, the rights and obligations of the Other Securityholders to participate in a Drag-Along Sale under Section 4.01 are subject to the following conditions: (a) upon the consummation of such Drag-Along Sale, all of the Securityholders participating therein will receive the same form and amount of consideration per share, or, if any Securityholders are given an alternative as to the form and amount of consideration to be received, all Securityholders participating therein will be given the same alternative; and (b) each Other Securityholder shall (i) make such representations, warranties and covenants and enter into such definitive agreements as are customary for transactions of the nature of the proposed Transfer, (ii) benefit from all of the same provisions of the definitive agreements as the Drag-Along Seller, and (iii) be required to bear their proportionate share of any indemnities, escrows, holdbacks or adjustments in purchase price. Section 4.03. Preemptive Rights. (a) The Company shall give each Management Shareholder notice (an "ISSUANCE NOTICE") of any proposed issuance by the Company of any equity Company Securities at least 10 Business Days prior to the proposed issuance date. The Issuance Notice shall specify the price at which such equity Company Securities are to be issued and the other material terms of the issuance. Subject to Section 4.03(e) below, each Management Shareholder shall be entitled to purchase up to such Management Shareholder's Pro Rata Share of the equity Company Securities proposed to be issued, at the price and on the terms specified in the Issuance Notice. "PRO RATA SHARE" means, with respect to a Management Shareholder, the fraction that results from dividing (i) such Management Shareholder's Aggregate Ownership (immediately before giving effect to the issuance) of Common Stock by (ii) the Aggregate Ownership (immediately before giving effect to the issuance) of Common Stock by all Shareholders. (b) A Management Shareholder shall deliver notice of its election to purchase such equity Company Securities to the Company and FP within five Business Days of receipt of the Issuance Notice. Such delivery of notice (which notice shall specify the number (or amount) of equity Company Securities to be purchased by the Management Shareholder submitting such notice) to the Company shall constitute exercise by such Management Shareholder of its rights under this Section 4.03 and a binding agreement of such Management Shareholder to purchase, at the price and on the terms specified in the Issuance 12 Notice, the number of shares (or amount) of equity Company Securities specified in such Management Shareholder's notice. If, at the termination of such five-Business-Day period, any Management Shareholder shall not have exercised its rights to purchase any of its Pro Rata Share of such equity Company Securities, such Management Shareholder shall be deemed to have waived all of its rights under this Section 4.03 with respect to the purchase of such equity Company Securities. (c) If any Management Shareholder shall not have exercise its rights to purchase to the full amount of its Pro Rata Share of such equity Company Securities, such Management Shareholder shall be deemed to have waived all of its rights under this Section 4.03 with respect to any future issuance of equity Company Securities. (d) The Company shall have 180 days from the date of the Issuance Notice to consummate the proposed issuance and sale of any or all of such equity Company Securities that the Management Shareholders have not elected or were not eligible to purchase at the price and upon terms that are not materially less favorable to the Company than those specified in the Issuance Notice, provided that, if such issuance is subject to regulatory approval, such 180-day period shall be extended until the expiration of 10 Business Days after all such approvals have been received, but in no event later than 365 days from the date of the Issuance Notice. (e) At the consummation of the issuance and sale of such equity Company Securities, the Company shall issue certificates representing the equity Company Securities to be purchased by each Management Shareholder exercising preemptive rights pursuant to this Section 4.03 registered in the name of such Management Shareholder, against payment by such Management Shareholder of the purchase price for such equity Company Securities as specified in the Issuance Notice. If the Company proposes to issue any equity Company Securities after such 90-day period, it shall again comply with the procedures set forth in this Section 4.03. (f) Notwithstanding the foregoing, no Management Shareholder shall be entitled to purchase Company Securities as contemplated by this Section 4.03 in connection with issuances of Company Securities (i) to employees of the Company or any Subsidiary pursuant to employee benefit plans or arrangements approved by the Board (including upon the exercise of employee stock options granted pursuant to any such plans or arrangements), (ii) in connection with any bona fide, arm's length restructuring of outstanding debt of the Company or any Subsidiary, (iii) in connection with any bona fide, arm's-length direct or indirect merger, acquisition or similar transaction, (iv) pursuant to a Public Offering, (v) to a customer, supplier or joint venture partner of the Company or its 13 subsidiaries, or (vi) that are debt securities. The Company shall not be obligated to consummate any proposed issuance of Company Securities, nor be liable to any Management Shareholder if the Company has not consummated any proposed issuance of Company Securities pursuant to this Section 4.03 for whatever reason, regardless of whether it shall have delivered an Issuance Notice in respect of such proposed issuance. Article 5 Amendments To The Notes by FP Section 5.01. Amendments to the Notes by FP. Each Noteholder hereby agrees that if at any time FP and the Company agree to amend, modify, supplement, suspend or waive the Notes, or any provision thereof, all the Notes (or the applicable provisions thereof) will thereupon automatically be so amended, modified, supplement, suspended or waived; provided, however, that this Section 5.01 shall not apply to any amendment, modification, supplement, suspension or waiver of Section 2 of the Notes; provided further that any such action shall apply ratably to all the Notes. FP and the Company shall provide written notice to the Noteholders after any action taken pursuant to this Section 5.01, and the Company shall issue replacement notes reflecting such action to the Noteholders, if applicable. Article 6 Certain Covenants and Agreements Section 6.01. Confidentiality. (a) Each Other Securityholder agrees that Confidential Information furnished and to be furnished to it was and shall be made available in connection with such Other Securityholder's investment in the Company. Each Other Securityholder agrees that it shall use, and that it shall cause any Person to whom Confidential Information is disclosed pursuant to clause (i) below to use, the Confidential Information only in connection with its investment in the Company and not for any other purpose (including to disadvantage competitively the Company or any other Securityholder). Each Other Securityholder further acknowledges and agrees that it shall not disclose any Confidential Information to any Person, except that Confidential Information may be disclosed: (i) to the extent required by applicable law, rule or regulation (including complying with any oral or written questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process to which such Other Securityholder is subject, provided that such Other Securityholder give the Company prompt notice 14 of such request(s), to the extent practicable, so that the Company may seek an appropriate protective order or similar relief (and the Other Securityholder shall cooperate with such efforts by the Company, and shall in any event make only the minimum disclosure required by such law, rule or regulation)), or (ii) if the prior written consent of the Board shall have been obtained. Nothing contained herein shall prevent the use (subject, to the extent possible, to a protective order) of Confidential Information in connection with the assertion or defense of any claim by or against the Company or any Securityholder. (b) "CONFIDENTIAL INFORMATION" means any information concerning the Company or any Persons that are or become its Subsidiaries or Affiliates or the financial condition, business, operations or prospects of the Company or any such Persons in the possession of or furnished to any Securityholder (including by virtue of its present or former right to designate a director of the Company), provided that the term "Confidential Information" does not include information that (i) is or becomes generally available to the public other than as a result of a disclosure by a Securityholder or its partners, directors, officers, employees, agents, counsel, investment advisers or representatives (all such persons being collectively referred to as "REPRESENTATIVES") in violation of this Agreement, (ii) is or was available to such Securityholder on a non-confidential basis prior to its disclosure to such Securityholder or its Representatives by the Company or (iii) was or becomes available to such Securityholder on a non-confidential basis from a source other than the Company, which source is or was (at the time of receipt of the relevant information) not, to the best of such Securityholder's knowledge, bound by a confidentiality agreement with (or other confidentiality obligation to) the Company or another Person. Section 6.02. Lock-Up Agreements. Each Other Securityholder hereby agrees that, if so requested by the Company or any representative of the underwriters (the "MANAGING UNDERWRITER") in connection with any registration of the offering of any securities of the Company under the Securities Act, such Other Securityholder shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such lesser period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "MARKET STANDOFF PERIOD") following the date of the final prospectus in connection an underwritten offering of the Company's securities. Each Other Securityholder further agrees to enter into an agreement with the Managing Underwriter in respect of the preceding sentence if so requested by the Company and/or the Managing Underwriter. The Company may impose stop- 15 transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. Section 6.03. Conflicting Agreements. The Company and each Securityholder represents and agrees that it shall not (a) grant any proxy or enter into or agree to be bound by any voting trust or agreement with respect to the Company Securities, except as expressly contemplated by this Agreement, (b) enter into any agreement or arrangement of any kind with any Person with respect to its Company Securities inconsistent with the provisions of this Agreement or for the purpose or with the effect of denying or reducing the rights of any other Securityholder under this Agreement, including agreements or arrangements with respect to the Transfer or voting of its Company Securities or (c) act, for any reason, as a member of a group or in concert with any other Person in connection with the Transfer or voting of its Company Securities in any manner that is inconsistent with the provisions of this Agreement; provided, however, that notwithstanding any other provisions of this Agreement, in the event of any inconsistency or conflict between this Agreement and the applicable Securities Purchase Agreement, the Securities Purchase Agreement shall govern. This Agreement is expressly subject to the terms of the applicable Securities Purchase Agreement. Article 7 Miscellaneous Section 7.01. Binding Effect; Assignability; Benefit. (a) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. (b) Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any party hereto pursuant to any Transfer of Company Securities or otherwise, except that any Allowable Transferee acquiring Company Securities or Person acquiring Company Securities that is required or permitted by the terms of this Agreement or any employment agreement or stock purchase, option, stock option or other compensation plan of the Company or any Subsidiary to become a party hereto shall (unless already bound hereby) execute and deliver to the Company an agreement to be bound by this Agreement in the form of Exhibit A hereto and shall thenceforth be a "Securityholder", as such term is used in this Agreement. (c) Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 16 Section 7.02. Notices. All notices, requests and other communications to any party shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile transmission, if to the Company to: Ultra Clean Holdings, Inc. 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Attention: Dipanjan Deb Fax: 650-233-2999 with a copy to FP and Davis Polk & Wardwell at the addresses listed below. if to FP, to: FP-Ultra Clean, L.L.C. 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Attention: Dipanjan Deb Fax: 650-233-2999 with a copy to: Davis Polk & Wardwell 1600 El Camino Real Menlo Park, CA 94025 Attention: Alan Denenberg Fax: (650) 752-2111 All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Any notice, request or other written communication sent by facsimile transmission shall be confirmed by certified or registered mail, return receipt requested, posted within one Business Day, or by personal delivery, whether courier or otherwise, made within two Business Days after the date of such facsimile transmissions. Any Person that becomes a Securityholder shall provide its address and fax number to the Company. Section 7.03. Waiver; Amendment. (a) No provision of this Agreement may be waived except by an instrument in writing executed by the party against 17 whom the waiver is to be effective. No provision of this Agreement may be amended or otherwise modified except by an instrument in writing executed by the Company with approval of the Board and Shareholders holding at least 50% of the outstanding Common Shares held by the parties hereto at the time of such proposed amendment or modification. (b) In addition, any amendment or modification of any provision of this Agreement that would adversely affect FP may be effected only with the consent of FP. Section 7.04. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, without regard to the conflicts of laws rules of such state. Section 7.05. Jurisdiction. The parties hereby agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Northern District of California or any California State court sitting in San Jose, California, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any case of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of California, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient form. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 7.02 shall be deemed effective service of process on such party. Section 7.06. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 7.07. Specific Enforcement. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific 18 performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available. Section 7.08. Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Section 7.09. Entire Agreement. This Agreement and the Securities Purchase Agreements constitute the entire agreement among the parties hereto and supersede all prior and contemporaneous agreements and understandings, both oral and written, among the parties hereto with respect to the subject matter hereof and thereof. Section 7.10. Termination. This Agreement shall terminate upon the written election of FP; provided that in the event this Agreement has not terminated prior to a Qualified Public Offering, Section 4.03 hereof shall terminate upon such Qualified Public Offering. Section 7.11. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 7.12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ULTRA CLEAN HOLDINGS, INC. By: _______________________ Name: Title: FP-ULTRA CLEAN, L.L.C. By: _______________________ Name: Title: Signature Page to Securityholders' Agreement MANAGEMENT SHAREHOLDER: __________________________ [Name] Address for Notices: Signature Page to Securityholders' Agreement EXHIBIT A JOINDER TO SECURITYHOLDERS' AGREEMENT This Joinder Agreement (this "JOINDER AGREEMENT") is made as of the date written below by the undersigned (the "JOINING PARTY") in accordance with the Securityholders' Agreement dated as of November 26, 2002 (the "SECURITYHOLDERS' AGREEMENT") among Ultra Clean Holdings, Inc., FP-Ultra Clean, L.L.C., and certain other persons listed on the signature page thereof, as the same may be amended from time to time. Capitalized terms used, but not defined, herein shall have the meaning ascribed to such terms in the Securityholders' Agreement. The Joining Party hereby acknowledges, agrees and confirms that, by its execution of this Joinder Agreement, the Joining Party shall be deemed to be a party to the Securityholders' Agreement as of the date hereof and shall have all of the rights and obligations of a "Shareholder" and a "Securityholder", as applicable, thereunder as if it had executed the Securityholders' Agreement. The Joining Party hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Securityholders' Agreement. IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of the date written below. Date: ___________ ___, ______ [NAME OF JOINING PARTY] By: _____________________ Name: Title: Address for Notices: EX-4.4 7 f95546orexv4w4.txt EXHIBIT 4.4 EXHIBIT 4.4 REGISTRATION RIGHTS AGREEMENT dated as of December 2, 2002 among ULTRA CLEAN HOLDINGS, INC. and FP-ULTRA CLEAN, L.L.C. TABLE OF CONTENTS Page ARTICLE 1 Definitions Section 1.01. Definitions....................................... 1 ARTICLE 2 Registration Rights Section 2.01. Demand Registration............................... 5 Section 2.02. Piggyback Registration............................ 7 Section 2.03. Registration Procedures........................... 9 Section 2.04. Indemnification by the Company................... 12 Section 2.05. Indemnification by Participating Shareholders.... 13 Section 2.06. Conduct of Indemnification Proceedings........... 14 Section 2.07. Contribution..................................... 15 Section 2.08. Participation in Public Offering................. 16 Section 2.09. Other Indemnification............................ 17 Section 2.10. Cooperation by the Company....................... 17 Section 2.11. No Transfer of Registration Rights............... 17 ARTICLE 3 Certain Covenants and Agreements Section 3.01. Reports.......................................... 17 Section 3.02. Limitations on Subsequent Registration Rights.... 18 Section 3.03. Conflicting Agreements........................... 19 ARTICLE 4 Miscellaneous Section 4.01. Binding Effect; Assignability; Benefit........... 19 Section 4.02. Notices.......................................... 19 Section 4.03. Waiver; Amendment; Termination................... 20 Section 4.04. Fees and Expenses................................ 20 Section 4.05. Governing Law.................................... 21 Section 4.06. Jurisdiction..................................... 21 Section 4.07. WAIVER OF JURY TRIAL............................. 21 Section 4.08. Specific Enforcement............................. 21 Section 4.09. Counterparts; Effectiveness...................... 21 Section 4.10. Entire Agreement................................. 22 Section 4.11. Captions......................................... 22 Section 4.12. Severability..................................... 22 Exhibit A: Joinder Agreement ii REGISTRATION RIGHTS AGREEMENT Registration Rights Agreement (this "AGREEMENT") dated as of December 2, 2002 among Ultra Clean Holdings, Inc., a Delaware corporation (the "COMPANY"), and FP-Ultra Clean, L.L.C. ("FP"). W I T N E S S E T H: WHEREAS, pursuant to the Subscription Agreements, FP has acquired securities of the Company; WHEREAS, the parties hereto desire to enter into this Agreement to govern certain of their rights, duties and obligations after consummation of the transactions contemplated by the Subscription Agreements; NOW, THEREFORE, in consideration of the covenants and agreements contained herein and in the Subscription Agreements, the parties hereto agree as follows: Article 1 Definitions Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person, provided that no securityholder of the Company shall be deemed an Affiliate of any other securityholder solely by reason of any investment in the Company. For the purpose of this definition, the term "CONTROL" (including, with correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AGGREGATE OWNERSHIP" means, with respect to any Shareholder or group of Shareholders, and with respect to any class of Company Securities, the total amount of such class of Company Securities "beneficially owned" (as such term is defined in Rule 13d-3 of the Exchange Act) (without duplication) by such Shareholder or group of Shareholders as of the date of such calculation, calculated on a Fully-Diluted basis. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in San Francisco, California are authorized by law to close. "COMMON STOCK" means the common stock, par value $0.001 per share, of the Company and any stock into which such Common Stock may thereafter be converted or changed. "COMPANY SECURITIES" means (i) the Common Stock, (ii) securities convertible into or exchangeable for Common Stock, (iii) any other equity or equity-linked security issued by the Company and (iv) options, warrants or other rights to acquire Common Stock or any other equity or equity-linked security issued by the Company. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FIRST PUBLIC OFFERING" means the first Public Offering after the date hereof. "FULLY-DILUTED" means, with respect to any class of Company Securities, all outstanding shares and all shares issuable in respect of securities convertible into or exchangeable for such shares, all stock appreciation rights, options, warrants and other rights to purchase or subscribe for such Company Securities or securities convertible into or exchangeable for such Company Securities. "NASD" means the National Association of Securities Dealers, Inc. "PERSON" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PUBLIC OFFERING" means an underwritten public offering of Registrable Securities of the Company pursuant to an effective registration statement under the Securities Act. "REGISTRABLE SECURITIES" means, at any time, any Shares and any securities issued or issuable in respect of such Shares by way of conversion, exchange, stock dividend, split or combination, recapitalization, merger, consolidation, other reorganization or otherwise until (i) a registration statement covering such Shares has been declared effective by the SEC and such Shares have been disposed of pursuant to such effective registration statement, (ii) such Shares are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met or such securities may be sold pursuant to Rule 144(k) or (iii) such Shares are otherwise Transferred, the Company has delivered a new certificate or other 2 evidence of ownership for such Shares not bearing the legend required pursuant to this Agreement and such Shares may be resold without subsequent registration under the Securities Act. "REGISTRATION EXPENSES" means any and all expenses incident to the performance of or compliance with any registration or marketing of securities, including all (i) registration and filing fees, and all other fees and expenses payable in connection with the listing of securities on any securities exchange or automated interdealer quotation system, (ii) fees and expenses of compliance with any securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the securities registered), (iii) expenses in connection with the preparation, printing, mailing and delivery of any registration statements, prospectuses and other documents in connection therewith and any amendments or supplements thereto, (iv) security engraving and printing expenses, (v) internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (vi) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letters requested pursuant to Section 2.03(h)), (vii) reasonable fees and expenses of any special experts retained by the Company in connection with such registration, (viii) reasonable fees, out-of-pocket costs and expenses of the Shareholders, including one counsel for all of the Shareholders participating in the offering selected (A) by FP, in the case of any offering in which FP participates, or (B) in any other case, by the Shareholders holding the majority of the Registrable Securities to be sold for the account of all Shareholders in the offering, (ix) fees and expenses in connection with any review by the NASD of the underwriting arrangements or other terms of the offering, and all fees and expenses of any "qualified independent underwriter," including the fees and expenses of any counsel thereto, (x) fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding any underwriting fees, discounts and commissions attributable to the sale of Registrable Securities, (xi) costs of printing and producing any agreements among underwriters, underwriting agreements, any "blue sky" or legal investment memoranda and any selling agreements and other documents in connection with the offering, sale or delivery of the Registrable Securities, (xii) transfer agents' and registrars' fees and expenses and the fees and expenses of any other agent or trustee appointed in connection with such offering, (xiii) expenses relating to any analyst or investor presentations or any "road shows" undertaken in connection with the registration, marketing or selling of the Registrable Securities, (xiv) fees and expenses payable in connection with any ratings of the Registrable Securities, including expenses relating to any presentations to rating agencies and (xv) all 3 out-of pocket costs and expenses incurred by the Company or its appropriate officers in connection with their compliance with Section 2.03(m). "RULE 144" means Rule 144 (or any successor provisions) under the Securities Act. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of Common Stock. "SHAREHOLDER" means at any time, any Person (other than the Company) who shall then be a party to or bound by this Agreement, so long as such Person shall "beneficially own" (as such term is defined in Rule 13d-3 of the Exchange Act) any Company Securities. "SUBSCRIPTION AGREEMENTS" means the Stock Purchase Agreements dated November 15, 2002, November 26, 2002 and December 2, 2002 between FP and the Company, any agreement between FP and the Company providing for the purchase by FP of any Company Securities entered into after the date of this Agreement, and any agreement between FP and a Shareholder providing for the Transfer of Company Securities from FP to such Shareholder. "SUBSIDIARY" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "TRANSFER" means, with respect to any Company Securities, (i) when used as a verb, to sell, assign, dispose of, exchange, pledge, encumber, hypothecate or otherwise transfer such Company Securities or any participation or interest therein, whether directly or indirectly, or agree or commit to do any of the foregoing and (ii) when used as a noun, a direct or indirect sale, assignment, disposition, exchange, pledge, encumbrance, hypothecation, or other transfer of such Company Securities or any participation or interest therein or any agreement or commitment to do any of the foregoing. (b) Each of the following terms is defined in the Section set forth opposite such term: TERM SECTION - ---- ------- Company................................. Preamble Confidential Information................ 3.01(b) Damages................................. 2.04 4 TERM SECTION - ---- ------- Demand Registration..................... 2.01(a) FP...................................... Preamble Indemnified Party....................... 2.06 Indemnifying Party...................... 2.06 Inspectors.............................. 2.03(g) Lock-Up Period.......................... 2.03 Maximum Offering Size................... 2.01(e) Piggyback Registration.................. 2.02(a) Records................................. 2.03(g) Registering Shareholders................ 2.01(a) Representatives......................... 3.01(b) Requesting Shareholder.................. 2.01(a) Article 2 Registration Rights Section 2.01. Demand Registration. (a) If at any time following the earlier of (x) 180 days after the effective date of the registration statement for the First Public Offering, (y) the expiration of the period during which the managing underwriters for the First Public Offering shall prohibit the Company from effecting any other public sale or distribution of Company Securities, and (z) one year after the date of this Agreement, the Company shall receive a request from FP (FP shall be referred to herein as the "REQUESTING SHAREHOLDER") that the Company effect the registration under the Securities Act of all or any portion of such Requesting Shareholder's Registrable Securities, and specifying the intended method of disposition thereof, then the Company shall promptly give notice of such requested registration (each such request shall be referred to herein as a "DEMAND REGISTRATION") at least 15 Business Days prior to the anticipated filing date of the registration statement relating to such Demand Registration to the other Shareholders and thereupon shall use its best efforts to effect, as expeditiously as possible, the registration under the Securities Act of: (i) all Registrable Securities for which the Requesting Shareholder has requested registration under this Section 2.01, and (ii) subject to the restrictions set forth in Sections 2.01(e) and 2.02, all other Registrable Securities of the same class as those requested to be registered by the Requesting Shareholder that any Shareholders with rights to request registration under Section 2.02 (all such Shareholders, together with the Requesting Shareholder, the "REGISTERING SHAREHOLDERS") have requested the Company to register by request 5 received by the Company within 15 Business Days after such Shareholders receive the Company's notice of the Demand Registration, all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, provided that the Company shall not be obligated to effect a Demand Registration unless the aggregate gross proceeds expected to be received from the sale of the Registrable Securities requested to be included in such Demand Registration equals or exceeds (x) $25,000,000, if such Demand Registration would constitute a First Public Offering, or (y) $5,000,000, in all other cases. In no event shall the Company be required to effect more than one Demand Registration hereunder within any ninety day period. (b) Promptly after the expiration of the 15-Business Day-period referred to in Section 2.01(a)(ii), the Company will notify all Registering Shareholders of the identities of the other Registering Shareholders and the number of shares of Registrable Securities requested to be included therein. At any time prior to the effective date of the registration statement relating to such registration, the Requesting Shareholders may revoke such request, without liability to any of the other Registering Shareholders, by providing a notice to the Company revoking such request. (c) The Company shall be liable for and pay all Registration Expenses in connection with any Demand Registration, regardless of whether such Registration is effected. (d) A Demand Registration shall not be deemed to have occurred: (i) unless the registration statement relating thereto (A) has become effective under the Securities Act and (B) has remained effective for a period of at least 180 days (or such shorter period in which all Registrable Securities of the Registering Shareholders included in such registration have actually been sold thereunder), provided that such registration statement shall not be considered a Demand Registration if, after such registration statement becomes effective, (1) such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court and (2) less than 75% of the Registrable Securities included in such registration statement have been sold thereunder; or (ii) if the Maximum Offering Size is reduced in accordance with Section 2.01(e) such that less than 662/3% of the Registrable Securities of the Requesting Shareholders sought to be included in such registration are included. 6 (e) If a Demand Registration involves an underwritten Public Offering and the managing underwriter advises the Company and the Requesting Shareholders that, in its view, the number of shares of Registrable Securities requested to be included in such registration (including any securities that the Company proposes to be included that are not Registrable Securities) exceeds the largest number of shares that can be sold without having an adverse effect on such offering, including the price at which such shares can be sold (the "MAXIMUM OFFERING SIZE"), the Company shall include in such registration, in the priority listed below, up to the Maximum Offering Size: (i) first, all Registrable Securities requested to be registered by FP, (ii) second, all Registrable Securities requested to be included in such registration by any other Registering Shareholder (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such other Shareholders on the basis of the relative number of Registrable Securities so requested to be included in such registration by each such Shareholder), and (iii) third, any securities proposed to be registered by the Company. (f) Upon notice to each Requesting Shareholder, the Company may postpone effecting a registration pursuant to this Section 2.01 on one occasion during any period of twelve consecutive months for a reasonable time specified in the notice but not exceeding 90 days (which period may not be extended or renewed), if (i) an investment banking firm of recognized national standing shall advise the Company and the Requesting Shareholders in writing that effecting the registration would materially and adversely affect an offering of securities of such Company the preparation of which had then been commenced or (ii) the Company is in possession of material non-public information the disclosure of which during the period specified in such notice the Company reasonably believes would not be in the best interests of the Company. Section 2.02. Piggyback Registration. (a) If at any time the Company proposes to register any Company Securities under the Securities Act (other than a registration on Form S-8 or S-4, or any successor forms, relating to Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or in connection with a direct or indirect acquisition by the Company of another Person), whether or not for sale for its own account, the Company shall each such time give prompt notice at least 30 Business Days prior to the anticipated filing date of the registration statement relating to such registration to each Shareholder, which notice shall set forth such Shareholder's rights under this Section 2.02 and shall offer such Shareholder the 7 opportunity to include in such registration statement the number of Registrable Securities of the same class or series as those proposed to be registered as each such Shareholder may request (a "PIGGYBACK REGISTRATION"), subject to the provisions of Section 2.02(b). Upon the request of any such Shareholder made within 15 Business Days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be registered by such Shareholder), the Company shall use its best efforts to effect the registration under the Securities Act of all Registrable Securities that the Company has been so requested to register by all such Shareholders, to the extent requisite to permit the disposition of the Registrable Securities so to be registered, provided that (i) if such registration involves an underwritten Public Offering, all such Shareholders requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected as provided in Section 2.03(f)(i) on the same terms and conditions as apply to the Company or the Requesting Shareholders, as applicable, and (ii) if, at any time after giving notice of its intention to register any Company Securities pursuant to this Section 2.02(a) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give notice to all such Shareholders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration. No registration effected under this Section 2.02 shall relieve the Company of its obligations to effect a Demand Registration to the extent required by Section 2.01. The Company shall pay all Registration Expenses in connection with each Piggyback Registration. (b) If a Piggyback Registration involves an underwritten Public Offering (other than any Demand Registration, in which case the provisions with respect to priority of inclusion in such offering set forth in Section 2.01(e) shall apply) and the managing underwriter advises the Company that, in its view, the number of Shares that the Company and such Shareholders intend to include in such registration exceeds the Maximum Offering Size, the Company shall include in such registration, in the following priority, up to the Maximum Offering Size: (i) first, so much of the Company Securities proposed to be registered for the account of the Company as would not cause the offering to exceed the Maximum Offering Size, (ii) second, so much of the Company Securities proposed to be included in such registration by FP as would not cause the offering to exceed the Maximum Offering size, and (iii) third, all Registrable Securities requested to be included in such registration by any other Shareholders pursuant to Section 2.02 (allocated, if necessary for the offering not to exceed the Maximum 8 Offering Size, pro rata among such Shareholders on the basis of the relative number of shares of Registrable Securities so requested to be included in such registration by each). Section 2.03. Registration Procedures. Whenever Shareholders request that any Registrable Securities be registered pursuant to Section 2.01 or 2.02, subject to the provisions of such Sections, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and, in connection with any such request: (a) The Company shall as expeditiously as possible prepare and file with the SEC a registration statement on any form for which the Company then qualifies or that counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 180 days, or in the case of a shelf registration statement, one year (or such shorter period in which all of the Registrable Securities of the Registering Shareholders included in such registration statement shall have actually been sold thereunder). (b) Prior to filing a registration statement or prospectus or any amendment or supplement thereto, the Company shall, if requested, furnish to each participating Shareholder and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter the Company shall furnish to such Shareholder and underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 or Rule 430A under the Securities Act and such other documents as such Shareholder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Shareholder. Each Shareholder shall have the right to request that the Company modify any information contained in such registration statement, amendment and supplement thereto pertaining to such Shareholder and the Company shall use its best efforts to comply with such request, provided, however, that the Company shall not have any obligation so to modify any information if the Company reasonably expects that so doing would cause the prospectus to contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 9 (c) After the filing of the registration statement, the Company shall (i) cause the related prospectus to be supplemented by any required prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act, (ii) comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the Registering Shareholders thereof set forth in such registration statement or supplement to such prospectus and (iii) promptly notify each Registering Shareholder holding Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC or any state securities commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (d) The Company shall use its best efforts to (i) register or qualify the Registrable Securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions in the United States as any Registering Shareholder holding such Registrable Securities reasonably (in light of such Shareholder's intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Shareholder to consummate the disposition of the Registrable Securities owned by such Shareholder, provided that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2.03(d), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (e) The Company shall immediately notify each Registering Shareholder holding such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly prepare and make available to each such Shareholder and file with the SEC any such supplement or amendment. (f) (i) FP shall have the right, in its sole discretion, to select an underwriter or underwriters in connection with any Public Offering resulting from the exercise by FP of a Demand Registration, which underwriter or underwriters may include any Affiliate of FP and (ii) the Company shall select an underwriter 10 or underwriters in connection with any other Public Offering, which underwriter or underwriters shall be reasonably acceptable to FP. In connection with any Public Offering, the Company shall enter into customary agreements (including an underwriting agreement in customary form) and take such all other actions as are required in order to expedite or facilitate the disposition of such Registrable Securities in any such Public Offering, including the engagement of a "qualified independent underwriter" in connection with the qualification of the underwriting arrangements with the NASD. (g) Upon execution of confidentiality agreements in form and substance reasonably satisfactory to the Company, the Company shall make available for inspection by any Registering Shareholder and any underwriter participating in any disposition pursuant to a registration statement being filed by the Company pursuant to this Section 2.03 and any attorney, accountant or other professional retained by any such Shareholder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS") as shall be reasonably necessary or desirable to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each Registering Shareholder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it or its Affiliates as the basis for any market transactions in the Company Securities unless and until such information is made generally available to the public. Each Registering Shareholder further agrees that, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, it shall give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (h) The Company shall furnish to each Registering Shareholder and to each such underwriter, if any, a signed counterpart, addressed to such Shareholder or underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the kind customarily covered by opinions or comfort letters, as the case may be, as a majority of such Shareholders or the managing underwriter therefor reasonably requests. 11 (i) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement or such other document covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. (j) The Company may require each such Registering Shareholder promptly to furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time request and such other information as may be legally required in connection with such registration. (k) Each such Registering Shareholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.03(e), such Shareholder shall forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Shareholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.03(e), and, if so directed by the Company, such Shareholder shall deliver to the Company all copies, other than any permanent file copies then in such Shareholder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. If the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 2.03(a)) by the number of days during the period from and including the date of the giving of notice pursuant to Section 2.03(e) to the date when the Company shall make available to such Shareholder a prospectus supplemented or amended to conform with the requirements of Section 2.03(e). (l) The Company shall use its best efforts to list all Registrable Securities covered by such registration statement on any securities exchange or quotation system on which any of the Registrable Securities are then listed or traded. (m) The Company shall have appropriate officers of the Company (i) prepare and make presentations at any "road shows" and before analysts and rating agencies, as the case may be, (ii) take other actions to obtain ratings for any Registrable Securities and (iii) otherwise use their best efforts to cooperate as reasonably requested by the underwriters in the offering, marketing or selling of the Registrable Securities. Section 2.04. Indemnification by the Company. The Company agrees to indemnify and hold harmless each Registering Shareholder holding Registrable 12 Securities covered by a registration statement, its officers, directors, employees, partners and agents, and each Person, if any, who controls such Shareholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys' fees and expenses) ("DAMAGES") caused by or relating to any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by or relating to any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such Damages are caused by or related to any such untrue statement or omission or alleged untrue statement or omission so made based upon information furnished in writing to the Company by such Shareholder or on such Shareholder's behalf expressly for use therein, provided that, with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting any such Damages at or prior to the written confirmation of the sale of the Registrable Securities concerned to such Person if it is determined that the Company has provided such prospectus to such Shareholder and it was the responsibility of such Shareholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such Damages. The Company also agrees to indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act on substantially the same basis as that of the indemnification of the Shareholders provided in this Section 2.04. Section 2.05. Indemnification by Participating Shareholders. Each Registering Shareholder holding Registrable Securities included in any registration statement agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, directors and agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Shareholder, but only (i) with respect to information furnished in writing by such Shareholder or on such Shareholder's behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or 13 any preliminary prospectus or (ii) to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting any such Damages at or prior to the written confirmation of the sale of the Registrable Securities concerned to such Person if it is determined that it was the responsibility of such Shareholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. Each such Shareholder also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act on substantially the same basis as that of the indemnification of the Company provided in this Section 2.05. As a condition to including Registrable Securities in any registration statement filed in accordance with Article 2, the Company may require that it shall have received an undertaking reasonably satisfactory to it from any underwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities. No Registering Shareholder shall be liable under this Section 2.05 for any Damages in excess of the net proceeds realized by such Shareholder in the sale of Registrable Securities of such Shareholder to which such Damages relate. Section 2.06. Conduct of Indemnification Proceedings. If any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article 2, such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses, provided that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, in connection with any proceeding or related proceedings in the same jurisdiction, the Indemnifying Party shall not be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified 14 Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. 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 shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Without the prior written consent of the Indemnified Party, no Indemnifying Party shall effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such proceeding. Section 2.07. Contribution. If the indemnification provided for in this Article 2 is unavailable to the Indemnified Parties in respect of any Damages, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages (i) as between the Company and the Registering Shareholders holding Registrable Securities covered by a registration statement on the one hand and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and such Shareholders on the one hand and the underwriters on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and such Shareholders on the one hand and of such underwriters on the other in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations and (ii) as between the Company on the one hand and each such Shareholder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such Shareholder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and such Shareholders on the one hand and such underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and such Shareholders bear to the total underwriting discounts and commissions received by such underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and such Shareholders on the one hand and of such underwriters on the other 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 and such 15 Shareholders or by such underwriters. The relative fault of the Company on the one hand and of each such Shareholder on the other 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 such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Registering Shareholders agree that it would not be just and equitable if contribution pursuant to this Section 2.07 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 that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 2.07, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any Damages that such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Registering Shareholder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Shareholder were offered to the public (less underwriters' discounts and commissions) exceeds the amount of any Damages that such Shareholder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each Registering Shareholder's obligation to contribute pursuant to this Section 2.07 is several in the proportion that the proceeds of the offering received by such Shareholder bears to the total proceeds of the offering received by all such Registering Shareholders and not joint. Section 2.08. Participation in Public Offering. No Person may participate in any Public Offering hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and the provisions of this Agreement in respect of registration rights. 16 Section 2.09. Other Indemnification. Indemnification similar to that specified herein (with appropriate modifications) shall be given by the Company and each Registering Shareholder participating therein with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. Section 2.10. Cooperation by the Company. If any Shareholder shall transfer any Registrable Securities pursuant to Rule 144, the Company shall cooperate, to the extent commercially reasonable, with such Shareholder and shall provide to such Shareholder such information as such Shareholder shall reasonably request. Section 2.11. No Transfer of Registration Rights. None of the rights of Shareholders under this Article 2 shall be assignable by any Shareholder to any Person acquiring Securities in any Public Offering or pursuant to Rule 144. Article 3 Certain Covenants and Agreements Section 3.01. Reports. The Company agrees to furnish FP, for so long as FP owns any Company Securities: (a) as soon as practicable and, in any event within 20 days after the end of each month, the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such month and the related unaudited statement of operations and cash flow for such month, and for the portion of the fiscal year then ended, in each case prepared in accordance with GAAP, setting forth in comparative form the figures for the corresponding month and portion of the previous fiscal year, and the figures for the corresponding month and portion of the then current fiscal year as in the Company's annual operating budget, (b) as soon as practicable and, in any event, within 45 days after the end of each of the first three fiscal quarters, the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter and the related unaudited statement of operations and cash flow for such quarter and for the portion of the fiscal year then ended, in each case prepared in accordance with GAAP, (c) as soon as practicable and, in any event, within 90 days after the end of each fiscal year, (i) the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal year and the related audited statement of operations and cash flow for such fiscal year, and for the portion of the fiscal 17 year then ended, in each case prepared in accordance with GAAP and certified by Deloitte & Touche or another firm of independent public accountants of nationally recognized standing, together with a comparison of the figures in such financial statements with the figures for the previous fiscal year and the figures in the Company's annual operating budget, (ii) any management letters or other correspondence from such accountants and (iii) the Company's annual operating budget for the coming fiscal year, (d) promptly following the preparation thereof, a copy of any revisions to the annual operating budget delivered pursuant to clause (c) above, (e) promptly upon their becoming available, copies of (i) all financial statements, reports, notices and proxy statements sent or made generally available by the Company to any of its security holders, (ii) all regular and periodic reports and all registration statements and prospectuses filed by the Company with any securities exchange or with the SEC and (iii) all press releases and other statements made generally available by the Company to the public, (f) as soon as practicable and, in any event, within five Business Days after any officer of the Company obtains knowledge thereof, notice (with a description in reasonable detail, and stating the action that the Company is taking or proposes to take with respect thereto) of (i) the commencement of any material litigation, investigation or other proceeding to which the Company or any of its Subsidiaries is a party before any court or arbitrator or any governmental body, agency or official or (ii) the existence of any material default or breach under this Agreement or any other material contract or agreement to which the Company or any of its Subsidiaries is a party, and (g) as promptly as reasonably practicable, such other information with respect to the Company or any of its Subsidiaries as may reasonably be requested by FP. Section 3.02. Limitations on Subsequent Registration Rights. The Company agrees that it shall not enter into any agreement with any holder or prospective holder of any securities of the Company (a) that would allow such holder or prospective holder to include such securities in any Demand Registration or Piggyback Registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that their inclusion would not reduce the amount of the Registrable Securities of the Shareholders included therein or (b) on terms otherwise more favorable than this Agreement. The Company also represents and warrants to each Shareholder that it has not previously entered into any agreement with respect to any of its securities granting any registration rights to any Person. 18 Section 3.03. Conflicting Agreements. The Company represents and agrees that it shall not (a) grant any proxy or enter into or agree to be bound by any voting trust or agreement with respect to the Company Securities, except as expressly contemplated by this Agreement, (b) enter into any agreement or arrangement of any kind with any Person with respect to its Company Securities inconsistent with the provisions of this Agreement or for the purpose or with the effect of denying or reducing the rights of any other Shareholder under this Agreement, including agreements or arrangements with respect to the Transfer or voting of its Company Securities or (c) act, for any reason, as a member of a group or in concert with any other Person in connection with the Transfer or voting of its Company Securities in any manner that is inconsistent with the provisions of this Agreement. Article 4 Miscellaneous Section 4.01. Binding Effect; Assignability; Benefit. (a) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. (b) Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any party hereto pursuant to any Transfer of Company Securities or otherwise, except that, at the sole written election of FP, Persons to whom FP has Transferred Company Securities may (unless already bound hereby) execute and deliver to the Company an agreement to be bound by this Agreement in the form of Exhibit A hereto and shall thenceforth be a "Shareholder" for purposes of this Agreement. (c) Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 4.02. Notices. All notices, requests and other communications to any party shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile transmission, 19 if to the Company to: Ultra Clean Holdings, Inc. 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Attention: Dipanjan Deb Fax: 650-233-2999 if to FP, to: FP - Ultra Clean, L.L.C. 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Attention: Dipanjan Deb Fax: 650-233-2999 with a copy to: Davis Polk & Wardwell 1600 El Camino Real Menlo Park, CA 94025 Attention: Alan Denenberg Fax: (650) 752-2111 All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Any notice, request or other written communication sent by facsimile transmission shall be confirmed by certified or registered mail, return receipt requested, posted within one Business Day, or by personal delivery, whether courier or otherwise, made within two Business Days after the date of such facsimile transmissions. Any Person that becomes a Shareholder shall provide its address and fax number to the Company. Section 4.03. Waiver; Amendment; Termination. (a) No provision of this Agreement may be waived except by an instrument in writing executed by the party against whom the waiver is to be effective. No provision of this Agreement may be amended or otherwise modified except by an instrument in writing executed by the Company and FP. Section 4.04. Fees and Expenses. The Company shall pay all out-of-pocket costs and expenses of FP, including the reasonable fees and expenses of 20 counsel, incurred in connection with the preparation of this Agreement, or any amendment or waiver hereof, and the transactions contemplated hereby and all matters related hereto. Section 4.05. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, without regard to the conflicts of laws rules of such state. Section 4.06. Jurisdiction. The parties hereby agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Northern District of California or any California State court sitting in San Jose, California, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any case of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of California, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient form. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 4.02 shall be deemed effective service of process on such party. Section 4.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 4.08. Specific Enforcement. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available. Section 4.09. Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the 21 same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Section 4.10. Entire Agreement. This Agreement and the Subscription Agreement constitute the entire agreement among the parties hereto and supersede all prior and contemporaneous agreements and understandings, both oral and written, among the parties hereto with respect to the subject matter hereof and thereof. Section 4.11. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 4.12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. 22 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ULTRA CLEAN HOLDINGS, INC. By: ------------------------------- Name: Title: FP-ULTRA CLEAN, L.L.C. By: ------------------------------- Name: Title: EXHIBIT A JOINDER TO REGISTRATION RIGHTS AGREEMENT This Joinder Agreement (this "JOINDER AGREEMENT") is made as of the date written below by the undersigned (the "JOINING PARTY") in accordance with the Registration Rights Agreement dated as of November 26, 2002 (the "REISTRATION RIGHTS AGREEMENT") among Ultra Clean Holdings, Inc. and FP - Ultra Clean, L.L.C. ("FP"), as the same may be amended from time to time. Capitalized terms used, but not defined, herein shall have the meaning ascribed to such terms in the Shaeholders' Agreement. The Joining Party hereby acknowledges, agrees and confirms that, by its execution of this Joinder Agreement and with the written consent of FP, the Joining Party shall be deemed to be a party to the Registration Rights Agreement as of the date hereof and shall have all of the rights and obligations of a "Shareholder" thereunder as if it had executed the Registration Rights Agreement. The Joining Party hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Registration Rights Agreement. IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of the date written below. This Joinder Agreement shall not be effective unless and until FP has indicated its written consent hereof. Date: ___________ __, ____ [NAME OF JOINING PARTY] By: _____________________ Name: Title: Address for Notices: FP hereby consents to the joinder of the Joining Party to the Registration Rights Agreement. FP - Ultra Clean, L.L.C. By: _____________________ Name: Title: EX-10.1 8 f95546orexv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT ("AGREEMENT") dated as of November 15, 2002 by and among Ultra Clean Technology Systems and Service, Inc., a California corporation (together with its successors, the "COMPANY"), Ultra Clean Holdings, Inc., a Delaware corporation ("PARENT"), and Clarence L. Granger ("EXECUTIVE"), to be effective as of the Effective Time (as defined in the Merger Agreement). WHEREAS, Executive is currently employed by the Company and has entered into an Employment Agreement with the Company dated as of May 26, 2002 (the "EXISTING EMPLOYMENT AGREEMENT"), and a Change of Control Agreement with the Company dated as of June 1, 2002 (the "CHANGE OF CONTROL AGREEMENT"); WHEREAS, pursuant to an Agreement and Plan of Merger dated as of October 30, 2002 (the "MERGER AGREEMENT"), among the Company, Mitsubishi Corporation ("MITSUBISHI"), Mitsubishi International Corporation, Parent, and Clean Merger Company, the Company will become a subsidiary of Parent; WHEREAS, the Company and Parent consider it in their best interests to foster the continued employment of Executive with the Company or one of its affiliates from and after the Effective Time; WHEREAS, Executive is willing to continue his employment on and after the Effective Time on the terms hereinafter set forth in this Agreement; NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE 1 Position; Term Of Agreement Section 1.01. Position. (a) As of and following the Effective Time, Executive shall serve as President and Chief Executive Officer of the Company and shall report to the Board of Directors of the Company (the "BOARD"). Executive shall have such duties and authority, consistent with such position, as shall be determined from time to time by the Board. (b) During the Employment Term (as defined below), Executive will devote substantially all of his business time to the performance of his duties under this Agreement and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board. Section 1.02. Term. Executive shall be employed by the Company for a period (the "EMPLOYMENT TERM") commencing on the Effective Time and, subject to earlier termination or extension as provided herein, ending on the second anniversary of the Effective Time. ARTICLE 2 Compensation And Benefits Section 2.01. Base Salary. Commencing on the Effective Time, the Company shall pay Executive an annual base salary (the "BASE SALARY") at the annual rate of $240,000, payable in accordance with the payroll and personnel practices of the Company from time to time. Executive's compensation package shall be subject to periodic review by the Board or a committee of the Board. Section 2.02. Signing Bonus. The provisions set forth in Schedule I are incorporated herein. Section 2.03. Bonus. Executive shall be eligible to participate in an executive bonus plan in accordance with the terms and conditions of such plan. Section 2.04. Employee Benefits. (a) During the Employment Term, Executive shall be eligible for employee benefits (including fringe benefits, vacation and health, accident and disability insurance, and retirement plan participation) substantially similar to those benefits made available generally to senior executives of the Company, and Executive shall be entitled to participate in a deferred compensation plan and/or 401(k) plan to the extent the Company maintains such plans. (b) During the Employment Term, the Company will provide Executive with the use of a company-leased vehicle and will cover all related insurance and maintenance costs, consistent with Executive's existing arrangements as of the Effective Time. Section 2.05. Business And Travel Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of Executive's duties hereunder shall be reimbursed by the Company in accordance with the Company's policies as in effect from time to time. 2 ARTICLE 3 Certain Termination Benefits Section 3.01. Certain Events. (a) A "QUALIFYING EVENT" means (i) the termination of Executive's employment by the Company without Cause (other than by reason of Executive's death or disability) or (ii) the termination of Executive's employment within six months after a Change of Control by Executive with Good Reason. (b) Executive shall give the Company 30 days prior written notice of Executive's intent to terminate Executive's employment with the Company for any reason. The Company shall give Executive written notice of the Company's termination of Executive's Employment with the Company. (c) "CAUSE" means the occurrence of any one or more of the following: (i) the failure, refusal or willful neglect of Executive to perform the services required of Executive hereunder; (ii) the Company forming a good faith belief that Executive has engaged in fraudulent conduct in connection with the business of the Company or that Executive has committed a felony; (iii) Executive's breach of any of the covenants contained in Section 4.01 or of the Confidentiality Agreement (as defined below); or (iv) the Company forming a good faith belief that Executive has committed an act of misconduct, violated the Company's anti-discrimination policies prohibiting discrimination or harassment on the grounds of race, sex, age or any other legally prohibited basis, or otherwise has caused material harm to the Company's reputation or goodwill. (d) "CHANGE OF CONTROL" means the occurrence of any one or more of the following: (i) the consummation of a merger or consolidation of the Company with or into any other entity (other than with any entity or group in which Executive has not less than a 5% beneficial interest) pursuant to which the holders of outstanding equity of the Company immediately prior to such merger or consolidation hold directly or indirectly 50% or less of the voting power of the equity securities of the surviving entity; (ii) the sale or other disposition of all or substantially all of the Company's assets (other than to any entity or group in which Executive has not less than a 5% beneficial interest); or 3 (iii) any acquisition by any person or persons (other than the direct and indirect holders of outstanding equity of the Company immediately after the Effective Time and other than any entity or group in which Executive has not less than a 5% beneficial interest) of the beneficial ownership of more than 50% of the voting power of the Company's equity securities in a single transaction or series of related transactions; provided, however, that an underwritten public offering of the Company's securities shall not be considered a Change in Control; provided, however, that a transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who directly or indirectly held the Company's securities immediately before such transaction. (e) "GOOD REASON" means the occurrence of any of the following without Executive's written consent: (i) A significant reduction in the duties, position and responsibilities held by the Executive immediately prior to the Change of Control; (ii) A material reduction by the Company of Executive's base salary (other than in connection with an action affecting a majority of the executive officers of the Company); or (iii) Any relocation of Executive's office to a location more than 60 miles from its location immediately prior to the Change of Control; provided, however, that no act or failure to act by the Company shall give rise to Good Reason unless (A) Executive notifies the Company in writing of the circumstances he believes constitute Good Reason hereunder within 30 days after he acquires knowledge of such circumstances and (B) the Company has failed to cure or remedy such circumstances within 30 days of written notice by Executive to the Company. Section 3.02. Right To Certain Benefits. In the event of any termination of employment during the Employment Term, Executive shall be entitled to receive from the Company either the relevant Severance Benefits to the extent and as described in Section 3.03 or the relevant Separation Benefits to the extent and as described in Section 3.04, as the case may be, contingent upon Executive signing a release of claims in a form reasonably acceptable to the Company. Section 3.03. Benefits Upon A Qualifying Event. In the event of any termination of employment during the Employment Term upon a Qualifying 4 Event, Executive shall be entitled to the following benefits (the "SEVERANCE BENEFITS"): (a) The Company shall pay Executive as soon as practicable a lump sum, in cash, equal to Executive's earned but unpaid Base Salary and other vested but unpaid cash entitlements for the period through and including the date of termination of Executive's employment, including unused earned vacation pay and unreimbursed documented business expenses (collectively, "ACCRUED COMPENSATION"). In addition, Executive shall be entitled to any other vested benefits earned by Executive for the period through and including the date of termination of Executive's employment under any other employee benefit plans and arrangements maintained by the Company, in accordance with the terms of such plans and arrangements, except as modified herein (collectively, "ACCRUED BENEFITS"). (b) The Company shall (i) continue to pay Executive's base salary for 12 months following the date of termination and (ii) pay Executive as soon as practicable a lump sum, in cash, equal to Executive's earned but unpaid bonus as of the date of termination; provided that if Executive obtains full-time employment prior to the first anniversary of the date of termination, any income earned by Executive during such 12 months shall be offset against the Company's payment obligations under this Agreement. (c) Continuation of medical and dental benefits for Executive and his dependents substantially similar to, and at the same cost to Executive of, those provided immediately prior to the date of termination until the earlier to occur of (i) the end of the 12-month period after the date of termination and (ii) such time as Executive is covered by comparable programs of a subsequent employer. (d) The portion of any options to purchase stock in the Company held by Executive under the Company's employee stock option plan which would have become vested and exercisable within the 12-month period following the date of termination shall become fully vested and exercisable on the date of such termination. (e) Except as set forth in this Section 3.03, Executive will be entitled to no other payments or benefits from the Company. Section 3.04. Separation Benefits. In the event of any termination of employment during the Employment Term other than upon a Qualifying Event, Executive (or his estate, as the case may be) shall be entitled to the benefits set forth below (the "SEPARATION BENEFITS"): (i) The Accrued Compensation; and (ii) The Accrued Benefits. 5 ARTICLE 4 Covenants and Representations Section 4.01. Nondisparagement, Nonsoliciation And Nondisclosure. (a) In connection with the termination of Executive's employment hereunder, Executive shall cooperate with the Company and any subsidiary or affiliate of the Company to ensure an orderly transition, in such a manner and at such times as the Company shall reasonably request. (b) While employed by the Company and for 24 months after the termination of Executive's employment, Executive shall not, directly or indirectly: (i) induce or attempt to induce any employee of the Company (or any affiliate of the Company) to be employed or perform services elsewhere; (ii) solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation, is a customer of the Company (or any subsidiary of the Company) or which the Company (or any subsidiary of the Company) is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of employment. (c) Except as required by law, neither party will at any time (whether during or after termination of Executive's employment with the Company) knowingly make any statement, written or oral, or take any other action that would disparage or otherwise harm the other party, its business or reputation or, in the case of the Company, the reputation of any of its affiliates or the officers and directors of any of them. (d) Executive agrees to execute the Company's standard form of Confidentiality and Non-Disclosure Agreement, substantially in the form attached hereto as Exhibit A (the "CONFIDENTIALITY AGREEMENT"), and agrees to be bound by the terms of Exhibit A as of the Effective Time. Section 4.02. Material Inducement; Specific Performance. (a) If any provision of Section 4.01 is determined by a court of competent jurisdiction not to be enforceable in the manner set forth in this Agreement, the Company and Executive agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties. (b) Executive acknowledges that a material part of the inducement for the Company to provide the compensation provided herein is Executive's covenants set forth in Section 4.01 and that the covenants and obligations of 6 Executive with respect to nondisclosure and nonsolicitation relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that, if Executive shall materially breach any of those covenants during or following termination of employment, the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post a bond) restraining Executive from committing any violation of the covenants and obligations contained in Section 4.01 and the Company shall have no further obligation to pay Executive any benefits otherwise payable hereunder. The remedies in the preceding sentence are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as an arbitrator (or court) shall reasonably determine. Section 4.03. Employee Representation. Executive expressly represents and warrants to the Company that Executive is not a party to any contract or agreement and is not otherwise obligated in any way, and is not subject to any rules or regulations, whether governmentally imposed or otherwise, which will or may restrict in any way Executive's ability to fully perform Executive's duties and responsibilities under this Agreement. ARTICLE 5 Successors And Assignments Section 5.01. Assignments. Except for an assignment in the event of a change in control or an assignment to an affiliate of the Company, this Agreement shall not be assignable by the Company without the written consent of Executive. This Agreement shall not be assignable by Executive. Section 5.02. Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. ARTICLE 6 Miscellaneous Section 6.01. Notices. Any notice required to be delivered hereunder shall be in writing and shall be addressed: 7 (i) if to the Company or Parent, to: Dipanjan Deb Francisco Partners 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Fax: 650-233-2999 with copies to: Jean M. McLoughlin Davis Polk & Wardwell 1600 El Camino Real Menlo Park, CA 94025 Tel: 650-752-2000 Fax: 650-752-2111 (ii) if to Executive, to Executive's last known address as reflected on the books and records of the Company; or, in each case, to such other address as such party may hereafter specify for the purpose by written notice to the other party hereto. Any such notice shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice shall be deemed not to have been received until the next succeeding business day in the place of receipt. Section 6.02. Dispute Resolution. (a) Except as provided in Section 4.02, each of Executive and the Company shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this Agreement settled by arbitration, conducted before a panel of three arbitrators sitting in Santa Clara County, California, in accordance with the rules of the American Arbitration Association then in effect. Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and Executive. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. (b) Each party shall pay its own expenses of such arbitration or litigation and all common expenses of such arbitration or litigation shall be borne by the Company. Each party to an arbitration or litigation hereunder shall be responsible for the payment of its own attorneys' fees. Section 6.03. Unfunded Agreement. The obligations of the Company under this Agreement represent an unsecured, unfunded promise to pay benefits to Executive and/or Executive's beneficiaries, and shall not entitle Executive or such beneficiaries to a preferential claim to any asset of the Company. 8 Section 6.04. Non-exclusivity Of Benefits. Unless specifically provided herein, neither the provisions of this Agreement nor the benefits provided hereunder shall reduce any amounts otherwise payable, or in any way diminish Executive's rights as an employee of the Company, whether existing now or hereafter, under any compensation and/or benefit plans (qualified or nonqualified), programs, policies, or practices provided by the Company, for which Executive may qualify; provided, however, that the Severance Benefits shall be in lieu of any severance benefits under any such plans, programs, policies or practices. Vested benefits or other amounts which Executive is otherwise entitled to receive under any plan, policy, practice, or program of the Company (i.e., including, but not limited to, vested benefits under any qualified or nonqualified retirement plan), at or subsequent to the date of termination of Executive's employment shall be payable in accordance with such plan, policy, practice, or program except as expressly modified by this Agreement. Section 6.05. Employment Status. Nothing herein contained shall interfere with the Company's right to terminate Executive's employment with the Company at any time, with or without Cause, subject to the Company's obligation to provide Severance Benefits or Separation Benefits, if any. Executive shall also have the right to terminate Executive's employment with the Company at any time without liability, subject only to the provisions hereof and Executive's obligations hereunder. Section 6.06. Entire Agreement. This Agreement (together with the Confidentiality Agreement) represents the entire agreement between Executive and the Company and its affiliates with respect to the matters referred to herein, and supersedes all prior discussions, negotiations, and agreements concerning such matters, including but not limited to each of the Existing Employment Agreement and the Change of Control Agreement in its entirety; provided, however, that any amounts payable to Executive hereunder shall be reduced by any amounts paid to Executive as required by any applicable law in connection with any termination of Executive's employment. Section 6.07. Tax Withholding. Notwithstanding anything in this Agreement to the contrary, the Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as are legally required to be withheld. Section 6.08. Waiver Of Rights. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a continuing waiver or as a consent to or waiver of any subsequent breach hereof. Section 6.09. Amendment. This Agreement may not be modified, altered or changed except upon the express written consent of both parties. Section 6.10. Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not 9 affect the remaining parts of this Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Section 6.11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without reference to principles of conflict of laws. Section 6.12. Counterparts. This Agreement may be signed in several counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were on the same instrument. 10 IN WITNESS WHEREOF, the Company and Executive have executed this Agreement, to be effective as of the day and year first written above. ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC. By:__________________________ Name: Title: ULTRA CLEAN HOLDINGS, INC. By:__________________________ Name: Title: EXECUTIVE: _____________________________ Clarence L. Granger 11 SCHEDULE I (a) Subject to clause (b) below, Parent shall pay the following amounts to Executive: (i) Parent shall pay, or cause to be paid, to Executive a lump-sum payment of $74,074.07 in cash (less applicable withholding tax obligations), payable within 60 days after the Effective Time. (ii) Parent shall pay, or cause to be paid, to Executive an additional amount equal to $88,231.48 in cash (less applicable withholding tax obligations), payable within 60 days after the Effective Time; provided, however, that such payment shall only be made after Executive's purchase of shares of common stock of Parent with an aggregate fair market value of not less than $47,645.00, pursuant to a purchase agreement in a form acceptable to Parent, which form (A) will be substantially similar to agreements required to be signed by other purchasers of Parent's common stock, (B) will contain provisions including, but not limited to, transfer restrictions, repurchase rights by Parent at fair market value, and representations by the purchaser as to financial sophistication and other matters, and (C) will require the purchaser to sign a securityholders' agreement with other securityholders of Parent, which shall contain provisions including, but not limited to, voting agreements by the purchaser and dragalong rights of Parent. (iii) Parent shall pay, or cause to be paid, to Executive deferred compensation in an amount equal to $264,694.44 (the "DEFERRED COMPENSATION"), which shall be payable on the seventh anniversary of the Effective Time. Executive shall receive interest on any remaining unpaid Deferred Compensation at the rate of 2.70% per annum, payable on June 30 and December 31 of each year beginning June 30, 2003. Parent may prepay, or cause to be prepaid, the Deferred Compensation in the discretion of the Board. (b) Executive shall immediately give Parent notice when he becomes aware of the amount of any bonus or similar payments related to the Merger to be paid, or that have been paid, to Executive by Mitsubishi or any of its affiliates (the "MERGER PAYMENTS"). Upon such notice, Parent shall be entitled to receive 40% of the Merger Payments in the following manner, as available: first, a reduction in the payments due to Executive under clause (a)(i) above; second, a reduction in any bonus otherwise payable to Executive under the UCT Management Bonus Plan for the plan year ending December 31, 2002; and third, a reduction in the Deferred Compensation. 12 EX-10.2 9 f95546orexv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 AGREEMENT TO PRESERVE CORPORATE OPPORTUNITY This Agreement is dated as of November 15, 2002, and is between Clarence L. Granger (the "SECURITYHOLDER") and Ultra Clean Holdings, Inc., a Delaware corporation (the "PARENT"). A. The Securityholder is a securityholder of Ultra Clean Technology Systems and Service, Inc., a California corporation (the "COMPANY"), and is an officer of the Company. B. Parent has entered into an Agreement and Plan of Merger dated as of October 30, 2002 (the "MERGER AGREEMENT"), pursuant to which Parent proposes to acquire all of the issued and outstanding shares of capital stock of the Company. This Agreement shall become effective upon the closing of the merger (the "CLOSING") contemplated by the Merger Agreement, and shall have no force or effect unless and until such merger is consummated. C. In connection with the Merger, the Securityholder will receive approximately $1.3 million in consideration for his options in the Company and will become a securityholder of the Parent. D. In light of the Securityholder's sale of his interest in the Company to the Parent and his purchase of an ownership interest in the Parent, Securityholder's position with the Company and Securityholder's contributions in the past to the growth and development of the Company, and for the purpose of preserving for Parent's benefit the goodwill, proprietary rights and going concern value of the Company, and to protect Parent's and the Company's business opportunities, Parent considers this Agreement integral to the transactions contemplated by the Merger Agreement. Parent and the Securityholder agree that the Securityholder has a substantial interest in the Company and the restrictive covenants contained in this Agreement are reasonable and necessary to ensure that the value of the business being purchased by Parent is not diminished. NOW, THEREFORE, for the purposes of inducing Parent to consummate the transactions contemplated in the Merger Agreement and to preserve the goodwill, proprietary rights and going concern value of the Company, and to protect Parent's and the Company's business opportunities, the parties agree as follows: 1. In order to protect the confidentiality of the Company's proprietary information and in recognition of the highly competitive nature of the industries in which the Company and its affiliates conduct their businesses, and to protect Parent's and the Company's business opportunities, the Securityholder agrees the Securityholder will not, during and for the period commencing with the Closing and ending on the date that is two years after the date of the Closing, on his own account or as an employee, consultant, independent contractor, partner, owner, officer, director or stockholder, engage in, be connected with, have any interest in, or aid or assist anyone else to engage in, be connected with, or have any interest in, any firm or person which directly competes with a line or lines of business which the Company (or any of their Subsidiaries) was engaged in or sought to be engaged in during such period; provided that Executive may purchase securities in any corporation whose securities are listed or traded on a national securities exchange or in an over-the-counter securities market if such purchases do not result in Executive beneficially owning, directly or indirectly, at any time 1% or more of the equity securities of any such corporation. It is expressly understood and agreed that although the Securityholder and Parent consider the restrictions contained in this Section 1 to be reasonable for the purpose of preserving the goodwill, proprietary rights and going concern value of the Company and its affiliates, and to protect Parent's and the Company's business opportunities, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Section 1 is an unenforceable restriction on the activities of the Securityholder, the provisions of this Section 1 shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. Alternatively, if the court referred to above finds that any restriction contained in this Section 1 or any remedy provided in Section 2 of this Agreement is unenforceable, and such restriction or remedy cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained therein or the availability of any other remedy. The provisions of this Section 1 shall in no respect limit or otherwise affect the obligations of the Securityholder under other agreements with Parent or the Company. 2. The Securityholder acknowledges and agrees that Parent's remedy at law for a breach or threatened breach of any of the provisions of Section 1 of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by the Securityholder of any of the provisions of Section 1 of this Agreement, the Securityholder agrees that, in addition to its remedy at law, then at Parent's option, all amounts then or thereafter due the Securityholder from Parent, the Company and any of its respective subsidiaries and other affiliates may be withheld to the extent permitted by law, and Parent, without posting any bond, shall also be entitled to seek equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. Nothing herein contained shall be construed as prohibiting Parent from pursuing, in addition, any other remedies available to it for such breach or threatened breach. The waiver by Parent of a breach of any provision of this Agreement by the Securityholder shall not operate or be construed as a waiver of a breach of any 2 other provision of this Agreement or of any subsequent breach by the Securityholder. 3. All notices under this Agreement shall be in writing and shall be effective at the earlier of the date: (a) when delivered in person at the address of the other party as set forth below, or (b) received by the U.S. Mail, after being sent, postage prepaid, by registered or certified mail, return receipt requested, and addressed to the other party as set forth below. All notices to the Parent shall be addressed to: Dipanjan Deb Francisco Partners 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Fax: 650-233-2999 All notices to the Securityholder shall be sent to Securityholder's last known address as reflected on the books and records of the Company: Such addresses may be changed by notice given in accordance with this Section. 4. The Agreement shall be governed by the laws of the State of Delaware without regard to its conflict of laws principles. The parties agree that any action or proceeding with respect to this Agreement shall be brought in state or federal court residing in the State of Delaware, and the parties agree to the jurisdiction thereof. The parties hereby irrevocably waive any objection they may now or hereafter have to the laying of venue of any such action in the said court(s), and further irrevocably waive any claim they may now or hereafter have that any such action brought in said court(s) has been brought in an inconvenient forum. 5. Upon effectiveness, this Agreement shall supersede and replace any other prior agreement or understanding between the Securityholder and Parent, or its affiliates, predecessors, successors or assigns with respect to the subject matter hereof. This Agreement may not be modified, altered or changed except upon the express written consent of both parties. This Agreement shall inure to the benefit of and be binding upon Parent and the Company, their successors and assigns, including, without limitation, any corporation which may acquire all or substantially all of Parent's or the Company's assets or stock or with or into which Parent or the Company may be consolidated or merged, and upon the Securityholder and the Securityholder's heirs, executors, administrators and legal representatives. The Securityholder acknowledges that she has not relied on any representations, promises, or agreements of any kind made to her in connection with her decision to sign this Agreement, except for those set forth in 3 this Agreement. The parties understand and agree that Paragraph headings in this Agreement are used for convenience or reference only and shall not affect the meaning of any provision of this Agreement. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ULTRA CLEAN HOLDINGS, INC. By: ------------------------- Name: Title: SECURITYHOLDER: ---------------------- Clarence L. Granger 5 EX-10.3 10 f95546orexv10w3.txt EXHIBIT 10.3 Exhibit 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT ("AGREEMENT") dated as of November 15, 2002 by and among Ultra Clean Technology Systems and Service, Inc., a California corporation (together with its successors, the "COMPANY"), Ultra Clean Holdings, Inc., a Delaware corporation ("PARENT"), and Kevin L. Griffin ("EXECUTIVE"), to be effective as of the Effective Time (as defined in the Merger Agreement). WHEREAS, Executive is currently employed by the Company and has entered into an Employment Agreement with the Company dated as of May 26, 2002 (the "EXISTING EMPLOYMENT AGREEMENT"), and a Change of Control Agreement with the Company dated as of June 1, 2002 (the "CHANGE OF CONTROL AGREEMENT"); WHEREAS, pursuant to an Agreement and Plan of Merger dated as of October 30, 2002 (the "MERGER AGREEMENT"), among the Company, Mitsubishi Corporation ("MITSUBISHI"), Mitsubishi International Corporation, Parent, and Clean Merger Company, the Company will become a subsidiary of Parent; WHEREAS, the Company and Parent consider it in their best interests to foster the continued employment of Executive with the Company or one of its affiliates from and after the Effective Time; WHEREAS, Executive is willing to continue his employment on and after the Effective Time on the terms hereinafter set forth in this Agreement; NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE 1 Position; Term Of Agreement Section 1.01. Position. (a) As of and following the Effective Time, Executive shall serve as Chief Financial Officer of the Company and shall report to the Chief Executive Officer of the Company. Executive shall have such duties and authority, consistent with such position, as shall be determined from time to time by the Company. (b) During the Employment Term (as defined below), Executive will devote substantially all of his business time to the performance of his duties under this Agreement and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board of Directors of the Company. Section 1.02. Term. Executive shall be employed by the Company for a period (the "EMPLOYMENT TERM") commencing on the Effective Time and, subject to earlier termination or extension as provided herein, ending on the second anniversary of the Effective Time. ARTICLE 2 Compensation And Benefits Section 2.01. Base Salary. Commencing on the Effective Time, the Company shall pay Executive an annual base salary (the "BASE SALARY") at the annual rate of $185,000, payable in accordance with the payroll and personnel practices of the Company from time to time. Executive's compensation package shall be subject to periodic review by the Company. Section 2.02. Bonus. (a) Executive will receive a signing bonus in an amount equal to $314,000, which shall be payable within 60 days after the Effective Time. (b) Executive shall be eligible to participate in an executive bonus plan in accordance with the terms and conditions of such plan. (c) Executive shall immediately give Parent notice when he becomes aware of the amount of any bonus or similar payments related to the Merger to be paid, or that have been paid, to Executive by Mitsubishi or any of its affiliates (the "MERGER PAYMENTS"). Upon such notice, Parent shall be entitled to receive 40% of the Merger Payments in the following manner, as available: first, a reduction in the payments due to Executive under clause (a) above; and second, a reduction in any bonus otherwise payable to Executive under the UCT Management Bonus Plan for the applicable plan year. Section 2.03. Employee Benefits. (a) During the Employment Term, Executive shall be eligible for employee benefits (including fringe benefits, vacation and health, accident and disability insurance, and retirement plan participation) substantially similar to those benefits made available generally to senior executives of the Company, and Executive shall be entitled to participate in a deferred compensation plan and/or 401(k) plan to the extent the Company maintains such plans. Section 2.04. Business And Travel Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of Executive's duties hereunder shall be reimbursed by the Company in accordance with the Company's policies as in effect from time to time. ARTICLE 3 Certain Termination Benefits Section 3.01. Certain Events. (a) A "QUALIFYING EVENT" means the termination of Executive's employment by the Company without Cause (other than by reason of Executive's death or disability). (b) Executive shall give the Company 30 days prior written notice of Executive's intent to terminate Executive's employment with the Company for any reason. The Company shall give Executive written notice of the Company's termination of Executive's Employment with the Company. (c) "CAUSE" means the occurrence of any one or more of the following: (i) the failure, refusal or willful neglect of Executive to perform the services required of Executive hereunder; (ii) the Company forming a good faith belief that Executive has engaged in fraudulent conduct in connection with the business of the Company or that Executive has committed a felony; (iii) Executive's breach of any of the covenants contained in Section 4.01 or of the Confidentiality Agreement; or (iv) the Company forming a good faith belief that Executive has committed an act of misconduct, violated the Company's anti-discrimination policies prohibiting discrimination or harassment on the grounds of race, sex, age or any other legally prohibited basis, or otherwise has caused material harm to the Company's reputation or goodwill. Section 3.02. Right To Certain Benefits. In the event of any termination of employment during the Employment Term, Executive shall be entitled to receive from the Company either the relevant Severance Benefits to the extent and as described in Section 3.03 or the relevant Separation Benefits to the extent and as described in Section 3.04, as the case may be, contingent upon Executive signing a release of claims in a form reasonably acceptable to the Company. Section 3.03. Benefits Upon A Qualifying Event. In the event of any termination of employment during the Employment Term upon a Qualifying Event, Executive shall be entitled to the following benefits (the "SEVERANCE BENEFITS"): (a) The Company shall pay Executive as soon as practicable a lump sum, in cash, equal to Executive's earned but unpaid Base Salary and other vested but unpaid cash entitlements for the period through and including the date of termination of Executive's employment, including unused earned vacation pay and unreimbursed documented business expenses (collectively, "ACCRUED COMPENSATION"). In addition, Executive shall be entitled to any other vested benefits earned by Executive for the period through and including the date of termination of Executive's employment under any other employee benefit plans and arrangements maintained by the Company, in accordance with the terms of such plans and arrangements, except as modified herein (collectively, "ACCRUED BENEFITS"). (b) The Company shall (i) continue to pay Executive's base salary for 12 months following the date of termination and (ii) pay Executive as soon as practicable a lump sum, in cash, equal to Executive's earned but unpaid bonus as of the date of termination; provided that if Executive obtains full-time employment prior to the first anniversary of the date of termination, any income earned by Executive during such 12 months shall be offset against the Company's payment obligations under this Agreement. (c) Continuation of medical and dental benefits for Executive and his dependents substantially similar to, and at the same cost to Executive of, those provided immediately prior to the date of termination until the earlier to occur of (i) the end of the 12-month period after the date of termination and (ii) such time as Executive is covered by comparable programs of a subsequent employer. (d) The portion of any options to purchase stock in the Company held by Executive under the Company's employee stock option plan which would have become vested and exercisable within the 12-month period following the date of termination shall become fully vested and exercisable on the date of such termination. (e) Except as set forth in this Section 3.03, Executive will be entitled to no other payments or benefits from the Company. Section 3.04. Separation Benefits. In the event of any termination of employment during the Employment Term other than upon a Qualifying Event, Executive (or his estate, as the case may be) shall be entitled to the benefits set forth below (the "SEPARATION BENEFITS"): (i) The Accrued Compensation; and (ii) The Accrued Benefits. ARTICLE 4 Covenants and Representations Section 4.01. Nondisparagement, Nonsoliciation And Nondisclosure. (a) In connection with the termination of Executive's employment hereunder, Executive shall cooperate with the Company and any subsidiary or affiliate of the Company to ensure an orderly transition, in such a manner and at such times as the Company shall reasonably request. (b) While employed by the Company and for 24 months after the termination of Executive's employment, Executive shall not, directly or indirectly: (i) induce or attempt to induce any employee of the Company (or any affiliate of the Company) to be employed or perform services elsewhere; (ii) solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation, is a customer of the Company (or any subsidiary of the Company) or which the Company (or any subsidiary of the Company) is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of employment. (c) Except as required by law, neither party will at any time (whether during or after termination of Executive's employment with the Company) knowingly make any statement, written or oral, or take any other action that would disparage or otherwise harm the other party, its business or reputation or, in the case of the Company, the reputation of any of its affiliates or the officers and directors of any of them. (d) Executive agrees to execute the Company's standard form of Confidentiality and Non-Disclosure Agreement, substantially in the form attached hereto as Exhibit A (the "CONFIDENTIALITY AGREEMENT"), and agrees to be bound by the terms of Exhibit A as of the Effective Time. Section 4.02. Material Inducement; Specific Performance. (a) If any provision of Section 4.01 is determined by a court of competent jurisdiction not to be enforceable in the manner set forth in this Agreement, the Company and Executive agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties. (b) Executive acknowledges that a material part of the inducement for the Company to provide the compensation provided herein is Executive's covenants set forth in Section 4.01 and that the covenants and obligations of Executive with respect to nondisclosure and nonsolicitation relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that, if Executive shall materially breach any of those covenants during or following termination of employment, the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post a bond) restraining Executive from committing any violation of the covenants and obligations contained in Section 4.01 and the Company shall have no further obligation to pay Executive any benefits otherwise payable hereunder. The remedies in the preceding sentence are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as an arbitrator (or court) shall reasonably determine. Section 4.03. Employee Representation. Executive expressly represents and warrants to the Company that Executive is not a party to any contract or agreement and is not otherwise obligated in any way, and is not subject to any rules or regulations, whether governmentally imposed or otherwise, which will or may restrict in any way Executive's ability to fully perform Executive's duties and responsibilities under this Agreement. ARTICLE 5 Successors And Assignments Section 5.01. Assignments. Except for an assignment in the event of a change in control or an assignment to an affiliate of the Company, this Agreement shall not be assignable by the Company without the written consent of Executive. This Agreement shall not be assignable by Executive. Section 5.02. Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. ARTICLE 6 Miscellaneous Section 6.01. Notices. Any notice required to be delivered hereunder shall be in writing and shall be addressed: (i) if to the Company or Parent, to: Dipanjan Deb Francisco Partners 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Fax: 650-233-2999 with copies to: Jean M. McLoughlin Davis Polk & Wardwell 1600 El Camino Real Menlo Park, CA 94025 Tel: 650-752-2000 Fax: 650-752-2111 (ii) if to Executive, to Executive's last known address as reflected on the books and records of the Company; or, in each case, to such other address as such party may hereafter specify for the purpose by written notice to the other party hereto. Any such notice shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice shall be deemed not to have been received until the next succeeding business day in the place of receipt. Section 6.02. Dispute Resolution. (a) Except as provided in Section 4.02, each of Executive and the Company shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this Agreement settled by arbitration, conducted before a panel of three arbitrators sitting in Santa Clara County, California, in accordance with the rules of the American Arbitration Association then in effect. Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and Executive. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. (b) Each party shall pay its own expenses of such arbitration or litigation and all common expenses of such arbitration or litigation shall be borne by the Company. Each party to an arbitration or litigation hereunder shall be responsible for the payment of its own attorneys' fees. Section 6.03. Unfunded Agreement. The obligations of the Company under this Agreement represent an unsecured, unfunded promise to pay benefits to Executive and/or Executive's beneficiaries, and shall not entitle Executive or such beneficiaries to a preferential claim to any asset of the Company. Section 6.04. Non-exclusivity Of Benefits. Unless specifically provided herein, neither the provisions of this Agreement nor the benefits provided hereunder shall reduce any amounts otherwise payable, or in any way diminish Executive's rights as an employee of the Company, whether existing now or hereafter, under any compensation and/or benefit plans (qualified or nonqualified), programs, policies, or practices provided by the Company, for which Executive may qualify; provided, however, that the Severance Benefits shall be in lieu of any severance benefits under any such plans, programs, policies or practices. Vested benefits or other amounts which Executive is otherwise entitled to receive under any plan, policy, practice, or program of the Company (i.e., including, but not limited to, vested benefits under any qualified or nonqualified retirement plan), at or subsequent to the date of termination of Executive's employment shall be payable in accordance with such plan, policy, practice, or program except as expressly modified by this Agreement. Section 6.05. Employment Status. Nothing herein contained shall interfere with the Company's right to terminate Executive's employment with the Company at any time, with or without Cause, subject to the Company's obligation to provide Severance Benefits or Separation Benefits, if any. Executive shall also have the right to terminate Executive's employment with the Company at any time without liability, subject only to the provisions hereof and Executive's obligations hereunder. Section 6.06. Entire Agreement. This Agreement (together with the Confidentiality Agreement) represents the entire agreement between Executive and the Company and its affiliates with respect to the matters referred to herein, and supersedes all prior discussions, negotiations, and agreements concerning such matters, including but not limited to each of the Existing Employment Agreement and the Change of Control Agreement in its entirety; provided, however, that any amounts payable to Executive hereunder shall be reduced by any amounts paid to Executive as required by any applicable law in connection with any termination of Executive's employment. Section 6.07. Tax Withholding. Notwithstanding anything in this Agreement to the contrary, the Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as are legally required to be withheld. Section 6.08. Waiver Of Rights. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a continuing waiver or as a consent to or waiver of any subsequent breach hereof. Section 6.09. Amendment. This Agreement may not be modified, altered or changed except upon the express written consent of both parties. Section 6.10. Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Section 6.11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without reference to principles of conflict of laws. Section 6.12. Counterparts. This Agreement may be signed in several counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were on the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement, to be effective as of the day and year first written above. ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC. By: -------------------------- Name: Title: ULTRA CLEAN HOLDINGS, INC. By: -------------------------- Name: Title: EXECUTIVE: ----------------------------- Kevin L. Griffin EX-10.4 11 f95546orexv10w4.txt EXHIBIT 10.4 Exhibit 10.4 AGREEMENT TO PRESERVE CORPORATE OPPORTUNITY This Agreement is dated as of November 15, 2002, and is between Kevin L. Griffin (the "SECURITYHOLDER") and Ultra Clean Holdings, Inc., a Delaware corporation (the "PARENT"). A. The Securityholder is a securityholder of Ultra Clean Technology Systems and Service, Inc., a California corporation (the "COMPANY"), and is an officer of the Company. B. Parent has entered into an Agreement and Plan of Merger dated as of October 30, 2002 (the "MERGER AGREEMENT"), pursuant to which Parent proposes to acquire all of the issued and outstanding shares of capital stock of the Company. This Agreement shall become effective upon the closing of the merger (the "CLOSING") contemplated by the Merger Agreement, and shall have no force or effect unless and until such merger is consummated. C. In connection with the Merger, the Securityholder will receive approximately $400,000 in consideration for his options in the Company and will become a securityholder of the Parent. D. In light of the Securityholder's sale of his interest in the Company to the Parent and his purchase of an ownership interest in the Parent, Securityholder's position with the Company and Securityholder's contributions in the past to the growth and development of the Company, and for the purpose of preserving for Parent's benefit the goodwill, proprietary rights and going concern value of the Company, and to protect Parent's and the Company's business opportunities, Parent considers this Agreement integral to the transactions contemplated by the Merger Agreement. Parent and the Securityholder agree that the Securityholder has a substantial interest in the Company and the restrictive covenants contained in this Agreement are reasonable and necessary to ensure that the value of the business being purchased by Parent is not diminished. NOW, THEREFORE, for the purposes of inducing Parent to consummate the transactions contemplated in the Merger Agreement and to preserve the goodwill, proprietary rights and going concern value of the Company, and to protect Parent's and the Company's business opportunities, the parties agree as follows: 1. In order to protect the confidentiality of the Company's proprietary information and in recognition of the highly competitive nature of the industries in which the Company and its affiliates conduct their businesses, and to protect Parent's and the Company's business opportunities, the Securityholder agrees the Securityholder will not, during and for the period commencing with the Closing and ending on the date that is two years after the date of the Closing, on his own account or as an employee, consultant, independent contractor, partner, owner, officer, director or stockholder, engage in, be connected with, have any interest in, or aid or assist anyone else to engage in, be connected with, or have any interest in, any firm or person which directly competes with a line or lines of business which the Company (or any of their Subsidiaries) was engaged in or sought to be engaged in during such period; provided that Executive may purchase securities in any corporation whose securities are listed or traded on a national securities exchange or in an over-the-counter securities market if such purchases do not result in Executive beneficially owning, directly or indirectly, at any time 1% or more of the equity securities of any such corporation. It is expressly understood and agreed that although the Securityholder and Parent consider the restrictions contained in this Section 1 to be reasonable for the purpose of preserving the goodwill, proprietary rights and going concern value of the Company and its affiliates, and to protect Parent's and the Company's business opportunities, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Section 1 is an unenforceable restriction on the activities of the Securityholder, the provisions of this Section 1 shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. Alternatively, if the court referred to above finds that any restriction contained in this Section 1 or any remedy provided in Section 2 of this Agreement is unenforceable, and such restriction or remedy cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained therein or the availability of any other remedy. The provisions of this Section 1 shall in no respect limit or otherwise affect the obligations of the Securityholder under other agreements with Parent or the Company. 2. The Securityholder acknowledges and agrees that Parent's remedy at law for a breach or threatened breach of any of the provisions of Section 1 of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by the Securityholder of any of the provisions of Section 1 of this Agreement, the Securityholder agrees that, in addition to its remedy at law, then at Parent's option, all amounts then or thereafter due the Securityholder from Parent, the Company and any of its respective subsidiaries and other affiliates may be withheld to the extent permitted by law, and Parent, without posting any bond, shall also be entitled to seek equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. Nothing herein contained shall be construed as prohibiting Parent from pursuing, in 2 addition, any other remedies available to it for such breach or threatened breach. The waiver by Parent of a breach of any provision of this Agreement by the Securityholder shall not operate or be construed as a waiver of a breach of any other provision of this Agreement or of any subsequent breach by the Securityholder. 3. All notices under this Agreement shall be in writing and shall be effective at the earlier of the date: (a) when delivered in person at the address of the other party as set forth below, or (b) received by the U.S. Mail, after being sent, postage prepaid, by registered or certified mail, return receipt requested, and addressed to the other party as set forth below. All notices to the Parent shall be addressed to: Dipanjan Deb Francisco Partners 2882 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Fax: 650-233-2999 All notices to the Securityholder shall be sent to Securityholder's last known address as reflected on the books and records of the Company: Such addresses may be changed by notice given in accordance with this Section. 4. The Agreement shall be governed by the laws of the State of Delaware without regard to its conflict of laws principles. The parties agree that any action or proceeding with respect to this Agreement shall be brought in state or federal court residing in the State of Delaware, and the parties agree to the jurisdiction thereof. The parties hereby irrevocably waive any objection they may now or hereafter have to the laying of venue of any such action in the said court(s), and further irrevocably waive any claim they may now or hereafter have that any such action brought in said court(s) has been brought in an inconvenient forum. 5. Upon effectiveness, this Agreement shall supersede and replace any other prior agreement or understanding between the Securityholder and Parent, or its affiliates, predecessors, successors or assigns with respect to the subject matter hereof. This Agreement may not be modified, altered or changed except upon the express written consent of both parties. This Agreement shall inure to the benefit of and be binding upon Parent and the Company, their successors and assigns, including, without limitation, any corporation which may acquire all or substantially all of Parent's or the Company's assets or stock or with 3 or into which Parent or the Company may be consolidated or merged, and upon the Securityholder and the Securityholder's heirs, executors, administrators and legal representatives. The Securityholder acknowledges that she has not relied on any representations, promises, or agreements of any kind made to her in connection with her decision to sign this Agreement, except for those set forth in this Agreement. The parties understand and agree that Paragraph headings in this Agreement are used for convenience or reference only and shall not affect the meaning of any provision of this Agreement. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ULTRA CLEAN HOLDINGS, INC. By: ---------------------- Name: Title: SECURITYHOLDER: ---------------------- Kevin L. Griffin 5 EX-23.1 12 f95546orexv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS We consent to the use in this Registration Statement of Ultra Clean Holdings, Inc. on Form S-1 of our report dated September 19, 2003 appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP San Jose, California January 12, 2004 GRAPHIC 13 f95546orf9554600.gif GRAPHIC begin 644 f95546orf9554600.gif M1TE&.#EANP`V`/?_````````,P``9@``F0``S```_P`S```S,P`S9@`SF0`S MS``S_P!F``!F,P!F9@!FF0!FS`!F_P"9``"9,P"99@"9F0"9S`"9_P#,``#, M,P#,9@#,F0#,S`#,_P#_``#_,P#_9@#_F0#_S`#__S,``#,`,S,`9C,`F3,` MS#,`_S,S`#,S,S,S9C,SF3,SS#,S_S-F`#-F,S-F9C-FF3-FS#-F_S.9`#.9 M,S.99C.9F3.9S#.9_S/,`#/,,S/,9C/,F3/,S#/,_S/_`#/_,S/_9C/_F3/_ MS#/__V8``&8`,V8`9F8`F68`S&8`_V8S`&8S,V8S9F8SF68SS&8S_V9F`&9F M,V9F9F9FF69FS&9F_V:9`&:9,V:99F:9F6:9S&:9_V;,`&;,,V;,9F;,F6;, MS&;,_V;_`&;_,V;_9F;_F6;_S&;__YD``)D`,YD`9ID`F9D`S)D`_YDS`)DS M,YDS9IDSF9DSS)DS_YEF`)EF,YEF9IEFF9EFS)EF_YF9`)F9,YF99IF9F9F9 MS)F9_YG,`)G,,YG,9IG,F9G,S)G,_YG_`)G_,YG_9IG_F9G_S)G__\P``,P` M,\P`9LP`FG1IU`]\O3I<$5'HD6-1I78T.K` MAA'!;AT;=2%5AD`ELII)=J19B`/?*FSH,F7;NR43)MV;%$%6BQ0#!PZ*MZ/< MN&#?"NP)M[!CM7PC!\*:=8;@RY@S:[Y,F*1BQ`RO?19K,&)SWX6K;Q!)8WG[3]M>$UL+I5!G^(^O?) 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Delaware	3674	61-1430858
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)






	Proposed Maximum
Title of Each Class	Aggregate Offering	Amount of
of Securities to Be Registered	Price(1)(2)	Registration Fee


Common Stock, par value $0.001 per share	$86,250,000	$6,978


		Underwriting
		Discounts and	Proceeds to
	Price to Public	Commissions	Ultra Clean

Per Share	$	$	$
Total	$	$	$


PROSPECTUS SUMMARY
THE OFFERING
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
RISK FACTORS
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
PRINCIPAL AND SELLING STOCKHOLDERS
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
SHARES ELIGIBLE FOR FUTURE SALE
DESCRIPTION OF CAPITAL STOCK
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK
UNDERWRITING
NOTICE TO CANADIAN RESIDENTS
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX
EXHIBIT 2.1
EXHIBIT 3.1
EXHIBIT 3.3
EXHIBIT 4.3
EXHIBIT 4.4
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 23.1


	Page

PROSPECTUS SUMMARY		1
THE OFFERING		3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION		4
RISK FACTORS		6
FORWARD-LOOKING STATEMENTS		17
USE OF PROCEEDS		18
DIVIDEND POLICY		18
CAPITALIZATION		19
DILUTION		20
SELECTED CONSOLIDATED FINANCIAL DATA		21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		23
BUSINESS		38
MANAGEMENT		48
PRINCIPAL AND SELLING STOCKHOLDERS		55
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		57
SHARES ELIGIBLE FOR FUTURE SALE		60
DESCRIPTION OF CAPITAL STOCK		62
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK		64
UNDERWRITING		66
NOTICE TO CANADIAN RESIDENTS		69
LEGAL MATTERS		70
EXPERTS		70
WHERE YOU CAN FIND ADDITIONAL INFORMATION		70
INDEX TO FINANCIAL STATEMENTS		F-1


Alan F. Denenberg, Esq. Davis Polk & Wardwell 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000		John A. Fore, Esq. Michael A. Occhiolini, Esq. Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California (650) 493-9300


Common stock offered by us		shares

Common stock to be outstanding after the offering		shares

Over-allotment option granted by the selling stockholder		shares

Use of proceeds		We estimate that our net proceeds from this offering will be approximately $ million. We expect to use approximately $29.3 million of the net proceeds to repurchase our 5% Series A Senior Notes due 2009, which we refer to as our Series A Senior Notes, held by FP-Ultra Clean, LLC, our principal stockholder, and $738,000 to repurchase our Series A Senior Notes held by some of our key employees. In addition, subject to the completion of this offering, we have agreed to pay Francisco Partners a one-time fee of $2.0 million for advisory services performed in connection with our initial public offering. We intend to use the remainder of the net proceeds for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses or technologies, although we have no current agreements or commitments with respect to any specific acquisition. We will not receive proceeds from any exercise of the underwriters’ over-allotment option. See “Use of Proceeds.”

Proposed Nasdaq National Market symbol		UCTT



			Predecessor


			Years Ended December 31,
															Jan. 1,						Nov. 16,
															2002			Nine Months			2002			Nine Months
															through			Ended			through			Ended
															Nov. 15,			Sept. 30,			Dec. 31,			Sept. 30,
			1998			1999			2000			2001			2002			2002			2002			2003

																		(unaudited)						(unaudited)

			(amounts in thousands, except per share amounts)
Consolidated Statements of Operations Data:
Sales			$	18,861		$	39,574		$	83,001		$	76,486		$	76,338		$	67,618		$	7,916		$	51,762
Cost of goods sold				17,864			32,878			68,242			66,129			66,986			58,529			7,972			46,033

Gross profit (loss)				997			6,696			14,759			10,357			9,352			9,089			(56	)		5,729

Operating expenses
	Research and development			388			399			518			613			634			524			99			750
	Sales and marketing			1,205			1,054			1,241			1,302			1,586			1,380			332			1,453
	General and administrative			2,058			2,600			3,746			3,127			6,626			2,279			962			3,492
	In-process research and development			—			—			—			—			—			—			889			—

		Total operating expenses		3,651			4,053			5,505			5,042			8,846			4,183			2,282			5,695

Income (loss) from operations				(2,654	)		2,643			9,254			5,315			506			4,906			(2,338	)		34

Other income (expense)
	Interest expense, net			(767	)		(708	)		(687	)		(436	)		(170	)		(146	)		(182	)		(1,106	)
	Other income (expense), net			7			—			—			(4	)		(6	)		—			4			(8	)

		Total other expense		(760	)		(708	)		(687	)		(440	)		(176	)		(146	)		(178	)		(1,114	)

Income (loss) before income taxes				(3,414	)		1,935			8,567			4,875			330			4,760			(2,516	)		(1,080	)
Income tax (provision) benefit				(1	)		(172	)		136			(1,981	)		(642	)		(2,048	)		667			506

Net income (loss)			$	(3,415	)	$	1,763		$	8,703		$	2,894		$	(312	)	$	2,712		$	(1,849	)	$	(574	)

Net income (loss) per share
	Basic		$	(0.93	)	$	0.48		$	2.36		$	0.79		$	(0.08	)	$	0.74		$	(0.05	)	$	(0.01	)
	Diluted		$	(0.93	)	$	0.40		$	1.95		$	0.64		$	(0.08	)	$	0.60		$	(0.05	)	$	(0.01	)
Shares used in computing net income (loss) per share:
	Basic			3,680			3,680			3,680			3,680			3,680			3,680			37,264			39,874
	Diluted			3,680			4,421			4,467			4,535			3,680			4,516			37,264			39,874



	September 30, 2003

	Actual		As Adjusted


	(unaudited)

	(amounts in thousands)
Consolidated Balance Sheet Data:
Cash	$	7,252
Working capital		16,473
Total assets		45,507
Short- and long-term capital lease and other obligations		520
Debt to related parties		29,963
Total stockholders’ equity		7,615


	•	on an actual basis; and

	•	on an as adjusted basis to reflect:


Assumed initial public offering price			$
	Net tangible book value per share as of December 31, 2003.	$
	Increase in net tangible book value per share attributable to new investors
Adjusted net tangible book value per share after offering

Dilution in net tangible book value per share to new investors			$



					Total
	Shares Purchased				Consideration				Average
									Price Per
	Number	Percent			Amount	Percent			Share

Existing shareholders				%	$			%	$
New Investors
Total			100	%	$		100	%	$



			Predecessor

															Jan. 1, 2002			Nine Months			Nov. 16,			Nine Months
			Years Ended Dec. 31,												through			Ended			2002 through			Ended
															Nov. 15,			Sept. 30,			Dec. 31,			Sept. 30,
			1998			1999			2000			2001			2002			2002			2002			2003

																		(unaudited)						(unaudited)

			(amounts in thousands, except per share amounts)

Consolidated Statements of Operations Data:
Sales			$	18,861		$	39,574		$	83,001		$	76,486		$	76,338		$	67,618		$	7,916		$	51,762
Cost of goods sold				17,864			32,878			68,242			66,129			66,986			58,529			7,972			46,033

Gross profit (loss)				997			6,696			14,759			10,357			9,352			9,089			(56	)		5,729

Operating expenses:
	Research and development			388			399			518			613			634			524			99			750
	Sales and marketing			1,205			1,054			1,241			1,302			1,586			1,380			332			1,453
	General and administrative			2,058			2,600			3,746			3,127			6,626			2,279			962			3,492
	In-process research and development			—			—			—			—			—			—			889			—

		Total operating expenses		3,651			4,053			5,505			5,042			8,846			4,183			2,282			5,695

Income (loss) from operations				(2,654	)		2,643			9,254			5,315			506			4,906			(2,338	)		34

Other income (expense):
	Interest expense, net			(767	)		(708	)		(687	)		(436	)		(170	)		(146	)		(182	)		(1,106	)
	Other income (expense), net			7			—			—			(4	)		(6	)		—			4			(8	)

		Total other expense		(760	)		(708	)		(687	)		(440	)		(176	)		(146	)		(178	)		(1,114	)

Income (loss) before income taxes				(3,414	)		1,935			8,567			4,875			330			4,760			(2,516	)		(1,080	)
Income tax (provision) benefit				(1	)		(172	)		136			(1,981	)		(642	)		(2,048	)		667			506

Net income (loss)			$	(3,415	)	$	1,763		$	8,703		$	2,894		$	(312	)	$	2,712		$	(1,849	)	$	(574	)

Net income (loss) per share:
	Basic		$	(0.93	)	$	0.48		$	2.36		$	0.79		$	(0.08	)	$	0.74		$	(0.05	)	$	(0.01	)
	Diluted		$	(0.93	)	$	0.40		$	1.95		$	0.64		$	(0.08	)	$	0.60		$	(0.05	)	$	(0.01	)
Shares used in computing net income (loss) per share:
	Basic			3,680			3,680			3,680			3,680			3,680			3,680			37,264			39,874
	Diluted			3,680			4,421			4,467			4,535			3,680			4,516			37,264			39,874


	*Anticipated Increased General and Administrative Costs*


	*Nine Months Ended September 30, 2003 Compared With Nine Months Ended September 30, 2002*


Credit Suisse First Boston	JPMorgan


Banc of America Securities LLC	Piper Jaffray


	*General*


	*Cyclical Business*


	*Year Ended December 31, 2002 Compared With Year Ended December 31, 2001*


	*Year Ended December 31, 2001 Compared With Year Ended December 31, 2000*




			Predecessor

												Oct. 31,			Nov. 16
			Quarter Ended									2002			2002			Quarter Ended
												through			through
			Mar.			Jun.			Sept.			Nov. 15,			Dec. 31,			Mar.			Jun.			Sept.
			31, 2002			30, 2002			30, 2002			2002			2002			31, 2003			30, 2003			30, 2003


			(In thousands)
Sales			$	13,262		$	27,440		$	26,916		$	8,720		$	7,916		$	17,626		$	17,410		$	16,726
Cost of goods sold				12,067			23,469			22,993			8,457			7,972			16,335			14,928			14,770

Gross profit (loss)				1,195			3,971			3,923			263			(56	)		1,291			2,482			1,956

Operating expenses:
	Research and development			135			187			202			110			99			246			240			264
	Sales and marketing			273			488			619			206			332			429			497			527
	General and administrative			611			812			856			4,346			962			785			1,976			731
	In-process research and development			—			—			—			—			889			—			—			—

		Total operating expenses		1,019			1,487			1,677			4,662			2,282			1,460			2,713			1,522

Income (loss) from operations				176			2,484			2,246			(4,399	)		(2,338	)		(169	)		(231	)		434

Other income (expense)
	Interest expense, net			(50	)		(43	)		(53	)		(24	)		(182	)		(402	)		(333	)		(371	)
	Other income (expense), net			—			—			—			(6	)		4			(2	)		(2	)		(4	)

		Total other expense		(50	)		(43	)		(53	)		(30	)		(178	)		(404	)		(335	)		(375	)

Income (loss) before income taxes				126			2,441			2,193			(4,429	)		(2,516	)		(573	)		(566	)		59
Income tax (provision) benefit				(35	)		(1,103	)		(910	)		1,406			667			132			412			(38	)

Net income (loss)			$	91		$	1,338		$	1,283		$	(3,023	)	$	(1,849	)	$	(441	)	$	(154	)	$	21




			Predecessor


			Quarter Ended									Oct.			Nov.			Quarter Ended
												31,			16,
			Mar.			Jun.			Sept.			through			through			Mar.			Jun.			Sept.
			31,			30,			30,			Nov. 15,			Dec. 31,			31,			30,			30,
			2002			2002			2002			2002			2002			2003			2003			2003

Sales				100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold				91.0	%		85.5	%		85.4	%		97.0	%		100.7	%		92.7	%		85.7	%		88.3	%

Gross profit (loss)				9.0	%		14.5	%		14.6	%		3.0	%		(0.7	)%		7.3	%		14.3	%		11.7	%

Operating expenses:
	Research and development			1.0	%		0.7	%		0.8	%		1.3	%		1.3	%		1.4	%		1.4	%		1.6	%
	Sales and marketing			2.1	%		1.8	%		2.3	%		2.4	%		4.2	%		2.4	%		2.9	%		3.2	%
	General and administrative			4.6	%		3.0	%		3.2	%		49.8	%		12.2	%		4.5	%		11.3	%		4.4	%
	In-process research and development			—			—			—			—			11.2	%		—			—			—

		Total operating expenses		7.7	%		5.4	%		6.2	%		53.5	%		28.8	%		8.3	%		15.6	%		9.1	%

Income (loss) from operations				1.3	%		9.1	%		8.3	%		(50.4	)%		(29.5	)%		(1.0	)%		(1.3	)%		2.6	%

Other income (expense):
	Interest expense, net			(0.4	)%		(0.2	)%		(0.2	)%		(0.3	)%		(2.3	)%		(2.3	)%		(1.9	)%		(2.2	)%
	Other income (expense), net			0.0	%		0.0	%		0.0	%		(0.1	)%		0.1	%		(0.0	)%		(0.0	)%		(0.0	)%

		Total other expense		(0.4	)%		(0.2	)%		(0.2	)%		(0.4	)%		(2.2	)%		(2.3	)%		(1.9	)%		(2.2	)%

Income (loss) before income tax				1.0	%		8.9	%		8.1	%		(50.8	)%		(31.8	)%		(3.3	)%		(3.3	)%		0.4	%
Income tax (provision) benefit				(0.3	)%		(4.0	)%		(3.4	)%		16.1	%		8.4	%		0.7	%		2.4	%		(0.2	)%

Net income (loss)				0.7	%		4.9	%		4.8	%		(34.7	)%		(23.4	)%		(2.5	)%		(0.9	)%		0.1	%


		Capital		Operating
Year Ending December 31:		Leases		Leases*


		(in thousands)
	2003	$	61	$	1,001
	2004		38		763
	2005		34		353
	2006		34		285
	2007		31		133

Total		$	198	$	2,535


										Nine Months
	Year Ended December 31,									Ended
										September 30,
	2000			2001			2002			2003

Customer A		46	%		51	%		46	%		46	%
Customer B		47	%		40	%		26	%		26	%
Customer C		—			—			26	%		21	%

Three largest customers as a group		93	%		91	%		98	%		93	%


Name	Age		Position

Clarence L. Granger		54	President, Chief Executive Officer, Chief Operating Officer and Director
Kevin L. Griffin		49	Chief Financial Officer
Bruce Wier		55	Vice President Engineering
Deborah Hayward		42	Vice President Sales
Dipanjan Deb		34	Director
David T. ibnAle		32	Director
Thomas M. Rohrs		53	Director
Key Employee:
Sowmya Krishnan, Ph.D.		35	Chief Technology Officer


		Percent of nominees for election
Percentage stock ownership		to our board of directors

25% or more		50%
Less than 25%		25%
Less than 20%		20%
Less than 10%		10%
Less than 5%		0%



		Annual Compensation

							Other
							Annual	All Other
Name And Principal Position		Salary		Bonus			Compensation	Compensation (1)

Clarence L. Granger		$	233,076	$	34,454			$	10,937
	President, Chief Executive Officer
Kevin L. Griffin			179,663		17,498				665
	Chief Financial Officer
Bruce Wier			180,838		13,707				9,404
	Vice President Engineering
Deborah Hayward			110,298		70,415	(2)			2,956
	Vice President Sales
Sowmya Krishnan, Ph.D.			123,654		6,124				3,700
	Chief Technology Officer



	Individual Grants
										Potential Realizable Value at
	Number of		Percentage of							Assumed Annual Rates of
	Securities		Total Options							Stock Price Appreciation for
	Underlying		Granted to							Option Term(1)
	Options		Employees in			Exercise Price
Name	Granted		2003			($/Share)		Expiration Date		5%	10%

Clarence L. Granger		1,540,000		36.08	%	$	0.25		2/20/2013	$	$
Kevin L. Griffin		500,000		11.72			0.25		2/20/2013
Bruce Wier		355,000		8.32			0.25		2/20/2013
Deborah Hayward		185,000		4.33			0.25		2/20/2013
		65,000		1.52			0.25		7/28/2013
Sowmya Krishnan		125,000		2.93			0.25		2/20/2013



	Number of Securities				Value of Unexercised
	Underlying Unexercised Options				In-The-Money Options at
	at December 31, 2003				December 31, 2003(1)

Name	Exercisable		Unexercisable		Exercisable		Unexercisable

Clarence L. Granger		—		1,540,000		—	$
Kevin L. Griffin		—		500,000		—
Bruce Wier		—		355,000		—
Deborah Hayward		—		250,000		—
Sowmya Krishnan		—		125,000		—


Name	Purchased Shares		Purchased Notes		Bonus Shares		Bonus Notes

Clarence L. Granger		424,800	$	318,600		637,200	$	477,900
Kevin L. Griffin		121,300		91,000		182,000		136,500
Bruce Wier		84,900		63,700		127,400		95,600
Sowmya Krishnan		30,300		22,700		45,500		34,100
Other		54,600		40,900		82,000		61,400

Total		715,900	$	536,900		1,074,100	$	805,500


Number of Shares		Date

		On the date of this prospectus.
		After 90 days from the date of this prospectus.
		After 180 days from the date of this prospectus (subject, in some cases, to volume limitations).
		At various times after 180 days from the date of this prospectus (subject, in some cases, to volume limitations).


		Number of
Underwriter		Shares

Credit Suisse First Boston LLC
J.P. Morgan Securities Inc.
Banc of America Securities LLC
Piper Jaffray & Co.

	Total


Independent Auditors’ Report		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Stockholders’ Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7


				Predecessor

				December 31,			December 31,			September 30,
				2001			2002			2003

										(Unaudited)
ASSETS
Current assets:
	Cash			$	760		$	6,237		$	7,252
	Accounts receivable				4,371			8,362			7,265
	Income tax receivable				—			1,357			653
	Inventories				6,604			8,229			6,048
	Deferred income taxes				1,374			2,004			2,471
	Prepaid expenses and other				1,102			201			280

			Total current assets		14,211			26,390			23,969

Equipment and leasehold improvements:
	Computer equipment and software				2,954			722			944
	Furniture and fixtures				668			175			175
	Machinery and equipment				7,018			1,410			1,484
	Leasehold improvements				4,289			2,603			2,483

					14,929			4,910			5,086
	Accumulated depreciation and amortization				(10,476	)		(230	)		(1,342	)

		Equipment and leasehold improvements, net			4,453			4,680			3,744

Long-term assets:
	Goodwill				—			6,608			6,613
	Intangible assets				—			8,987			8,987
	Other assets				262			429			368
	Noncurrent deferred income taxes				1,726			1,742			1,826

Total assets				$	20,652		$	48,836		$	45,507


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	1,946		$	7,237		$	6,344
	Accrued expenses and other liabilities				1,082			3,036			1,065
	Notes payable to related parties				8,400			—			—
	Capital lease obligations, current portion				264			50			87

			Total current liabilities		11,692			10,323			7,496
	Capital lease obligations and other liabilities				290			612			433
	Series A Senior Notes to related parties, net of deferred compensation of $780 and $629 in 2002 and 2003, respectively				—			29,812			29,963

			Total liabilities		11,982			40,747			37,892

Commitments and contingencies (see Note 6)
Stockholders’ equity:
	Common stock — no par value in Predecessor shares and $0.01 par value in Ultra Clean shares; authorized 10,000,000 shares in Predecessor and 60,000,000 shares in Ultra Clean; issued and outstanding, 3,680,000, 40,791,000 and 40,981,580 shares in 2001, 2002 and 2003, respectively				6,440			10,198			10,299
	Deferred compensation				—			(260	)		(261	)
	Retained earnings (accumulated deficit)				2,230			(1,849	)		(2,423	)

			Total stockholders’ equity		8,670			8,089			7,615

Total liabilities and stockholders’ equity				$	20,652		$	48,836		$	45,507



			Predecessor

									January 1,						November 16,
			Years Ended						2002			Nine Months			2002			Nine Months
			December 31,						Through			Ended			Through			Ended
									November 15,			September 30,			December 31,			September 30,
			2000			2001			2002			2002			2002			2003

												(Unaudited)						(Unaudited)
Sales			$	83,001		$	76,486		$	76,338		$	67,618		$	7,916		$	51,762
Cost of goods sold				68,242			66,129			66,986			58,529			7,972			46,033

Gross profit (loss)				14,759			10,357			9,352			9,089			(56	)		5,729

Operating expenses
	Research and development			518			613			634			524			99			750
	Sales and marketing			1,241			1,302			1,586			1,380			332			1,453
	General and administrative			3,746			3,127			6,626			2,279			962			3,492
	In-process research and development			—			—			—			—			889			—

		Total operating expenses		5,505			5,042			8,846			4,183			2,282			5,695

Income (loss) from operations				9,254			5,315			506			4,906			(2,338	)		34

Other income (expense):
	Interest expense			(687	)		(436	)		(170	)		(146	)		(182	)		(1,106	)
	Other income (expense), net			—			(4	)		(6	)		—			4			(8	)

		Total other expense		(687	)		(440	)		(176	)		(146	)		(178	)		(1,114	)

Income (loss) before income taxes				8,567			4,875			330			4,760			(2,516	)		(1,080	)
Income tax (provision) benefit				136			(1,981	)		(642	)		(2,048	)		667			506

Net income (loss)			$	8,703		$	2,894		$	(312	)	$	2,712		$	(1,849	)	$	(574	)

Net income (loss) per share
	Basic		$	2.36		$	0.79		$	(0.08	)	$	0.74		$	(0.05	)	$	(0.01	)
	Diluted		$	1.95		$	0.64		$	(0.08	)	$	0.60		$	(0.05	)	$	(0.01	)
Shares used in computing net income (loss) per share:
	Basic			3,680			3,680			3,680			3,680			37,264			39,874
	Diluted			4,467			4,535			3,680			4,516			37,264			39,874


								Retained
	Common Stock							Earnings			Total
					Deferred			(Accumulated			Stockholders’
	Shares		Amount		Compensation			Deficit)			Equity

Balance, January 1, 2000		3,680,000	$	6,440	$	—		$	(9,367	)	$	(2,927	)
Net income		—		—		—			8,703			8,703

Balance, December 31, 2000		3,680,000		6,440		—			(664	)		5,776
Net income		—		—		—			2,894			2,894

Balance, December 31, 2001		3,680,000		6,440		—			2,230			8,670
Net loss						—			(312	)		(312	)

Predecessor ending balance, November 15, 2002		3,680,000	$	6,440	$	—		$	1,918		$	8,358


Beginning balance, November 16, 2002		—	$	—	$	—		$	—		$	—
Issuance of common stock at $0.001 par value for formation of Ultra Clean Holdings		1,000		—		—			—			—
Issuance of common stock at $0.25 per share		39,715,900		9,930		—			—			9,930
Issuance of common stock to employees, related to stock-based compensation		1,074,100		268		(268	)		—			—
Deferred compensation amortization		—		—		8			—			8
Net loss		—		—		—			(1,849	)		(1,849	)

Balance, December 31, 2002		40,791,000		10,198		(260	)		(1,849	)		8,089
Issuance of common stock (unaudited)		190,580		47		—			—			47
Deferred stock based compensation (unaudited)		—		54		(54	)		—			—
Deferred compensation amortization (unaudited)		—		—		53			—			53
Net loss (unaudited)		—		—		—			(574	)		(574	)

Balance, September 30, 2003 (unaudited)		40,981,580	$	10,299	$	(261	)	$	(2,423	)	$	7,615


Cash consideration		$	23,164
Buyout of stock options			2,547
Estimated transaction costs			3,121

Total purchase price		$	28,832

Tangible assets acquired		$	27,694
Intangible assets acquired:
	Tradename		8,987
	In-process research and development		889
Assumed liabilities			(15,346	)

Excess of cost over fair value (goodwill)		$	6,608


			Predecessor


			December 31,
									September
			2001			2002			2003

Net deferred tax asset:
	Current:
		Inventory valuation	$	476		$	827		$	535
		Other accrued expenses		159			319			234
		Net operating loss carryforwards		—			75			824
		State taxes		141			1			(11	)
		General reserves		598			782			889

				1,374			2,004			2,471
	Long-term:
		Deferred rent		121			87			8
		Depreciation		1,846			1,946			2,078
		State taxes		(241	)		(291	)		(260	)

				1,726			1,742			1,826

Net deferred tax assets			$	3,100		$	3,746		$	4,297