10-K
Ultra Clean Holdings, Inc. (UCTT)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________
FORM 10-K
_________________________________________________________________________________
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the fiscal year ended December 27, 2024
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the transition period from to
Commission file number 000-50646
_________________________________________________________________________________
Ultra Clean Holdings, Inc.
(Exact name of Registrant as specified in its charter)
_________________________________________________________________________________
| Delaware | 61-1430858 |
|---|---|
| (State or other jurisdiction of<br>incorporation or organization) | (IRS Employer<br>Identification No.) |
| 26462 Corporate Avenue<br><br>Hayward, California | 94545 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(510) 576-4400
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
|---|---|---|
| Common Stock, $0.001 par value | UCTT | The NASDAQ Global Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
_________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | x | Accelerated filer | o |
|---|---|---|---|
| Non-accelerated filer | o | Smaller reporting company | o |
| . | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, based on the closing sale price of the Registrant’s common stock on June 28, 2024, as reported on the NASDAQ Global Market, was approximately $2,169.4 million. Shares of common stock held by each executive officer and director have been excluded from this computation. The determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes.
Number of shares of the registrant’s common stock outstanding as of February 21, 2025: 45,132,298
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the December 27, 2024 annual meeting of stockholders are incorporated by reference in Part III of this Form 10-K where indicated. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 27, 2024.
Table of Contents
Table of Contents
| Page | ||
|---|---|---|
| PART I | ||
| Item 1 | Business | 3 |
| Item 1A | Risk Factors | 11 |
| Item 1B | Unresolved Staff Comments | 25 |
| Item 1C | Cybersecurity | 25 |
| Item 2 | Properties | 26 |
| Item 3 | Legal Proceedings | 26 |
| Item 4 | Mine Safety Disclosures | 26 |
| PART II | ||
| Item 5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 27 |
| Item 6 | Reserved | 28 |
| Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 7A | Quantitative and Qualitative Disclosures About Market Risk | 39 |
| Item 8 | Financial Statements and Supplementary Data | 40 |
| Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 73 |
| Item 9A | Controls and Procedures | 73 |
| Item 9B | Other Information | 75 |
| Item 9C | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 75 |
| PART III | ||
| Item 10 | Directors and Executive Officers of the Registrant | 76 |
| Item 11 | Executive Compensation | 76 |
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 76 |
| Item 13 | Certain Relationships and Related Transactions and Director Independence | 77 |
| Item 14 | Principal Accountant Fees and Services | 77 |
| PART IV | ||
| Item 15 | Exhibits, Financial Statement Schedules | 78 |
| Item 16 | Form 10-K Summary | 82 |
Table of Contents
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will be,” “will continue,” “will likely result,” variations of such words, and similar expressions are intended to identify such forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, but are not limited to, statements concerning the following: projections of our financial performance, our anticipated growth and trends in our business, levels of capital expenditures, the adequacy of our capital resources to fund operations and growth, our ability to compete effectively with our competitors, our strategies and ability to protect our intellectual property, future acquisitions, customer demand, our manufacturing and procurement process, employee matters, supplier relations, foreign operations, the legal and regulatory backdrop (including environmental regulation), our exposure to market risks and other characterizations of future events or circumstances described in this Annual Report. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under “Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Item 1. Business
Overview
Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We report results for two segments: Products and Services. Our Products segment primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services segment provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (“WFE”) markets.
We ship a majority of our products and provide most of our services to U.S. registered customers with both domestic and international locations. In addition to U.S. manufacturing and service operations, we manufacture products and provide parts cleaning and other related services in our Asia Pacific, Europe and Middle East (“EMEA”) facilities to support local and U.S. based customers. We conduct our operating activities primarily through our subsidiaries.
Over the long-term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new device architecture (e.g. gate all around) and memory devices (e.g. high bandwidth memory) necessary for cloud, artificial intelligence (“AI”) and machine learning (“ML”) applications. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services business is benefiting as device manufacturers rely on precision cleaning and coating to produce ever more advanced devices.
Our international revenues represented 73.0%, 69.6% and 68.9% of total revenues for fiscal years ended 2024, 2023 and 2022, respectively. See Note 13 to the Notes to Consolidated Financial Statements for further information about our geographic revenues.
Our Suite of Offerings
We are a leading developer and supplier of critical subsystems, parts, components and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. We offer our customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and component manufacturing, tool chamber parts cleaning and coating and micro contamination analytical services. Our leadership in the market is enabled by the following customer-centric solutions:
•A vertically integrated solution for complex and highly configurable systems. We provide our customers a broad outsourced solution for the development, design, component sourcing and cleaning, prototyping, engineering, and manufacturing and testing of advanced systems. We utilize our weldment and frame fabrication capabilities together with highly specialized engineering, global supply chain management, and
Table of Contents
assembly capabilities to produce high performance products that are customized to meet the needs of equipment suppliers and chipmakers. We enable our customers to minimize their overall number of suppliers, simplify their supply chain and reduce their inventories.
•Parts and components. We offer our customers a wide range of gas delivery solutions such as ultra-clean valves, high purity connectors, industrial process connectors and valves, pneumatic actuators, manifolds and safety solutions, hoses, pressure gauges, gas line and component heaters, as well as complex weldments. These products comply with the highest quality standards to ensure accelerated performance in a variety of demanding environments and applications in the semiconductor, oil and gas, chemical and refinery, power, transportation, analytical, and gas manufacturing markets.
•Subsystem manufacturing. Our experience with the demanding requirements in semiconductor equipment manufacturing has enabled us to become a leading developer and supplier of critical modules and subsystems. These assemblies include gas and fluid delivery solutions, wafer transport systems, mechatronic assemblies, process modules, and sub-fab process equipment support racks.
•Improved design-to-delivery cycle times. Our strong customer relationships and familiarity with their product requirements and the ever-changing needs of their customer base help us reduce their design-to-delivery cycle times. We seek to optimize our supply chain management, design and manufacturing coordination and controls to respond rapidly to order requests, enabling us to decrease product design and customization cycle times for our customers. Because our engineers work closely with our customers’ engineers and understand the fabrication, assembly and testing of their products, we often can improve their design for manufacturability and implement automation, thereby reducing their cost and improving their quality and consistency.
•Testing capabilities. We utilize our technical expertise to test and characterize key fluid delivery products. We have made significant investments in advanced analytical and automated test equipment, enabling us to test and qualify key fluid delivery sub-systems and components across the entire range of extreme pressures and flows required to support leading-edge technologies. We can perform diagnostic tests, design verifications and failure analyses for our customers and suppliers.
•Increased integration with OEMs through local presence. Our local presence in close proximity to the facilities of most of our OEM customers enables us to remain closely integrated with their design, development and implementation teams. This level of integration enables us to respond quickly and efficiently to customer changes and requests.
•Precision fabrication. We design and manufacture weldments and frames with exacting standards to meet or exceed our customers’ needs. UCT has over 30 years of experience in the fabrication of complex gas delivery systems which enables us to provide cost competitiveness in our vertical integration model.
•Custom thermal control. We design and manufacture heaters, sensors, and controllers for precise temperature control. These products are complementary to our gas delivery systems products.
•Parts cleaning and coating and analytical verification: Through our Services business, we offer integrated device manufacturers (“IDM”) and OEMs validated, ultra-high purity process tool chamber parts cleaning and coating services. Included in these services are tool part process optimization solutions that could lower the total cost of ownership for our customers. We also offer analytical verification of process tool chamber part cleaning effectiveness and micro contamination analysis of tool parts, wafers and depositions, chemicals, cleanroom materials, deionized water and airborne molecular contamination.
Our Strategy
Our strategy is to grow our position and increase our value to our customers as a leading solutions and service provider in the semiconductor markets we serve, while serving a limited number of other technologically similar market opportunities. Our strategy is comprised of the following key elements:
•Expand our solutions and service market share with semiconductor OEMs and IDMs. We believe that equipment outsourcing and service offerings among OEMs creates a significant market opportunity for us to grow our business with existing and new customers. We believe our customers will continue to outsource critical subsystems and that we are well positioned to capture a significant portion of these outsourcing opportunities. We have broadened our portfolio into the sub-fab with the design and manufacturing of components, process solutions and fully integrated sub-systems. We believe that our continued focus on efficient manufacturing, reduced design-to-delivery cycle times, and high quality and reliability will allow us to gain market share. Similarly, we believe there is room to gain market share with our cleaning and coating
Table of Contents
services, both with chip and equipment makers, as customers typically outsource these solutions. By providing customers process improvement through consistently cleaner parts and analytical verification of process tool chamber part cleaning effectiveness, we have expanded our total available market significantly.
•Develop or acquire solutions that allow our customers to succeed at the leading edge of the semiconductor processing nodes. We continue to expand the number and type of subsystems and services that we offer in the rapidly advancing semiconductor market.
•Leverage our geographic presence in lower-cost manufacturing regions. The diverse footprint of our manufacturing facilities allows us to provide cost-competitive solutions. These facilities house subsystem assembly, weldment and thermal control heater operations and are near the manufacturing facilities of existing and potential customers and their end users. Several of UCT’s facilities are also in low-cost regions, adding to our competitive advantage.
•Provide production flexibility to respond rapidly to demand changes. Our manufacturing facilities use similar processes and procedures enabling us to easily shift production between sites to support expanded demand and ensure business continuity.
•Drive profitable growth with our flexible cost structure. We implement cost containment and capacity enhancement initiatives throughout the semiconductor demand cycles and benefit from the global presence and efficiencies of our supply chain. In addition, we believe our overseas facilities position us to respond effectively to future business demands. We employ a core engineering strategy with flexible partnering to augment our staff during the demand cycles within the semiconductor industry.
•Continue to selectively pursue strategic acquisitions. We will continue to consider strategic acquisitions that enable us to improve our financial model, expand our geographic presence, secure new customers and diversify into complementary products and services markets as well as broaden our technological and cleaning and analytical capabilities in the markets we serve.
•Strengthen vertical integration. We continue to strengthen our vertically integrated business model by investing in our operations or acquiring companies along the semiconductor supply chain to increase our capabilities, improve our cost structure, and enhance control, efficiency, and quality across our global operations. By deepening our integration capabilities, we aim to streamline processes, reduce dependencies, and fortify our position as a leading solutions and service provider in the semiconductor ecosystem.
Products
We design, develop, prototype, manufacture and test subsystems, primarily for the semiconductor equipment market. Our products include precision robotic solutions, gas delivery systems, sub-fab process equipment support racks, a variety of industrial and automation production equipment products, and subsystems that include wafer cleaning modules, chemical delivery modules, top-plate assemblies, frame assemblies, and process modules. We also offer a wide range of parts and components such as ultra-clean valves, high purity connectors, industrial process connectors and valves, pneumatic actuators, manifolds and safety solutions, hoses, gas delivery systems, and pressure gauges.
•Parts and components. Includes ultra-clean valves, high purity connectors, industrial process connectors and valves, pneumatic actuators, manifolds and safety solutions, hoses, pressure gauges, gas line and component heaters, as well as complex weldments. These products comply with the highest quality standards to ensure accelerated performance in a variety of demanding environments and applications in the semiconductor and other gas manufacturing markets.
•Chemical delivery modules: Chemical delivery modules deliver gases and reactive chemicals in a liquid or gaseous form from a centralized subsystem to the reaction chamber. The module may be a gas delivery system in combination with liquid and vapor precursor delivery systems or may be a liquid delivery system in combination with a liquid storage system.
•Gas delivery systems: A typical OEM gas delivery system consists of one or more gas lines, comprised of weldments, filters, mass flow controllers, regulators, pressure transducers and valves, component heaters, and an integrated electronic and/or pneumatic control system. These systems are typically pallet mounted and are enclosed in a sheet metal encasing. Our gas delivery system designs are developed in collaboration with our customers and are customized to meet the needs of specific processing requirements for OEMs. While several customers specify the full system bill of materials, many leverage our design expertise to help them select the appropriate components for their particular system.
Table of Contents
•Fluid delivery systems: A typical OEM liquid delivery system consists of one or more chemical delivery units, comprised of small diameter high purity perflouroalkoxy (PFA) tubing, filters, flow controllers, regulators, component heaters, and an integrated electronic and/or pneumatic control system. These units are typically contained in a plastic enclosure and further integrated into a frame. Our liquid delivery system designs are developed in collaboration with our customers and are customized to meet the needs of specific processing requirements for OEMs. Although several customers specify the full system bill of materials, many rely on our design expertise and component characterization capabilities to help them select the appropriate components for their particular system.
•Precision robotics: Precision robotic systems are used when accurate controlled motion is required. Some of the systems that employ robotic systems are semiconductor wafer and chip handling, wire bonding and industrial equipment.
•Process modules: Process modules refer to the larger subsystems of semiconductor manufacturing tools that process integrated circuits onto wafers. Process modules include several smaller subsystems such as the frame assembly, top-plate assembly and gas and chemical delivery modules, as well as the chamber and electronic, pneumatic and mechanical subsystems.
•Other high-level assemblies: Other high-level assemblies refer to large subsystems used in semiconductor manufacturing and sub-fab, display, medical, energy, industrial and research industries.
Services
Our services business includes ultra-high purity process tool chamber parts cleaning and coating services, tool part life extension and process tool part optimization solutions, and micro-contamination analytical testing, primarily for the semiconductor device manufacturers and wafer fabrication equipment markets.
•Parts cleaning and coating: UCT offers customers validated, ultra-high purity outsourced process tool chamber parts cleaning and coating services. Included in these services are tool part process optimization solutions that can lower the total cost of ownership for our customers.
•Micro-contamination analysis: UCT also offers micro-contamination analysis of tool parts, wafers and depositions, chemicals, cleanroom materials, deionized water and airborne molecular contamination and provides analytical verification of process tool chamber part cleaning effectiveness.
Customers
We sell our products and services primarily to customers in the semiconductor capital equipment and semiconductor integrated device manufacturing industries, and we also sell to the display, consumer, medical, energy, industrial, and research equipment industries.
The majority of our total revenue comes from the highly concentrated semiconductor capital equipment industry (OEM customers), so we are dependent upon a small number of customers. Our two largest revenue customers in fiscal years 2024, 2023 and 2022 were Applied Materials, Inc. and Lam Research Corporation, each of which accounted for more than 10% of our total revenues in those three years. As a group, our respective year’s top two customers accounted for 54.5%, 57.4% and 62.7% of the Company’s revenues for fiscal years 2024, 2023 and 2022, respectively.
Approximately 94.9% of our total revenues for the fiscal year 2024 came from multiple segments of the semiconductor industry, which include IDM, Foundry, OEM, and sub-tier suppliers.
We have successfully been qualified as a supplier of equipment, cleaning, coating and analytical services with each of our customers who require such qualifications. This lengthy qualification process typically involves the inspection and audit of our facilities and evaluation by our customers of our engineering, documentation, manufacturing and quality control processes and procedures. Our customers generally place orders with suppliers who meet their qualification criteria.
Customer Business Management
We sell and support our products and services through our Customer Business Management organization. Our customer relationship directors are responsible for establishing sales strategies and setting the objectives for specific customer accounts. Each customer relationship manager is dedicated to a specific customer account and is responsible for maintaining strong working relationships with that customer, and in many cases provide on-site support. OEM Customer relationship managers often attend customers’ internal meetings related to production and engineering design and quality to ensure that customer expectations are interpreted and communicated properly to the operations group. Customer relationship managers also work with customers to identify and meet their cost and design-to-delivery cycle time
Table of Contents
objectives. IDM Customer relationship managers work with process tool owners and Fab maintenance managers relating to the development and validation of cleaning recipes, addressing new tools cleaning and analytical requirements, and optimizing cleaning processes and analytical testing requirements to support node transitions.
We have dedicated New Business Development managers for both our product and service businesses. They are responsible for initiating and developing long-term, multi-level relationships and work closely with the customers on new business opportunities. Our Customer Business Management organization includes technical sales support for order placement, spare parts, quotes and production status updates as well as service and maintenance contracts and analysis business. We have technical relationship representatives located at most of our facilities.
We integrate new business wins into our facilities via a rigorous product transition process, working in concert with our customers to ensure all production, cleaning and/or test requirements are identified, documented, and validated. We employ the same process at all our sites, enabling products and service offerings to smoothly transition between our facilities as needed to support customer demand.
In addition, we have developed an overall infrastructure to provide our customers with service and support 24 hours a day, seven days a week. Our dedicated global field service engineers provide customer support through the performance of on-site installation, servicing and repair.
Technology Development
We engage in ongoing technology development efforts to remain a leader for gas delivery systems and to further develop our expertise in other critical subsystems. We work closely with our customers to identify and anticipate changes and trends in next-generation equipment and partner with them on process application requirements for gas and liquid delivery systems and other critical subsystems. These development efforts are designed to meet specific customer requirements in the areas of subsystem design, materials, component selection and functionality. Our technology development group also works directly with our suppliers to help them identify new component technologies and make necessary changes or enhancements to the components that we integrate into our products. Our analytical and testing capabilities enable us to evaluate multiple supplier component technologies and provide our customers with a wide range of appropriate component and design choices for their gas delivery systems and other critical subsystems.
Our analytical and testing capabilities also help us anticipate technological changes and requirements in component features for our core next-generation gas delivery systems and other critical subsystems. We are continuously developing additional features to improve the performance and functionality of these subsystems. Our technology development activities for next-generation gas delivery and other critical subsystems is supported by our global engineering group, with teams primarily located in the United States, Singapore, Taiwan, the United Kingdom, and Israel.
We are actively developing new technology and processes to maintain our leadership in the cleaning, coating and analytical markets. Our Services business works closely with customers to identify and anticipate changes that will be required in next-generation equipment. UCT’s technical capability is extremely critical and differentiated to ensure high wafer yields and throughput as geometries shrink and density increases. Our Services business development activities are performed primarily in Hillsboro, Oregon; Phoenix, Arizona; Israel and South Korea.
Intellectual Property
Our success depends in part on our ability to maintain and protect our proprietary technology and to conduct our business without infringing the proprietary rights of others. Both our products and services businesses largely depend upon our design, engineering, manufacturing, testing, cleaning, coating and analytical know-how. We also rely on a combination of trade secrets and confidentiality provisions, and to a lesser extent, patents, copyrights and trademarks, to protect our proprietary rights. We have over 100 patents with various expiration dates, and intellectual property that we develop on behalf of our customers that is generally owned exclusively by those customers.
We require our employees, suppliers, customers and potential business partners to enter into confidentiality and non-disclosure agreements before we disclose to them any sensitive or proprietary information regarding our products, technology or business plans. We require employees to assign to us proprietary information, inventions and other intellectual property they create, modify or improve.
Competition
When we compete for new business, it is typically against other suppliers of gas delivery systems, critical subsystems, parts and components, cleaning and analytical services, as well as the internal manufacturing and services groups of our customers. Customers that have elected to outsource their gas delivery systems and other critical subsystems including
Table of Contents
cleaning and analytics, could elect in the future to develop and manufacture these subsystems internally, leading to further competition.
Our principal competitor for gas delivery systems is Ichor Systems, Inc., and our principal competitors for other critical subsystems are Flex Ltd., Foxsemicon Integrated Technology Inc., Jabil, Inc., Sanmina Corporation, Fujikin Incorporated, VDL ETG and Celestica Inc. For our gas delivery component solutions our principal competitors are Swagelok, Parker Hannifin, and Watlow. For our services, cleaning and coating offerings, our main competitors in the U.S. are Pentagon Technologies and Cleanpart, and in South Korea, KoMiCo. For analytical services our primary competitors are Balazs (an Air Liquide company) and Cerium Labs. Some of these competitors have substantially greater financial, technical, manufacturing and marketing resources than UCT. 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.
The limited number of potential customers in our industry further intensifies competition. The primary competitive factors in our industry are quality, meeting customer timeline requirements, price, technology, design-to-delivery cycle time, customer qualification approvals, the development of product recipes for cleaning and analytics and historical customer relationships. We anticipate that increased competitive pressures will cause intensified price-based competition and we may have to reduce the prices of our products. In addition, we expect to face new competitors as we enter new markets or otherwise expand our products and service offerings.
Governmental Regulation and Environmental Matters
Our operations are subject to federal, state and local regulatory requirements and foreign laws relating to environmental, waste management and health and safety matters, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous substances and waste, as well as practices and procedures applicable to the construction and operation of our UCT facilities.
In 2020, we committed to a program titled “SuCCESS2030” designed to enhance our sustainability vision through our supply chain. We are endeavoring to identify and coordinate efforts and develop our capabilities to ensure our suppliers operate in an ethical, responsible, and sustainable manner. The goal is to build a responsible and sustainable end-to-end supply chain for the future of semiconductors.
In 2022, UCT became a Founding Member of the Semiconductor Climate Consortium (SCC), the first global alliance of
semiconductor ecosystem companies focused on reducing greenhouse gas emissions across the value chain. The SCC’s members are committed to driving climate progress within the semiconductor industry and support the Paris Agreement and related accords aimed at accelerating and intensifying the actions and investments required for a sustainable low-carbon future.
We participate in the Responsible Business Alliance’s Responsible Minerals Assurance Process for Tantalum. Our cleaning processes for tantalum-deposited parts recovers the tantalum, enabling it to re-enter the commodity market and reduce the demand for mined material, the majority of which originates from the Conflict Region in Africa.
Although cleaning is a chemical-intensive business we utilize chemical-free processing whenever possible to remove significant volumes of deposited material. Reduction in the volume of film being chemically removed reduces the amount of chemicals used to meet the target cleanliness specifications.
The semiconductor industry has stringent packaging requirements which include the need to maintain the cleanliness of a part/system while providing structural support of heavy modules. These requirements may necessitate the design and fabrication of product-specific crates or the use of plastic cleanroom boxes. To minimize packaging waste we have implemented re-use programs with our customers and suppliers for these type of materials.
Our past or future operations may result in injury or claims of injury by employees or the public which may result in material costs and liabilities. Although some risk of costs and liabilities related to these matters is inherent in our business, we believe that our business is compliant with applicable U.S. and international regulations and laws. However, new, modified or more stringent requirements or enforcement policies could be adopted by governmental agencies, which could affect our business operations.
Employees and Human Capital
As of December 27, 2024, we had 7,505 employees, of which 732 were temporary. Of our total employees, there were 130 in engineering, 26 in technology development, 402 in sales and support, 4,877 in direct manufacturing, 1,329 in indirect manufacturing and 741 in administrative and executive functions. These figures include 3,571 employees in Asia Pacific and 1,584 employees in EMEA.
Table of Contents
Except where required by local regulations, our employees are not represented by labor unions, nor are they covered by collective bargaining agreements. We have not experienced a significant work stoppage.
We believe that our employees are the foundation of our success. We are committed to fostering a workplace where every individual feels valued, respected, and empowered to contribute effectively to our business objectives. By reinforcing a culture of mutual respect and trust, we create an environment where all employees can thrive. We provide ongoing education and practical training to ensure our workplace reflects the highest standards of professionalism, respect, and collaboration.
We believe that our success depends on our ability to attract, develop and retain key personnel. We believe that the skills, experience and industry knowledge of our key employees significantly benefit our operations and performance. We strive to provide fair and equal opportunity for career development and advancement to all our employees. We offer competitive rewards, compensation and benefits, including an Employee Stock Purchase Plan, healthcare and retirement benefits, parental and family leave, adoption credits, holiday and paid time off, and tuition assistance.
We use our annual operating plan and industry growth projections to determine the appropriate level of staffing requirements. Staffing levels are aligned and adjusted on occasion throughout the year to ensure we meet our customer obligations, in line with any changes in demand, to ensure business continuity.
Social Responsibility
We believe that social responsibility is defined as “positively impacting society by ensuring the people we work with are safe and treated with dignity and respect, and by being a good neighbor in the communities in which we operate”. We apply our core values to our engagement inside and outside the Company. Positively involving our employees and giving back to communities is central to our culture. Supported by the Company, our employees contribute directly to the community with their time and resources. In 2024, we organized and conducted 31 events designed to give back and support its communities.
Available Information
We file with the Securities and Exchange Commission (“SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. You may read and copy any materials we file with the SEC at the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may also request copies of all or any portion of such material from the SEC at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. In addition, materials filed electronically with the SEC are available at the SEC’s website at www.sec.gov.
In addition, we make available free of charge, on or through our website at www.uct.com, our annual, quarterly and current reports and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the SEC. This website address is intended to be an inactive textual reference only; none of the information contained on our website is part of this report or is incorporated by reference herein.
Executive Officers
Set forth below is information concerning our executive officers as of February 21, 2025.
| Name | Age | Position |
|---|---|---|
| James P. Scholhamer | 58 | Chief Executive Officer and Director |
| Sheri Savage | 54 | Chief Financial Officer |
| Harjinder Bajwa | 58 | Chief Operating Officer |
| Jeff McKibben | 62 | Chief Information Officer |
| Chris Cook | 56 | President, Products Business |
| William C. Bentinck | 63 | President, Services Business |
| Brian E. Harding | 43 | Senior Vice President, Chief Accounting Officer |
| Jamie J. Palfrey | 57 | Senior Vice President, Global Human Resources |
| Paul Y. Cho | 47 | General Counsel and Corporate Secretary |
James P. Scholhamer joined the Company as Chief Executive Officer and a member of our Board of Directors in January 2015. Prior to joining Ultra Clean, Mr. Scholhamer served as Corporate Vice President and General Manager of Applied
Table of Contents
Materials, Inc., leading the Equipment Products Group and Display Services Group of its Global Service Division from February 2011 to January 2015. Mr. Scholhamer joined Applied Materials, Inc. in 2006, where, prior to his most recent position, he served as Vice President of Operations Display and Solar Products Division from July 2006 to December 2008 and Corporate Vice President and General Manager of the Display Business Group from December 2008 to February 2011. Prior to that, Mr. Scholhamer worked for Applied Films Corporation as COO/CTO and Vice President of Operations, Engineering and Research Development in the company’s German office from September 2002 to July 2006 and as Vice President of Thin Film Coating Division and Thin Film Equipment Division in the company’s Colorado office from July 2000 to September 2002. Mr. Scholhamer holds a B.S. in Materials and Metallurgical Engineering from the University of Michigan.
Sheri Savage has served as our Chief Financial Officer since July 2016. Ms. Savage joined the Company as the Senior Director of Finance in April 2009. She was Senior Vice President of Finance and Chief Accounting Officer from February 2016 to July 2016. Prior to joining the Company, Ms. Savage served at Credence Systems Corporation, a manufacturer of test equipment for the global semiconductor industry, as its Corporate Controller and Vice President of Finance from February 2008 to February 2009 and as Director of Internal Audit from May 2006 to February 2008. Prior to Credence Systems, Ms. Savage served in various accounting and finance roles at Protiviti, a global business consulting and internal audit firm, and KLA-Tencor Corporation, a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Ms. Savage also served as Manager, Business Process Risk Accounting, at Arthur Anderson LLP, the former accounting firm, from May 1996 to October 1999. Ms. Savage holds a B.S. in Managerial Economics from the University of California, Davis.
Harjinder Bajwa joined UCT as Chief Operating Officer in June 2024. Mr. Bajwa has 30 years of global operations expertise, including strategy development and execution, operations improvement and quality control, lean manufacturing and cost management. Most recently, Harjinder was the Chief Operating Officer for Reconext, a leading provider of aftermarket lifecycle services for electronics. Prior, he held various roles with Flex, Ltd. for 27 years. From 2011 to 2021, he was the Senior Vice President, Global Operations of the High Reliability Solutions business unit, where he oversaw global operations in Americas, Asia and Europe, and was part of significant growth in the business unit's revenue and operating profits. Mr. Bajwa holds a B.S. in Mechanical Engineering from Panjab University and an M.S. in Engineering from San Jose State University. He has also completed executive development programs at the Massachusetts Institute of Technology and Stanford University.
Jeff McKibben has served as our Chief Information Officer since August 2021. Prior to joining UCT, Mr. McKibben served at ON Semiconductor Corporation, global manufacturer driving innovation in energy efficient electronics, as Chief Information Officer from December 2020 to August 2021, as Vice President, Enterprise Applications from August 2017 to December 2020 and as Senior Director, Enterprise Applications from July 2007 to August 2017. He previously held a range of roles at Hewlett Packard in global IT management, consulting, and enterprise program management. Mr. McKibben holds an M.S. in Management Information Systems from the University of Arizona and a B.S. in Humanities and International Relations cum laude from Georgetown University.
Chris Cook has served as our President, Products Business since April 2022. Before joining UCT, Mr. Cook served as Executive Vice President and Chief Marketing Officer of Cypress Semiconductor from March 2017 to April 2020 when the company was acquired by Infineon Technologies AG. Mr. Cook served as Founder, CEO and Adviser at Cauz Colony from June 2015 to December 2018. Prior to that, he served as President of Flex Power, the power supply business of Flextronics International Ltd. from January 2012 to June 2015. Mr. Cook joined Infineon Technologies AG in 2003 and served as its Vice President and General Manager, RF and Protection Devices from May 2008 to December 2011, its Managing Director, Infineon Technologies North America from July 2007 to December 2008 and Vice President and General Manager, AI Marketing from May 2003 to May 2008. He previously held various roles of increasing responsibility at Renesas Technology (formerly Hitachi Semiconductor) from 1995 to 2003. Mr. Cook holds a B.S. in Electrical Engineering and Technology from Purdue University and completed the Program for Leadership Development at Harvard Business School.
William C. Bentinck has served as our President, Semiconductor Services Business since May 2019. Mr. Bentinck joined the Company as Senior Vice President, Semiconductor Services Business, in March 2019. Mr. Bentinck previously served as Executive Vice President and General Manager of Eugenus, Inc., a semiconductor equipment manufacturing company, from November 2017 to June 2018. Prior to that, Mr. Bentinck served as Vice President and General Manager of the Logic & Memories Technology Group for AIXTRON Inc., a manufacturer of systems and equipment to the semiconductor industry, from April 2014 to November 2017. From August 2006 to March 2014, Mr. Bentinck served as General Manager, Customer Support Business Group (Spares & Services) for Lam Research Corporation, a global supplier of wafer fabrication equipment and services to the semiconductor industry. Prior to Lam Research Corporation, Mr. Bentinck served in various roles of increasing responsibility at Novellus Systems, Inc., a provider of advanced process equipment for the
Table of Contents
global semiconductor industry, from 1991 through August 2006. Mr. Bentinck holds a B.S. in Chemical Engineering, and a M.S. in Engineering – Material Science, from California State Polytechnic University, Pomona.
Brian E. Harding has served as our Senior Vice President, Chief Accounting Officer since June 2022. Prior to joining UCT, Mr. Harding served as Vice President and Corporate Controller at The Greenbrier Companies from March 2020 to June 2022. Prior to that, Mr. Harding served as Vice President, Corporate Controller and Principal Accounting Officer from May 2016 to March 2020 and as Director of Finance and Accounting from May 2014 to May 2016 at FLIR Systems, Inc. (now part of Teledyne Technologies). He previously served in various roles of increasing responsibility at KPMG LLP and its international partner firms from October 2003 to May 2014. Mr. Harding holds a B.A. in Business Administration with concentrations in Accounting and Finance from Pacific University and completed the Executive Leadership and Innovation Program at the Babson Graduate School of Business.
Jamie J. Palfrey has served as our Senior Vice President of Global Human Resources since May 2021. Prior to joining UCT, Ms. Palfrey served as Senior Vice President, Global Human Resources for Shape Technologies Group, a global leader in the manufacturing process solutions industry, from December 2015 to April 2020. Previously, she held the role of Vice President, Human Resources with Wacom Americas from October 2013 to December 2015, and from 1995 to 2013 served in various senior management roles in organizations that include FEI Company, Lam Research Corporation and ConocoPhillips. Ms. Palfrey holds an M.Ed. with a focus on Human Resources, Occupational Training & Development/instructional design, from University of Louisville and a B.S. in Business Administration from Portland State University.
Paul Y. Cho has served as our General Counsel and Corporate Secretary since October 2019. Mr. Cho brings over a decade of experience in various legal disciplines, including IP and commercial litigation, joint venture projects, and commercial transaction work. Most recently, from April 2016 to October 2019, Mr. Cho held the position of General Counsel and Corporate Secretary for the North American operations of SK Hynix, Inc., and held the position of Senior Counsel at its corporate headquarters from September 2014 to March 2016. Prior to SK Hynix Inc., Mr. Cho served as Senior Legal Counsel for Samsung SDI, a storage battery manufacturing company, from June 2013 to September 2014 and as Legal Counsel for LG Electronics, an electronics company, from April 2012 to May 2013. Mr. Cho holds a B.A. in English from the University of Michigan and a J.D. from the University of Minnesota Law School.
Item 1A. Risk Factors
The following risk factors could materially and adversely affect the Company’s business, financial condition or results of operations and cause reputational harm and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.
Industry, Customer and Strategic Risks
The cyclical and highly volatile nature of the industries we serve could harm our operating results.
Our business depends in large part upon capital expenditures by manufacturers in the semiconductor and display industries, which in turn depend upon the current and anticipated market demand for such products. These industries (especially the semiconductor industry) have historically seen recurring periods of over-supply of products that have materially reduced the demand for both the capital equipment and the services required to manufacture such products. We likely will continue to experience fluctuations in customer orders through such cycles. Although some of our business, including the cleaning, coating and analytical services that support the semiconductor chip market, are less susceptible to such fluctuations, recurring slowdowns in the industries we serve have historically had adverse effects on our overall operating results. Demand shifts in these industries are rapid and difficult to predict, and we may not be able to anticipate or respond quickly enough to changes in demand.
Our revenues in periods of increasing demand depends, in part, upon our ability to: (i) timely mobilize our supply chain to maintain component and raw material supply; (ii) optimize our design, as well as mobilize our engineering and manufacturing capacity in a timely manner; (iii) expand, as necessary, our manufacturing, cleaning, coating and analytical services capacity; and (iv) maintain our product and service quality as we increase production. If we fail to timely respond to rapid increases in demand for our products and services, or to effectively manage the corresponding expansion of our manufacturing and service capacity, our customers may divert their purchases of products and services from us to our competitors.
Our ability to remain profitable and mitigate the impact on our business in periods of decreasing demand depends, in part, upon our ability to: (i) maintain the prices, quality and delivery cycles of our products and services while managing costs by optimizing our inventory levels, (ii) reduce or cancel orders from our suppliers, all without compromising our relationships with such suppliers; and (iii) continue to motivate our employees while reducing our fixed and variable costs through various initiatives, which may include reducing our workforce.
Table of Contents
The limited visibility we have on the future needs of our customers, combined with the cyclical and volatile nature of the industries we serve, makes future revenues, results of operations and net cash flows difficult to estimate.
We rely on a small number of OEMs and IDMs for a large portion of our revenues, who could stop outsourcing critical subsystems or part cleaning, coating or analytical services, or give market share to our competitors.
A small number of OEM customers have historically accounted for a significant portion of our revenues, and we expect this trend to continue. Our top two customers accounted for 54.5%, 57.4% and 62.7% of our revenues for fiscal years 2024, 2023 and 2022, respectively. Because most of these customers are not contractually obligated to place any orders with us, the success of our Products business largely depends on these OEMs’ own discretion, which discretion is buttressed by the fact that the OEMs generally own, and are therefore free to license as they see fit, the designs and other intellectual property to the products we manufacture for them. And since most of these OEMs are already our customers, any lost revenue resulting from the loss, reduction, cancellation or delay in purchase orders by any one of these customers would be difficult to replace. In the past, we have seen decreases in our business volume for those customers who have taken the manufacturing of our products in-house, given market share to our competitors, or declared bankruptcy.
Our Services business provides parts cleaning, coating and analytical expertise to both IDM and OEM customers. Our IDM business is similarly concentrated in a small number of customers, and we compete with their in-house capabilities, those OEMs who perform cleaning as part of their service contracts, and other providers of cleaning, coating and analytical services. The OEM customer profile of our Services business has significant overlap with our Products business, and we similarly compete against other providers of cleaning, coating and analytical services. Because our cleaning and analytical processes are proprietary to us, our customers may need to go through a new qualification process if they decide to transition to a new service provider.
Consolidation among our customers, or a decision by any one or more of our customers to outsource all or most of manufacturing, assembly, cleaning, coating and analytical services work to a single OEM, may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on an even smaller number of customers.
Our customers also exert a significant amount of negotiating leverage over us, which may force us to accept lower operating margins, increased liability risks or changes in our operations in order to retain their business.
Due to their size and level of contribution to our revenue, our largest customers are able to exert significant pressure to seek various concessions in our commercial agreements and individual purchase orders. Our customers often require reduced prices, as well as commitments related to quality, manufacturing and delivery of goods, as a condition to placing purchase orders. This could, among other things, result in reduced operating margins or require capital or other expenditures in order to maintain or expand our market share. Further, many of our customers generally require us to indemnify against certain liabilities, which may include claims of losses by their own customers arising out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products. Our potential liability for infringing upon a third party’s intellectual property is generally uncapped, and in some cases, we have self-insured against these risks, such that we do not have a third-party insurer to reimburse us against these losses. Our customers may also pressure us to make other concessions in order to preserve or expand our market share with them. For example, customers may prevent us from moving our manufacturing sites from higher-cost regions to lower-cost regions, all the while seeking price reductions. If we are unable to retain and expand our business on favorable commercial terms, our business will be adversely affected and we may be susceptible to increased liability risk.
Acquisitions could result in operating and integration difficulties, dilution, margin deterioration, diversion of management’s attention, and other consequences that may materially impact our business.
We have made, and may in the future make, acquisitions of, or significant investments in, businesses that offer complementary products, services, technologies or market access. Our management regularly evaluates potential strategic transactions with its advisors and our Board of Directors in the ordinary course of business. We may not be successful in negotiating the terms or financing for potential acquisitions and our due diligence may fail to identify all of the problems, liabilities or other challenges associated with an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer retention issues. In addition, we may not be successful in effectively integrating the acquired business, product or technology into our existing business and operations. The areas where we face risks include:
•management of a larger, more complex and capital intensive combined business, including integrating supply and distribution channels, computer and accounting systems, and other aspects of operations;
Table of Contents
•exposure to new operational risks, rules, regulations, worker expectations, customs and practices;
•inability to complete proposed transactions due to the failure to obtain regulatory or other approvals, litigation or other disputes, and any ensuing obligation to pay a termination fee;
•reduction of gross margins and pricing leverage due to the acquired company having the same customer base;
•failure to realize expected returns from acquired businesses;
•reduction in cash balances or increase in debt obligations to finance the acquisition, which may reduce the availability of cash flow for general corporate or other purposes;
•integration of the capabilities of the acquired businesses without reducing the quality of existing products;
•incorporation of different financial and reporting controls, processes, systems and technologies into our existing business environment;
•unforeseen liabilities, expenses, or other losses associated with the acquisitions for which we do not have recourse under their respective agreements;
•the risk of litigation or claims associated with a proposed or completed transaction;
•inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and procedures, or environmental, health and safety, anti-corruption, human resource or other policies or practices;
•performance shortfalls as a result of the diversion of management’s attention from the Company’s operations;
•cultural challenges associated with integrating employees from the acquired business into our organization, and incentivization and retention of employees from the businesses we acquire; and
•difficulties associated with the retention and transition of new customers and partners into our existing business.
If we fail to address these risks, we may not be able to realize the anticipated benefits of such acquisitions or investments and incur unanticipated liabilities and substantial costs, materially harming our business in the process.
Our acquisitions could also result in one or more of the following: dilutive issuances of our equity securities, additional debt, contingent liabilities, amortization expenses, impairment charges and restructuring charges, any of which could harm our financial condition. Also, due to prevailing conditions in the credit market and our existing leverage, the financing of any such acquisition may be difficult to obtain, and the terms of any such financing may not be favorable.
We are exposed to risks associated with volatility in the global economy.
We rely heavily on OEM customers for the success of our business. The success of OEMs’ business is, in turn, directly related to the success of IDMs and other chipmakers, whose customers are engaged in consumer-facing businesses. Much of our success, therefore, depends on consumer spending and capital expenditures by retail businesses. Uncertainty regarding the global economy may exacerbate negative trends in business and consumer spending, which may cause, and have caused in the past, our customers to scale back operations, reduce capital expenditures, exit businesses, move capacity to other manufacturers, in-source capacity or file for bankruptcy protection and potentially cease operations. Our customers may then be forced, and have been forced in the past, to push out, cancel or refrain from placing orders for our products or services. These conditions may also similarly affect, and have affected in the past, key suppliers, impairing their ability to timely deliver components or raw materials. We will then be forced to procure components or raw materials from higher-cost suppliers or reconfigure the design and manufacture of our products or services, which may eventually lead, and have led in the past, to our failure to fill customer orders. Recent inflationary trends have had, and could continue to have, a negative impact on many aspects of our cost structure.
We have established and, as circumstances may require, intend to expand our operations globally, which exposes us to risks associated with operating in foreign countries.
We generated approximately 73.0% and 69.6% of our revenues in international markets for fiscal years 2024 and 2023, respectively. Depending on market conditions, we intend to further expand our operations in Asia Pacific and EMEA. The carrying amount of our fixed assets in Asia Pacific and EMEA were $121.0 million and $84.5 million, respectively as of December 27, 2024, and $132.6 million and $80.1 million, respectively as of December 29, 2023.
We are exposed to political, economic, legal and other risks associated with operating in Asia and EMEA, including:
•foreign currency exchange fluctuations;
Table of Contents
•political, civil, public health and economic instability, such as the one resulting from the conflict between Israel and Hamas-led groups that started in 2023;
•restrictive governmental actions, such as restrictions on the transfer or repatriation of funds and foreign investments, import/export restrictions and quotas, and customs duties and tariffs;
•uncertainty regarding social, political and trade policies in the United States and abroad;
•timing and availability of export licenses;
•disruptions due to developing domestic infrastructure in countries like China, including transportation and energy;
•difficulties in developing relationships with local suppliers, attracting new international customers, conducting due diligence with respect to business partners in certain international markets, collecting accounts receivables, and staffing and managing distant international subsidiaries and branch operations;
•the burden of complying with foreign and international laws and treaties;
•legal systems potentially subject to undue influence or corruption; and
•potentially adverse tax consequences, including restrictions on the repatriation of earnings to the United States.
Negative or uncertain global conditions could prevent us (and have prevented us in the past) from accurately forecasting demand for our products and services. In addition, a shift in the mix of orders from our customers away from low-cost markets to higher cost markets could adversely affect our operating margins.
Our operations in Asia Pacific and EMEA are subject to U.S. regulations governing equipment export. These laws are complex and require us to obtain export licenses, a failure of which could expose us to fines, penalties and export ban. The U.S. Department of Commerce continually updates and often expands the list of entities, to whom U.S. companies cannot sell certain products or provide certain services without a license from the Department of Commerce. These rules and regulatory changes could have material adverse impact on the result of our operations, and have changed our business forecast in the past.
Over the past several years, some foreign government authorities, including those in China and South Korea, have pursued economic reform policies by promoting local businesses and local economic activity. Without notice, these government authorities may continue or alter these policies to our detriment, including imposition of confiscatory taxation policies, new restrictions on currency conversion, and limitations on sources of supply.
We are subject to various laws and regulations of the countries where we conduct business, including laws and regulations relative to anti-corruption and anti-bribery, antitrust and competition, data privacy, and export regulations. These foreign laws and regulations are constantly evolving and may, in some cases, conflict with each other. Although our compliance policies against unethical business practices apply to all our employees and agents, any violation of these policies by a rogue employee or agent may expose us to enforcement actions under these laws and regulations.
Other changes in U.S. or international social, political, regulatory and economic conditions or laws and policies governing tax laws, foreign trade, manufacturing, and development and investment in the countries where we or our customers operate could also adversely affect our operating results and our business. International trade disputes could result, and have resulted in the past, in increases in tariffs and other trade restrictions and protectionist measures that could adversely impact our operations and reduce the competitiveness of our products relative to local and global competitors.
We could be adversely affected by risks associated with joint ventures, including those in the Asian markets.
From time to time, we may seek to expand our business through investments in joint ventures with complementary businesses, technologies, services or products, in both new and existing market categories and geographic regions. Our investments in joint ventures are subject to a number of risks, including many of the same risks that we encounter in our acquisition activities. In particular, we participate in a joint venture with Cinos Co., Ltd. (“Cinos Korea”) in South Korea and Cinos Xi’an in China. The success of these joint ventures will continue to demand significant management and capital resources, and effective management of those risks inherent in overseas joint venture operations, including: protection of our intellectual property; economic, political and labor instability; language and cultural differences; contractual enforcement issues; and managing product development, operations and sales activities that are physically far removed from our headquarters and have historically been centralized with local management. In addition, from time to time in the future, our joint venture partners may have economic or business interests that are different from ours. If each joint venture business does not progress according to our plans and anticipated timing, our investment in the joint ventures may not be successful.
Table of Contents
The industries in which we participate are highly competitive and rapidly evolving.
We face intense competition from subsystem and component manufacturers in the industries we serve. Increased competition could result, and has resulted in the past, in price reductions, reduced gross margins or loss of market share. Competitors may introduce new products in the markets currently being served by our products. These new products may have better performance, lower prices and achieve broader market acceptance than our products. Further, since our customers generally own the designs and other intellectual property to the products we manufacture on their behalf, we cannot prevent them from licensing such designs and other intellectual property to our competitors for the manufacture of such products. Similarly, while the cleaning and analytical processes we utilize are proprietary to us, OEMs are looking to increase their maintenance services and could create proprietary cleaning processes with competitors, limiting our ability to compete for future business.
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 services, and reduce prices to increase market share. Moreover, there may be merger and acquisition activities among our competitors and potential competitors that may provide our competitors and potential competitors an advantage over us by enabling them to expand their product offerings and service capabilities to meet a broader range of customer needs. Further, if one of our customers develops or acquires the internal capability to develop and produce critical subsystems that we produce, or cleaning, coating and analytical services we provide, the loss of that customer could have a material adverse effect on our business, financial condition and operating results.
If our new products are not accepted by OEMs or other customers or if we are unable to obtain historical margins on our new products, our operating results would be adversely impacted.
We design, develop and market critical subsystems and proprietary cleaning, coating and analytical services to OEMs, IDMs and other customers. The introduction of new products and processes is inherently risky because it is difficult to foresee the adoption of new standards, coordinate our technical personnel and strategic relationships and win acceptance of new products by our customers. We may ultimately not be able to recoup design and development expenditures. For several quarters following their introduction, newly introduced products typically carry lower gross margins than existing products. If any of our new systems or subsystems are not successful in the market, or if we are unable to obtain gross margins on new products that are similar to the gross margins we have historically achieved, our business, operating results and financial condition could be adversely affected.
If we do not keep pace with developments in the industries we serve and with technological innovation generally, our products may not be competitive.
Rapid technological innovation in the markets we serve (for example, the recent proliferation of artificial intelligence) requires us to anticipate and respond quickly to evolving customer requirements and could render our current product or service offerings and technology obsolete. Technological innovations are inherently complex. We believe that our future success will depend upon our ability to timely design, engineer and manufacture products and services that meet the changing needs of our customers. If we are unable to integrate new technical specifications into competitive product and service designs, develop the technical capabilities necessary to manufacture new products or provide new services or make necessary modifications or enhancements to existing products or services, our business prospects could be harmed.
The timely development of new or enhanced products and services requires us to:
•design innovative and performance-enhancing features to differentiate our products and services;
•identify emerging technological trends, including new standards for our products and services;
•accurately identify and design new products and services to meet market needs;
•timely and efficiently collaborate with OEMs and IDMs to design and develop products and services;
•timely ramp-up production of new products, especially new subsystems, at acceptable yields and costs;
•successfully manage development production cycles; and
•respond effectively to technological changes or product or service announcements by others.
We must achieve design wins to retain our existing customers and to obtain new customers.
New capital equipment typically has a lifespan of several years, and OEMs frequently specify which systems, subsystems, components and instruments are to be incorporated in their equipment. Once incorporated, the OEM will likely maintain
Table of Contents
that same composition of products for at least several months. IDMs typically establish cleaning, coating, and analytical services as they develop and qualify new chip designs for production. Once a cleaned or coated part has been qualified, the refurbishment processes used to clean or coat the qualified part will likely continue to be used. Accordingly, it is important that our products and services are designed into the new capital equipment and new chip designs (known as a “design win”), to retain our 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 capital equipment or into an IDM’s manufacturing process. Further, developing new customer relationships, as well as maintaining and increasing our market share with existing customers, requires a substantial investment of our sales, engineering and management resources without any assurance from prospective customers that they will place orders. We believe that OEMs and IDMs often consider long-term relationships in selecting and placing orders, which could mean we may have difficulty achieving design wins from OEMs and IDMs that are not our current customers.
We are exposed to risks related to the adoption and use of artificial intelligence
We are subject to various risks associated with the adoption and utilization of artificial intelligence (“AI”) technologies by both our company and our competitors. While we have implemented strict limitations and guidelines, we permit our employees to use certain AI capabilities in their job functions. The inherent complexity and rapid evolution of AI technology may hinder our ability to effectively implement these capabilities, potentially leading to significant costs without corresponding benefits to our business or customer value. Our AI implementations may result in errors or unintended outcomes due to algorithmic flaws, inadequate training data, or inherent biases, which could expose us to liability and reputational damage. Additionally, we face competitive risks if our adoption of AI or other machine learning technologies is not done timely or as effective as that of our competitors. AI technology also presents unique challenges related to data privacy, cybersecurity, and ethical considerations, which could impact our business operations. The regulatory landscape is continuously evolving, with new laws and regulations being proposed or enacted in various jurisdictions. Compliance with these diverse requirements could increase our operational costs, and any actual or perceived regulatory violations could subject us to enforcement actions, penalties, and reputational harm. The combined effect of these interrelated risks could materially and adversely affect our business operations, financial condition, and competitive position.
Operational Risks
Our dependence on our suppliers may prevent us from delivering an acceptable product on a timely basis.
For many of the components and raw materials we use in our products and services, we rely on both single-source and sole-source suppliers, many of whom have been specifically designated by our customers. If a supplier, who may not be under any long-term supply obligations, fails to provide the necessary volume of components or raw materials in a timely manner at acceptable prices and quality, we would be forced to identify and qualify alternative sources. The process of qualifying new suppliers for complex components and raw materials is lengthy and could delay our production or delivery of services. Fluid Solutions, for example, is susceptible to experiencing sharp price fluctuations in raw materials, which can significantly affect, and has affected in the past, its cost of revenue and could erode profitability and competitiveness. For example, one of our key suppliers was the target of a ransomware attack, which had a negative impact on our ability to procure the necessary volume of components to meet our projected production level.
We may also experience difficulty in obtaining sufficient quantities of components and raw materials in times of growth in our business. In the past, we have experienced shortages in supplies of various components, such as mass flow controllers, valves and regulators, and certain prefabricated parts, such as sheet metal enclosures, used in the manufacture of our products. Some of the suppliers designated by our customers are also our competitors, which presents a special challenge for us to procure the components in sufficient quantity to meet the customer demand. If we, or our suppliers, are unable to procure sufficient quantities of supplies, components or raw materials, our customers could delay or cancel orders or service contracts.
The manufacturing of our products and the services we provide are highly complex, and if we are not able to manage our manufacturing and procurement process effectively, our business and operating results will suffer.
The manufacturing of our products is a highly complex process. The services we provide are also highly complex, and dependent upon procuring specialty materials necessary to correctly perform such complex services with precision. Both the manufacturing of our products and the services we provide involve the integration of multiple components and require effective management of our supply chain to meet 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 respond to these modifications and deliver our products in a timely manner, we must effectively manage our manufacturing and procurement processes, the failure of which can lead to a loss
Table of Contents
of business and reputational damage. We may also be liable for certain damages under our agreements with our customers, if we or our suppliers fail to effectively or timely re-configure manufacturing processes or components in response to these modifications.
Our inability to successfully manage the implementation of a company-wide enterprise resource planning (“ERP”) system could adversely affect our operating results.
We are continuing the implementation of a company-wide ERP system. This process has been and continues to be complex and time-consuming and we expect to incur additional capital outlays and expenses. This ERP system will replace or interface with our existing operating and financial systems, which has been and is a major undertaking from a financial management and personnel perspective. Should the ERP system not be implemented successfully throughout all our business units on time and within budget, or if the system does not perform in a satisfactory manner, it could be disruptive and adversely affect our operations, including our ability to: (i) report accurate, timely and consistent financial results; (ii) purchase supplies, components and raw materials from our suppliers; and (iii) deliver products and services to customers on a timely basis and to collect our receivables from them. We have teams leading the implementation of the ERP system at most of our locations. To the extent these teams or key individuals are not retained through the implementation process, the success of our implementation could be compromised and the expected benefits of the ERP system may not be realized.
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls which, if not remediated, could adversely affect the accuracy, reliability, and timeliness of our financial reports, our reputation, business operations, and stock price.
Based on our evaluation under the COSO framework as further described under “Item 9A – Controls and Procedures,” our management concluded that we did not maintain effective internal control over financial reporting as of December 27, 2024 due to material weaknesses.
Effective internal controls over financial reporting are necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires us and our independent registered public accounting firm to evaluate and report on our internal control over financial reporting. The process of designing, implementing, maintaining, and updating our internal controls and complying with Section 404 is expensive and time consuming, and requires significant attention from management and company resources. Failure to maintain existing or implement new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations.
We have begun the process of evaluating the material weaknesses and have taken steps toward executing a full remediation plan. Until the remediation plan is implemented, tested, and deemed effective, we cannot be certain that our actions will adequately remediate the material weaknesses or that no additional material weaknesses in our internal controls will be identified in the future. If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the SEC, could be adversely affected and could reduce the market’s confidence in our financial statements and harm our stock price.
We are subject to order and shipment uncertainties and any significant reductions, cancellations or delays in customer orders could cause our revenue to decline and our operating results to suffer.
Forecasting our revenue can be challenging 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 or deliver products to our customers. Much of our revenue depends on customer orders that we receive and fulfill in the same quarter. We generally do not have long-term purchase orders or contracts that contain minimum purchase commitments. Instead, we typically plan around non-binding volume forecasts we receive from our customers, and we sometimes 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, for which we usually are not entitled to compensation. Reductions, cancellations or delays in forecasted orders could cause us to hold inventory longer than anticipated, which could reduce our gross profit, restrict our ability to fund our operations and cause us to incur unanticipated reductions or delays in revenue. Moreover, many of the products we manufacture are custom built for our customers and are therefore not fungible with products we sell to other customers. If we do not obtain orders as we anticipate, we could have excess component inventory for a customized product that we would not be able to sell to another customer, likely resulting in inventory write-offs. In addition, because many of our costs are fixed in the short term, we
Table of Contents
could experience, and have experienced in the past, deterioration in our gross profit and operating margins when our sales volume declines.
We hold our customers’ parts on our premises and any significant damage or loss to these parts could cause our operating results to suffer.
In connection with our Services business, we face a number of risks associated with customer parts being held on our premises, including the risk of mishandling or damaging, customer parts, any of which could be materially harmful for our business.
The results of our operations, financial position and cash flows may suffer if we do not effectively manage our inventory.
Inventory is one of the largest assets on our balance sheet, representing 19.8% of our total assets as of December 27, 2024. Effective management of raw materials, work-in-process and finished goods is imperative to keep inventory costs down and maintain or improve gross margins, all the while meeting changing customer requirements.
The industries we serve have been highly cyclical, which makes accurately forecasting customers’ needs difficult. Although we seek to maintain sufficient inventory of materials to guard against interruptions in supply and meet our customers’ needs, we may experience shortages of certain key materials, particularly in times of high industry demand. We also often face long lead times from our suppliers, which may be longer than the lead times provided to us by our customers. If we underestimate customer demand or if such demand exceeds our manufacturing capacity or available raw materials, we may lose sales opportunities and market share and potentially damage our relationships with customers.
An overestimation of customer demand may result in allocation of resources for products that we may not be able to sell, and we may be forced to hold excess or obsolete inventory. Our products can become obsolete when customers change their specifications, or become excess inventory due to a decrease in demand. Furthermore, if market prices drop below the prices at which we value our inventory, we would need to take a charge for a reduction in inventory values in accordance with the applicable accounting rules. Any unexpected changes in demand or increases in manufacturing costs that cause us to take additional charges for un-saleable, obsolete or excess inventory, or to reduce inventory values, would adversely affect our results of operations.
We hold our inventory at various manufacturing sites around the globe and many of these sites have more than one warehouse. We rely upon our IT systems and internal controls to accurately and timely manage, store and replenish inventory, complete and track customer orders, coordinate sales activities across all of our products, and maintain and report vital data and information. A disruption in our IT systems or a failure of our internal controls could result, and have resulted in the past, in delays in receiving inventory and supplies, delays in filling customer orders, incorrect inventory counts, over or under stocking, and loss of inventory.
Our customers require our products to undergo a lengthy and expensive qualification process. Any delay or failure in this process could result in a material financial harm.
We have had to qualify as a supplier, and maintain that status, for each of our customers. This is often a lengthy process that normally involves customer inspection and approval of our engineering, documentation, manufacturing and quality control procedures before the customer will place volume orders. Such qualification requirements limit our ability to quickly add new customers to offset any loss of, or reduction in sales to, existing customers. Moreover, if we fail to maintain our status as a qualified supplier to any of our customers, such customer could cancel its orders or otherwise terminate its relationship with us.
Defects in our products or services could damage our reputation, decrease market acceptance of our products, release hazardous materials, and result in litigation, indemnification liability or unexpected warranty claims.
A number of factors, including design flaws, material and component failures, workmanship issues, contamination in the manufacturing, cleaning, coating or analytical environment, impurities in the materials or chemicals used, equipment failures, and unknown sensitivities to process conditions, such as temperature and humidity, may cause our products to contain undetected errors or defects. Problems with our products may:
•cause delays in product introductions and shipments for us or our customers;
•result in increased costs and diversion of development resources (for design modifications and others);
•cause us to incur increased charges due to unusable inventory;
Table of Contents
•result in liability for the unintended release of hazardous materials through the defective products, which can cause serious injury or death;
•create indemnification and warranty claims for rework, replacement or other damages, which can be significant if our products have already been installed in a fabrication facility;
•decrease market acceptance of, or customer satisfaction with, our products; and
•result in lower yields for semiconductor manufacturers.
Our business may be adversely affected by IT disruptions, including by impairing our ability to effectively deliver our products or services, which could cause us to lose customers.
The manufacture and delivery of our products, the provision of our services and our financial reporting depend on the continuing operation of our technology infrastructure and systems, particularly our data center located in California. Any damage to or failure of our systems could result in interruptions in our ability to manufacture or deliver products or services, or adversely impact our ability to accurately and timely report our financial results. Interruptions could reduce our sales and profits, and our systems could be perceived as unreliable. Our systems and operations are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, hardware or software failures, telecommunications failures, cyber attacks, and similar events. Some of the critical components of our system are not redundant and we currently do not have a backup data center.
Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software attacks, attempts to gain unauthorized access to systems and data, and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data (our own or that of third parties). Under the supervision of our Chief Information Officer and Chief Information Security Officer, we have adopted certain measures to combat potential cyberattacks and information espionage, including implementation of certain security tools to detect nefarious activities within our system. Yet, given the unpredictability of the timing, nature and scope of such cybersecurity disruptions, and given those cyberattacks targeting those systems outside of our direct control (such as our supply chain's infrastructure), we could experience detrimental impacts on our operations or ability to provide products and services to our customers (such as production downtimes and operational delays), misappropriation, destruction or corruption of confidential information or other data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, and/or reputational harm, any of which could have a material adverse effect on our business.
Frequent or persistent system failures could brand our products or services unattractive to customers, which may be difficult to reverse. Any steps we take to increase the reliability and redundancy of our systems may be expensive, reduce our operating margin and may not be successful in reducing the frequency or duration of unscheduled interruptions.
Our business is largely dependent on the know-how of our employees, and we generally do not have an intellectual property position that is protected by patents.
Our business is largely dependent upon our design, engineering, manufacturing, chemical processing, analytical 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. Confidentiality agreements with our employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Accordingly, our intellectual property position is more vulnerable than it would be if it were protected primarily by patents. If we fail to protect our proprietary rights successfully, our competitive position could suffer. We may be required to spend significant resources to monitor and protect our proprietary rights, and, in the event infringement or breach of our proprietary rights occurs, our competitive position in the market may be harmed. In addition, competitors may design around our technology or develop competing technologies and know-how.
The technology labor market is very competitive, and we must hire, promote 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, the 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 limited number of engineers possess. The loss of any of our key employees and officers, including our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, any of our Executive or Senior Vice Presidents or any of our key senior managers, or the failure to attract, promote and retain qualified employees, could adversely affect our business. Also, uncertainty and disruption to our organization as a
Table of Contents
result of executive management transition could divert the executive management’s attention away from key areas of our business and have a material adverse effect on our business.
Our business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made disruptions, such as armed conflicts or terrorism.
Our facilities may experience catastrophic losses caused by natural disasters or other causalities, such as earthquakes, storms, floods, fires, public health epidemic, labor disruptions, power outages, terrorist attacks or political unrest, the occurrence of any one of which could disrupt our operations, delay production and shipments, and result in large repair expenses. We have facilities in areas with above average seismic activity, such as our facilities in Hayward, California, and our Taiwan facilities in Hsinchu and Tainan. We also have experienced fires and extended power outages at our facilities, such as the fire that occurred at a Korean plant operated by our joint venture, Cinos Korea, in 2018. This risk is further exacerbated by the fact that our insurance policies do not fully cover the losses caused by earthquakes or other natural disasters or power loss. Our Fluid Solutions business operations are concentrated in Israel, where many key employees, offices and some of its production facilities are located. The political, economic and security situation in Israel has a direct impact on our operations there, and a state of war in Israel, such as the Gaza war between Israel and Hamas-led groups that started in 2023, may harm, and have harmed, our ability to supply our products to customers.
In addition, our suppliers experiencing natural disasters may not be able to provide sufficient components or raw materials in a timely manner, which can cause disruptions in our operations.
Legal and Regulatory Risks
Growing uncertainties with U.S. trade policies and export regulations with regard to China have adversely impacted and could continue to adversely impact us.
We and our customers have significant operations in China. The extent of the impact of the ongoing trade tension between the United States and China on our sales and operations is difficult to predict. In December 2024, the U.S. Department of Commerce imposed additional license requirements on certain semiconductor goods and technologies sold to certain entities in China. This expansion of export license requirements in China has adversely impacted some of our customers with business presence in China, which in turn had an adverse impact on our business. These new regulations created uncertainty for our operations in China, as the full scope and extent of the new license requirements remain uncertain, and may change over time. Obtaining these export licenses is likely difficult for us and/or our customers, and any delays (or denial) in the approval process could disrupt our supply chains and negatively impact production schedules. For example, the utilization rate of our manufacturing subsidiary in China may be negatively impacted if we would not be able to support our customers with goods and services originating out of that location.
Additionally, tariffs and retaliatory tariffs levied by the United States and China on certain raw materials have in the past increased the cost of materials for our products. If the current trade relationship between U.S. and China continues on the same tense trajectory, we may experience additional taxes and tariffs on raw materials sourced from China, which could render our products less competitive and/or profitable.
Third parties may claim we are infringing their intellectual property, which could subject us to litigations or licensing expenses, and we may be prevented from selling our products if any such claims prove successful.
We have in the past and may in the future receive claims that our products, processes or technologies infringe the patents or other proprietary rights of third parties. Any litigation regarding third party patents or other intellectual property rights could be costly and time-consuming and divert our key resources 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, possibly on terms unacceptable to us. We also may be subject to significant damages or injunctions against the development, manufacture and sale of certain of our products if any such claims prove successful. We also rely on design specifications and other proprietary information provided by our customers to manufacture products for such customers. While many of our customers are contractually obligated to indemnify us for the costs to defend third party claims arising out of our use of the information provided by the customers, the indemnified amount may not be enough to make us whole, or if our customers refuse to honor its obligations, we could end up in costly litigations both to defend against such third-party claims and to enforce our contractual indemnification rights.
Table of Contents
We may become involved in litigations and regulatory proceedings, which could require significant attention from our management and result in significant expense to us and disruptions to our business.
In addition to any litigation related to our intellectual property rights, we have been in the past and may in the future be named as a defendant in other lawsuits and regulatory actions relating to our business, such as commercial contract claims, environmental compliance claims, employment claims, class action litigations, and tax examinations, any one of which may expose us to significant damages and reputational harm. The outcome of such litigations and regulatory proceedings is difficult to predict. An unfavorable outcome could have a material adverse effect on our business, including limiting our ability to engage in certain business activities. In addition, such proceedings are often expensive, time-consuming and disruptive to normal business operations and require significant attention from our management. For example, we have been incurring costs responding to a subpoena received from the SEC related to the material weaknesses identified in our 2022 and 2023 annual reports and the change of our independent auditors.
Any environmental contamination at any of our production facilities could result in substantial liabilities.
Our facilities use substances regulated under various foreign, federal, state and local environmental laws and regulations. We may not always be aware of, or in compliance with, all environmental laws or regulations, and our failure or inability to comply with existing or future environmental requirements could result in significant remediation and other liabilities, imposition of fines, and suspension of our services and products.
Certain regulations related to conflict minerals could adversely impact our business.
We use conflict minerals in manufacturing our products. As a result, we are required to perform ongoing due diligence on our supply chain and publicly disclose the nature and results of such efforts. Our most recent disclosure was filed on Form SD on May 30, 2024, noting that we could not yet determine whether the conflict minerals we source were, directly or indirectly, used to finance or benefit armed groups in the Democratic Republic of Congo and its adjoining countries. There have been and there will be costs associated with complying with these disclosure requirements to determine the sources of conflict minerals used in our products, and potential changes to products, processes or sources of supply as a consequence of such verification activities. Complying with these rules could adversely affect the sourcing, supply and pricing of materials used in our products and result in substantial additional costs. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we are not certain that we will be able to obtain the conflict minerals from such suppliers in sufficient quantities or at competitive prices. We may also face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products. If we are unable to comply with these disclosure rules (which themselves may be subject to potential re-formulation by the new administration), we could be subject to enforcement actions by the SEC and liability under the Securities Exchange Act of 1934, which could result in material adverse consequences to our business, as well as significant fines and penalties.
Financial, Tax and Capital Markets Risks
We have significant existing indebtedness; the restrictive covenants under our credit agreement or other limitations on financing may limit our ability to expand or pursue our business strategy; if we are forced to pay our indebtedness prior to its maturity, our financial position could be materially and adversely affected.
As of December 27, 2024, we have gross debt of $499.7 million. Such debt is composed of a $493.8 million term loan outstanding under our credit agreement with Barclays Bank and $5.9 million under credit facilities at Fluid Solutions less unamortized debt costs of $7.2 million.
Our indebtedness could have adverse consequences, including: allotment of a portion of our cash to interest and principal payments, which cash therefore will not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes; and inability to obtain additional financing in the future, if needed. If we are unable to meet our debt obligations as they come due, we could be forced to restructure or refinance such obligations, seek additional equity financing, incur additional debt or sell assets, which we may not be able to do on satisfactory terms, if at all.
Our credit agreement contains certain covenants that restrict our ability to take certain actions, including incurring additional debt, providing guarantees, creating liens, making certain investments, engaging in transactions with affiliates and engaging in certain mergers and acquisitions. We are also required to comply with certain financial covenants, including the maintenance of a maximum consolidated total gross leverage ratio and a minimum fixed charge coverage ratio. Failure to comply with these covenants could result in the acceleration of all of our indebtedness, which could materially and adversely affect our financial health. As long as our indebtedness remains outstanding, the restrictive
Table of Contents
covenants and mandatory prepayment provisions could impair our ability to expand or pursue our business strategies or obtain additional funding.
We may not be able to fund our future capital requirements or strategic acquisitions from our operations, and financing from other sources may not be available on favorable terms or at all.
We made capital expenditures of approximately $63.5 million and $75.8 million for fiscal years 2024 and 2023, respectively, which are primarily related to investments in our manufacturing facilities in the United States, Ireland and Malaysia and to our ERP system implementation. The amount of our future capital requirements will depend on many factors, including: the cost associated with the expansion of our manufacturing capacity into Malaysia as part of our strategic growth plan; the cost to maintain appropriate IT systems; the cost to maintain adequate manufacturing capacity; the timing and extent of spending to support product development efforts; the timing of new product introductions and enhancements to existing products; the timing, size and availability of strategic transactions; the cost to integrate our acquisitions into our business environment; changing manufacturing capabilities to meet new or increased customer requirements; market acceptance of our products; and our ability to generate sufficient cash flow from our operating activities.
In order to finance our capital expenditures or any future strategic acquisitions, we may need to raise additional funds through public or private equity or debt financing, but such financing may not be available on terms satisfactory to us, or at all. In addition, equity financings could be dilutive to holders of our common stock, and debt financings would likely involve additional covenants that restrict our business operations. Any potential strategic acquisition or significant capital expenditure may also require the consent of our existing lenders. If we cannot raise funds on acceptable terms when needed, we may not be able to develop or enhance our products, take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements.
Our quarterly revenue and operating results could fluctuate significantly from period to period, and this may cause volatility in our common stock price.
Our quarterly revenue and operating results, including our gross margin, have fluctuated significantly in the past, and we expect them to continue to fluctuate in the future for a variety of reasons, which may include:
•the cyclical nature of the industries we serve that frequently oscillates between downturn and growth;
•changes in the timing and size, or cancellation or postponement, of orders by our customers;
•strategic decisions by our customers to terminate their outsourcing relationship with us or give market share to our competitors, which may result from decreased demand for our customers’ products by end customers;
•strategic consolidation by our customers;
•pricing pressure from either our competitors or our customers;
•disruptions or delays in the manufacturing of our products or in the supply of components or raw materials;
•introduction of new products or services;
•delays in production ramp-up, low yields or other problems experienced at our manufacturing facilities;
•changes in design-to-delivery cycle times;
•inability to reduce our costs quickly, commensurate with reductions in our prices or in response to decreased demand;
•changes in our product and/or service mix;
•write-offs of excess or obsolete inventory;
•one-time expenses or charges associated with failed acquisition negotiations or completed acquisitions;
•inability to control our operating costs consistent with target levels;
•announcements by our competitors of new products, services or technological innovations; and
•geographic mix of customer orders or worldwide earnings.
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
Table of Contents
quarter. Moreover, our operating results in one or more future quarters may fail to meet our guidance or the expectations of securities analysts or investors. If this occurs, we would expect to experience an immediate and significant decline in the trading price of our common stock.
We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term stockholder value.
We have a stock repurchase program under which we are authorized to repurchase our common stock. Our repurchase program may be suspended or terminated at any time. Even if our stock repurchase program is fully implemented, it may not enhance long-term stockholder value. Also, the amount, timing, and execution of our stock repurchase programs may fluctuate based on our priorities for the use of cash for other purposes and because of changes in cash flows, tax laws, and the market price of our common stock.
If we were required to impair all or part of our goodwill and/or our acquired intangible assets, our net income and net worth could be materially adversely affected.
We had $265.3 million of goodwill recorded on our Consolidated Balance Sheet as of December 27, 2024. Goodwill represents the excess of cost over the fair market value of net tangible and finite lived, identifiable intangible assets acquired in business combinations. If our market capitalization drops significantly below the amount of net equity recorded on our balance sheet, it could indicate a decline in our value and would require us to further evaluate whether our goodwill has been impaired. During the fourth quarter of each year, we perform an annual review of our goodwill and acquired intangible assets to determine if they have become impaired. We also conduct the same evaluation whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If we were required to impair all or a significant part of our goodwill and/or our acquired intangible assets, our financial results could be materially adversely affected.
Fluctuations in foreign currency exchange rates may adversely affect our financial condition and results of operations.
The majority of our international revenues are denominated in U.S. Dollars. Many of the costs and expenses associated with our international operations are paid in foreign currencies, including Chinese Renminbi, Singapore Dollars, Japanese Yen, South Korean Won, Israeli New Shekel, Taiwanese Dollars, Malaysian Ringgits, Czech Korunas and Euro, and we expect our exposure to these foreign currencies to increase as we increase production in those regions. Changes in exchange rates among these foreign currencies may affect our revenue, cost of revenues, operating margins and tax.
We use derivative instruments, such as foreign currency forward contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not fully offset the adverse financial effects of unfavorable movements in foreign currency exchange rates over the time the hedges are in place.
The market for our stock is subject to significant fluctuation.
The size of our public market capitalization is relatively small, and the average volume of our shares that are traded is relatively low. The market price of our common stock could be subject to significant fluctuations. Among the factors that could affect our stock price are:
•quarterly variations in our operating results;
•our ability to successfully introduce new products and services 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, our customers 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;
•the effects of war and terrorist attacks;
•domestic and international economic or political factors unrelated to our performance; and,
•the results of our operations not meeting our guidance or analysts’ expectations.
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.
Table of Contents
Changes in tax rates or tax assets and liabilities could affect results of operations.
As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our annual and quarterly tax rates could be affected by numerous factors, including changes in the applicable tax laws, amount and composition of pre-tax income in countries with different tax rates, and valuation of our deferred tax assets and liabilities. In addition, due to economic and political conditions, tax laws and tax rates for income taxes in various jurisdictions may be subject to significant changes. For example, the Organization for Economic Co-Operation and Development (the “OECD”) continues to advance proposals for modernizing international tax rules, including the introduction of a framework to implement a global minimum corporate tax of 15%, referred to as Pillar Two. While it is uncertain whether the U.S. will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted certain provisions of Pillar Two including Czechia and Korea though the impact to our fiscal year 2025 effective tax rate and cash flow is not expected to be material. Other countries have also enacted certain provision of Pillar Two that will apply to our fiscal year 2026, including Singapore and Malaysia. We continue to evaluate the impact of Pillar Two in years beyond fiscal 2025.
We are subject to examinations of our income tax returns by domestic and foreign tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations. There can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that industry analysts publish about us or our business. If any of the analysts issue an adverse opinion regarding our stock, our stock price would likely decline. Similarly, if these analysts cease publishing regular reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We do not currently intend to pay dividends on our common stock and, consequently, our shareholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.
Given our current business plan to invest our earnings to fund our growth, we do not intend on declaring any dividends on UCT’s common stock (which ability to do so is also restricted by the terms of our credit agreement). For the foreseeable future, therefore, any return on our shareholders’ investment will depend exclusively on the capital appreciation of our common stock.
Table of Contents
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
At UCT, cybersecurity risk management forms a critical component of UCT’s overall enterprise risk management program. Led by our Chief Information Security Officer (“CISO”), who has over 20 years of experience in information security and technology leadership, and under the oversight of our Board of Directors, we have implemented processes to assess, identify, manage and report cybersecurity risks, which, together with our broader business continuity plans, aim to not only address immediate response to cybersecurity incidents but also ensure swift restoration of critical systems and the maintenance of core business functions in the face of digital threats. Our senior management and information technology (“IT”) security teams devote considerable time and resources to conducting regular evaluations of our systems and implementing necessary enhancements to our security infrastructure to better guard against evolving cybersecurity threats.
Our CISO, reporting directly to our Chief Information Officer (“CIO”), is responsible for designing, developing and implementing our overall information security program that sets forth a governance structure and processes to ensure regular risks assessments and timely reports regarding cybersecurity risks. We actively scan across our information infrastructure for security vulnerabilities inherent in our business as we rely extensively on information and technology systems for managing transactions, tracking financial performance, and storing sensitive data. We also continuously monitor and assess risks associated with the interconnected nature of many of our information and technology systems, such as ERP platforms, supply chain management systems, and electronic payment gateways. In the normal course of our monitoring process, our information security team also regularly conducts penetration testing of our business and information systems in close collaboration with a third-party expert, and promptly remediates identified vulnerabilities to prevent any potential compromise of our systems or data.
Using threat models and intelligence, we regularly assess a range of cyber threats, including hacking attempts, malware attacks, phishing schemes, infrastructure intrusions, and insider threats. In conjunction with our ongoing threat and vulnerability assessments, we evaluate the various ways, and the extent to which, cyberattacks may materially impact our business, including financial loss, regulatory penalties, reputation damage, and litigation risks. In this rapidly evolving cybersecurity environment, we recognize staying informed about emerging cybersecurity threats and industry best practices is an indispensable part of assessing and identifying cybersecurity risks, particularly within the manufacturing sector. Our involvement includes active participation in industry associations, sharing threat intelligence, and collaborating with regulatory bodies and law enforcement. This collaboration strengthens our defenses against potential threats to our financial and information systems.
As part of our ongoing commitment to maintain a robust cybersecurity program to protect all stakeholders, including our customers, investors, employees, and vendors, we have allocated significant resources to improve our IT security. We have deployed various protocols as part of a larger preventive framework against cyber threats, including advanced security technologies and services, firewalls outfitted with cutting-edge capabilities, layers of encryption protocols, Identity and Access Management (“IAM”) controls, security monitoring tools, and multi-factor authentication. Our employees are required to complete cybersecurity best practice training on a regular basis (no less than once a year), the results of which are collected and reported to the senior management for further evaluation. We regularly engage third-party experts to assess the effectiveness of our security protocols and infrastructure, to detect potential threats and assist with remediation efforts, and to generally monitor and adapt our cybersecurity protocols to constantly evolving cybersecurity threats. In addition, we have deployed a Third-Party Risk Management (“TPRM”) tool that sends questionnaires to our vendors designed to assess their cybersecurity vulnerabilities. These and other cybersecurity risk management protocols at UCT are being governed by our comprehensive cybersecurity policies, plans and incident response playbooks, to manage both our preventive efforts against cyber threats and quick and effective response protocols in the event of cybersecurity breaches. In the event of an incident, we are prepared to follow the steps outlined in these playbooks, from initial detection to mitigation, as well as notification to all appropriate functions, including senior management and the Board.
Our Board of Directors has the overall oversight responsibility for our risk management, and delegates the cybersecurity and other risks relating to our information controls and security to our Audit Committee. Both the Audit Committee and the full Board regularly receive updates from our management on cybersecurity matters and our ongoing risk management efforts, and actively participate in ongoing discussions. In addition, the Board and the Compensation Committee review and approve the key performance indicators applicable to all management personnel responsible for effectively managing cybersecurity risk management programs at UCT, and engage in regular review of the Company’s performance against those indicators.
We continue to face cybersecurity risks related to our business. While these risks have yet to materially affect us, we cannot guarantee that our ongoing and increasingly robust approach towards cybersecurity will be able to prevent
Table of Contents
cybersecurity incidents that could have a material adverse effect on us. For additional information about cybersecurity risks we face, see the risk factor item “Our business may be adversely affected by IT disruptions, including by impairing our ability to effectively deliver our products or services, which could cause us to lose customers” in Item 1A-Risk Factors.
Item 2. Properties
UCT’s headquarters is located in Hayward, California. This facility provides administrative, sales and support, engineering and technology development and manufacturing operations. This lease expires in 2027.
The Company has manufacturing and engineering facilities in California, Texas, Arizona, Israel, Oregon, China, Malaysia, Singapore, the United Kingdom, Philippines and Czechia. The Company has parts cleaning, analytics and engineering facilities in Colorado, Arizona, California, Oregon, Maine, Texas, Ireland, Israel, Taiwan, South Korea, Singapore and China. These facilities have leases that expire on various dates through 2084 and are subject to periodic changes. We also own buildings and land that are located in South Korea, China and the United Kingdom. We believe that our existing facilities are well-maintained and in good operating condition.
Item 3. Legal Proceedings
From time to time, we are subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, we have not had a history of outcomes to date that have been material to our consolidated statement of operations and do not believe that any of these proceedings or other claims will have a material adverse effect on our consolidated financial condition or results of operations.
On June 7, 2024, UCT received a subpoena from the SEC related to the material weaknesses identified in our 2022 and 2023 Forms 10-K and the change of our independent auditors. We are fully cooperating with the SEC investigation. We cannot predict the duration, scope, or outcome of this matter at this time.
Item 4. Mine Safety Disclosures
Not applicable.
Table of Contents
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Stock Exchange Listing
Our common stock has been traded on the NASDAQ Global Market under the symbol “UCTT” since March 25, 2004. As of February 21, 2025, there were five holders of record of UCTT common stock.
Dividends on Common Stock
To date, we have not declared or paid cash dividends to our UCT stockholders and we do not intend to do so for the foreseeable future in order to retain earnings for use in our business. Our credit facility also limits our ability to pay dividends.
Repurchases of Common Stock
On October 20, 2022, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $150.0 million of the Company’s common stock over a three-year period. This program may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. No shares were repurchased under this program in fiscal 2024.
Stock Price Performance Graph
The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The following stock performance graph compares the cumulative total stockholder returns during the period from December 27, 2019 to December 27, 2024, of our common stock to the NASDAQ Composite Index and the RDG Semiconductor Composite Index. The comparison assumes $100 was invested on December 27, 2019, in our common stock and in each of the foregoing indices. The stock performance shown on the following graph represents historical stock performance and is not necessarily indicative of future stock price performance.
Table of Contents
The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported by the NASDAQ Global Market:
| High | Low | |||
|---|---|---|---|---|
| Fiscal year 2023 | ||||
| First quarter | $ | 38.84 | $ | 29.01 |
| Second quarter | $ | 39.15 | $ | 26.59 |
| Third quarter | $ | 40.80 | $ | 28.04 |
| Fourth quarter | $ | 35.54 | $ | 22.15 |
| Fiscal year 2024 | ||||
| First quarter | $ | 49.25 | $ | 31.01 |
| Second quarter | $ | 50.51 | $ | 38.16 |
| Third quarter | $ | 56.47 | $ | 32.33 |
| Fourth quarter | $ | 41.84 | $ | 32.08 |
Item 6. Reserved
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Annual Report on Form 10-K contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties. Forward-looking statements can also be identified by words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will be,” “will continue,” “will likely results, and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in “Item 1A — Risk Factors” above. The following discussion should be read in conjunction with the Consolidated Financial Statement and notes thereto included in Item 8 of this report. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Overview
Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We report results for two segments: Products and Services. Our Products segment primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services segment provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (“WFE”) markets.
We ship a majority of our products and provide most of our services to U.S. registered customers with both domestic and international locations. In addition to U.S. manufacturing and service operations, we manufacture products and provide parts cleaning and other related services in our Asia Pacific, Europe and Middle East (“EMEA”) facilities to support local and U.S. based customers. We conduct our operating activities primarily through our subsidiaries.
Over the long-term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new process architecture (e.g. gate all around) and memory devices (e.g. high bandwidth memory) necessary for cloud, artificial intelligence (“AI”) and machine learning (“ML”) applications. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services business is benefiting as device manufacturers rely on precision cleaning and coating to achieve ever more advanced devices.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), which require 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 Consolidated Financial Statements. On an on-going basis, we evaluate our estimates and judgments, including those related to inventories, income taxes, business combinations, contingent earn-out liabilities and goodwill, intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to revenue recognition, inventory valuation, accounting for income taxes, business combinations, valuation of goodwill, intangible assets and long-lived assets to be critical policies due to the estimates and judgments involved in each.
Table of Contents
Revenue Recognition
Our revenues for fiscal years 2024, 2023 and 2022, were highly concentrated with a small number of OEM customers in the semiconductor capital equipment industry. We recognize revenue when promised goods or services (performance obligations) are transferred to a customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We perform the following five steps to determine when to recognize revenue:
1.Identification of the contract(s) with customers – Our standard arrangement for our customers includes a signed purchase order or contract, no right of return of delivered products and no customer acceptance provisions. We assess collectability based on the creditworthiness of the customer and past transaction history. We perform on-going credit evaluations of, and do not require collateral from, our customers.
2.Identification of the performance obligations in the contract – Our performance obligations include delivery of promised goods or services.
3.Determination of the transaction price – The transaction price of our contracts with customers may include both fixed and variable consideration. We include variable consideration in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We generally invoice our customers upon shipment of goods and completion of services with payment due within 30 to 90 days after issuance.
4.Allocation of the transaction price to the performance obligations in the contract – For contracts that contain multiple performance obligations, we allocate the transaction price to the performance obligations on a relative standalone selling price basis. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the relative standalone selling price of each distinct good or service in the contract.
5.Recognition of revenue when, or as, a performance obligation is satisfied – We recognize revenue from products sold at a point in time when we have satisfied our performance obligation by transferring control of the goods to the customer, which typically occurs at shipment or delivery. Revenue from service agreements is recognized upon completion of the services, which typically occurs upon shipment to the customer.
Inventory Valuation
We write down the carrying value of our inventory to net realizable value for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon inventory age and assumptions about future demand and market conditions. We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis.
Obsolete inventory or inventory in excess of our estimated usage is written down to its estimated market value less costs to sell, if less than its cost. The inventory write-downs are established on the basis of obsolete inventory or specifically identified inventory in excess of established usage. Inherent in our estimates of demand and market value in determining inventory valuation are estimates related to economic trends, market conditions, and future demand for our products. If actual demand and market conditions are less favorable than our projections, additional inventory write-downs may be required. If the inventory value is written down to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold either as a component of a subsystem or as separate inventory.
Accounting for Income Taxes
The determination of our tax provision is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region and is subject to judgments and estimates. Management carefully monitors the changes in many factors and adjusts the effective tax rate as required.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more likely than not, we must increase our provision for taxes by recording a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be recoverable. 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. In order to reverse a valuation allowance, U.S. GAAP suggests that we review our recent cumulative income/loss as well as determine our ability to generate sufficient future taxable income to realize our net deferred tax assets. As of December 27, 2024, we maintained a full valuation allowance on our U.S. federal and state and on certain of our foreign deferred tax assets in the amount of $96.3 million as we believe it is more likely than not that these deferred tax assets will not be realized.
Table of Contents
In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on the results of our operations and financial position. We believe we have adequately reserved for our uncertain tax positions; however, no assurance can be given that the final tax outcome of these matters will not be different than what we expect. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.
Business Combinations
In accordance with accounting for business combinations, we allocate the purchase price of acquired companies to the identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. We may engage third-party valuation firms to assist management in reviewing management’s identification and determination of the fair values of acquired intangible assets. Such valuations require management to make significant estimates and assumptions. Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Certain of our acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future operating income thresholds. The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities related to the time component of the present value calculation are reported in other income (expense). Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income.
Goodwill, Intangibles Assets, and Long-lived Assets
Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed.
We evaluate our goodwill and indefinite life tradename for impairment, at the reporting unit level, on an annual basis, and whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. In addition, we evaluate our identifiable intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include the following:
•Significant changes in the manner of our use of the acquired assets or the strategy of our overall business;
•Significant negative changes in revenue of specific products or services;
•Significant negative industry or economic trends; and
•Significant decline in our stock price for a sustained period.
We continually apply judgment when performing these evaluations and continuously monitor for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, undiscounted cash flows, discount rates, recent market valuations from transactions by comparable companies, volatility in our market capitalization and general industry, market and macroeconomic conditions. It is possible that changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing fair value, would require us to record a non-cash impairment charge.
Results of Operations
Fiscal Year
Our fiscal year is the 52 or 53 week period ending on the Friday nearest December 31. Fiscal 2024, 2023 and 2022 each contained 52 weeks.
Table of Contents
A discussion regarding our financial condition and results of operations for fiscal 2024, compared to fiscal 2023, is presented below. The results of operations for 2023, and the discussion below reflect two months of activity resulting from the acquisition of HIS.
A discussion regarding our financial condition and results of operations for fiscal 2023, compared to fiscal 2022, can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, filed with the SEC on February 27, 2024, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.uct.com/investors.
Discussion of Results of Operations
Revenues
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues by Segment<br><br>(Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| Products | $ | 1,853.7 | 23.4% | $ | 1,501.6 | (27.6)% | $ | 2,074.7 | |||
| Services | 243.9 | 4.7% | 232.9 | (22.3)% | 299.6 | ||||||
| Total revenues | $ | 2,097.6 | 20.9% | $ | 1,734.5 | (26.9)% | $ | 2,374.3 | |||
| Products as a percentage of total revenues | 88.4 | % | 86.6 | % | 87.4 | % | |||||
| Services as a percentage of total revenues | 11.6 | % | 13.4 | % | 12.6 | % |
Products revenues increased $352.1 million in fiscal year 2024 over fiscal year 2023, primarily due to an increase in customer demand, along with an overall market improvement in the semiconductor industry and in part due to the acquisition of HIS in October 2023.
Services revenues increased $11.0 million in fiscal year 2024 over fiscal year 2023, primarily due to increase in demand across its customer base.
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues by Geography<br><br>(Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| United States | $ | 566.5 | 7.5% | $ | 526.8 | (28.6)% | $ | 738.0 | |||
| International | 1,531.1 | 26.8% | 1,207.7 | (26.2)% | 1,636.3 | ||||||
| Total revenues | $ | 2,097.6 | 20.9% | $ | 1,734.5 | (26.9)% | $ | 2,374.3 | |||
| United States as a percentage of total revenues | 27.0 | % | 30.4 | % | 31.1 | % | |||||
| International as a percentage of total revenues | 73.0 | % | 69.6 | % | 68.9 | % |
Revenues by geographic area are categorized based on the customer’s location to which the products were shipped or services were performed.
The increase in U.S. revenues in fiscal year 2024 compared to fiscal year 2023 was primarily due to the acquisition of HIS in October 2023, whose customers are primarily U.S. based.
International revenues increased compared to the prior year primarily as a result of market improvement driving higher customer demand.
Table of Contents
Cost of Revenues
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Cost of revenues by Segment<br><br>(Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| Products | $ | 1,569.7 | 21.6% | $ | 1,290.5 | (24.6)% | $ | 1,712.3 | |||
| Services | 171.6 | 2.9% | 166.7 | (15.4)% | 197.0 | ||||||
| Total Cost of revenues | $ | 1,741.3 | 19.5% | $ | 1,457.2 | (23.7)% | $ | 1,909.3 | |||
| Products cost as a percentage of total Products revenues | 84.7 | % | 85.9 | % | 82.5 | % | |||||
| Services cost as a percentage of total Services revenues | 70.4 | % | 71.6 | % | 65.8 | % |
Total cost of revenues increased $284.1 million in fiscal year 2024 over fiscal year 2023, due to higher demand for both Products and Services driven by higher customer spending within the semiconductor industry globally.
Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of products revenues increased $279.2 million for fiscal 2024 compared to fiscal 2023. The increase was due to higher sales volume driving increased material costs of $241.0 million, higher direct labor spending of $24.4 million, and unfavorable absorption of overhead costs of $13.8 million.
Cost of Services revenues consists of direct labor, manufacturing overhead and materials (such as chemicals, gases and consumables). Cost of services revenues increased $4.9 million in fiscal 2024 compared to the prior year driven by higher volumes of service orders, resulting in increase in material costs and overhead costs.
In both segments, costs of revenue as a percent of revenue decreased as certain fixed costs remain regardless of volume.
Gross Margin
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Profit by Segment<br><br>(Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| Products | $ | 284.0 | 34.5% | $ | 211.1 | (41.8)% | $ | 362.4 | |||
| Services | 72.3 | 9.2% | 66.2 | (35.5)% | 102.6 | ||||||
| Gross profit | $ | 356.3 | 28.5% | $ | 277.3 | (40.4)% | $ | 465.0 | |||
| Gross Margin by Segment | |||||||||||
| Products | 15.3 | % | 14.1 | % | 17.5 | % | |||||
| Services | 29.6 | % | 28.4 | % | 34.2 | % | |||||
| Total Company | 17.0 | % | 16.0 | % | 19.6 | % |
Gross profit and gross margins fluctuate with revenue levels, product mix, material costs, and labor costs.
Products gross profit and gross margin increased in fiscal year 2024 compared to fiscal year 2023 due to higher revenue levels, product shift and volume shift from higher to lower cost regions.
Services gross profit increased in fiscal year 2024 compared to fiscal year 2023 due to higher revenue levels.
Table of Contents
Operating Margin
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating Profit by Segment<br><br>(Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| Products | $ | 79.4 | 165.6% | $ | 29.9 | (66.9)% | $ | 90.4 | |||
| Services | 11.8 | 122.6% | 5.3 | (82.3)% | 30.0 | ||||||
| Operating profit | $ | 91.2 | 159.1% | $ | 35.2 | (70.8)% | $ | 120.4 | |||
| Operating Margin by Segment | |||||||||||
| Products | 4.3 | % | 2.0 | % | 4.4 | % | |||||
| Services | 4.8 | % | 2.3 | % | 10.0 | % | |||||
| Total Company | 4.3 | % | 2.0 | % | 5.1 | % |
Operating profit and operating margin of Products increased in fiscal year 2024 compared to fiscal year 2023 primarily due to increases in business volumes and customer demand partially offset by increases in share-based compensation expense, in outside service spending, and in the amortization of intangible assets in conjunction with the acquisition of HIS.
Operating profit and operating margin of Services increased in fiscal year 2024 compared to fiscal year 2023 primarily due to the higher gross profit resulting from increased customer demand.
Research and Development
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| Research and development | $ | 28.3 | —% | $ | 28.3 | (0.7)% | $ | 28.5 | |||
| Research and development as a percentage of total revenues | 1.3 | % | 1.6 | % | 1.2 | % |
Research and development expenses consist primarily of activities related to new component testing and evaluation, test equipment and fixture development, product design, the advancement of cleaning and coating and analytical processes, and other product-development activities. Research and development expenses were consistent in fiscal year 2024 compared to fiscal year 2023.
Sales and Marketing
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| Sales and marketing | $ | 57.3 | 10.6% | $ | 51.8 | (4.8)% | $ | 54.4 | |||
| Sales and marketing as a percentage of total revenues | 2.7 | % | 3.0 | % | 2.3 | % |
Sales and marketing expenses consist primarily of salaries and commissions paid to our sales employees, salaries paid to our engineers who partner with sales and service employees to help determine the components and configuration requirements for new products and other costs related to the sales of our products. Sales and marketing expenses increased $5.5 million in fiscal year 2024 over fiscal year 2023, due to an increase in headcount.
General and Administrative
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| General and administrative | $ | 179.5 | 10.8% | $ | 162.0 | (12.1)% | $ | 184.3 | |||
| General and administrative as a percentage of total revenues | 8.6 | % | 9.3 | % | 7.8 | % |
General and administrative expenses increased $17.5 million in fiscal year 2024 over fiscal year 2023, primarily driven by increases in spending for certain third party professional services of $5.8 million, stock-based compensation expense of $4.4 million, amortization of intangible assets acquired through business combinations of $3.6 million, in addition to a combination of other factors, none of which were individually significant.
Table of Contents
Interest and Other Income (Expense), net
| Year Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | |||
| Interest income | $ | 4.8 | 17.1% | $ | 4.1 | 355.6% | $ | 0.9 |
| Interest expense | $ | (46.5) | (4.7)% | $ | (48.8) | 44.0% | $ | (33.9) |
| Other income (expense), net | $ | 17.7 | n/m | $ | (1.8) | (300.0)% | $ | 0.9 |
n/m - not meaningful
Interest income increased $0.7 million in fiscal year 2024 over fiscal year 2023 due to higher interest income earned on cash and cash equivalent balances attributed to higher interest rates in the current period.
Interest expense decreased $2.3 million in fiscal year 2024 over fiscal year 2023 due to lower interest rates and due to lower amortization of debt issuance costs due to debt modification.
Other income (expense), net, decreased $19.5 million in fiscal year 2024 over fiscal year 2023, due to the gain from the change of the fair value of contingent earn-out of $31.0 million offset partially by the $4.0 million of debt financing costs and by $7.0 million unfavorable foreign exchange transactions and remeasurements.
Provision for Income Taxes
| Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in millions) | December 27,<br>2024 | Percent Change | December 29,<br>2023 | Percent Change | December 30,<br>2022 | ||||||
| Provision for income taxes | $ | 32.7 | 200.0% | $ | 10.9 | (71.2)% | $ | 37.9 | |||
| Effective tax rate | 48.7 | % | -96.5 | % | 42.9 | % |
The change in tax rates in fiscal year 2024 reflects, primarily, the changes in the geographic distribution of our worldwide earnings. For fiscal year 2024, our effective tax rate was higher than the federal statutory rate of 21.0% primarily due to the valuation allowance in the U.S. and earnings in our foreign subsidiaries subject to local statutory tax rates.
For the year ended December 27, 2024, the Company concluded that a full valuation allowance against its U.S. federal and state net deferred tax assets continues to be necessary. The Company also concluded that some of its foreign deferred tax assets require a valuation allowance. The total U.S. and foreign valuation allowances for deferred tax assets were $79.1 million and $17.2 million, respectively as of December 27, 2024, and $49.8 million and $8.1 million, respectively as of December 29, 2023.
Our ability to realize deferred tax assets depends on our ability to generate sufficient future taxable income. In assessing our future taxable income, we have considered all sources of future taxable income available to realize our deferred tax assets, including the taxable income from future reversal of existing temporary differences, carryforwards, and tax-planning strategies. If changes occur in the assumptions underlying our tax planning strategies or in the scheduling of the reversal of our deferred tax liabilities, the valuation allowance may need to be adjusted in the future.
The Company remitted earnings from one of its subsidiaries in Singapore in 2024. With the possible exception of this Singapore subsidiary, the Company has no plans to remit other foreign earnings. We may change our intent to reinvest certain of our undistributed foreign earnings indefinitely, which could require us to accrue or pay taxes on some or all of these undistributed earnings.
Liquidity and Capital Resources
Cash and cash equivalents
The following table summarizes our cash and cash equivalents:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | Increase | |||
| Total cash and cash equivalents | $ | 313.9 | $ | 307.0 | $ | 6.9 |
The increase in cash and cash equivalents in fiscal year 2024, compared to fiscal year 2023, was primarily due to cash provided by operating and financing activities of $65.0 million and $9.8 million, respectively offset by cash used in investing activities of $63.5 million.
Table of Contents
Cash Flows
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | |||
| Operating activities | $ | 65.0 | $ | 135.9 | $ | 47.2 |
| Investing activities | (63.5) | (119.7) | (96.2) | |||
| Financing activities | 9.8 | (69.9) | (56.0) | |||
| Effects of exchange rate changes on cash and cash equivalents | (4.4) | 1.9 | (2.7) | |||
| Net increase (decrease) in cash and cash equivalents | $ | 6.9 | $ | (51.8) | $ | (107.7) |
Our primary cash inflows and outflows were as follows:
•We generated net cash from operating activities of $65.0 million in fiscal year 2024, compared to $135.9 million in fiscal year 2023. The $70.9 million decrease in net cash from operating activities was driven by a $127.0 million on unfavorable change in net working capital and by a decrease of $0.6 million from non-cash items offset in part by $56.7 million increase in net income.
•The major contributors to the net change in operating assets and liabilities, net of effects of acquisition, in fiscal year 2024 were as follows:
◦Accounts receivable increased $60.3 million primarily due to timing of shipments and collections, inventories and prepaid expenses increased $6.5 million and $3.2 million, respectively due to increased production levels.
◦Accounts payable increased $26.4 million, income taxes payable increased $1.0 million, accrued compensation and related benefits increased $2.4 million and other liabilities increased $1.3 million, primarily due to the timing of payments.
•Cash used in investing activities was $63.5 million in fiscal year 2024 compared to $119.7 million in fiscal year 2023. During fiscal year 2024, net cash used for investing activities primarily consisted of $63.5 million related to purchases of property, plant and equipment. During fiscal year 2023, net cash used for investing activities primarily consisted of $75.8 million related to purchases of property, plant and equipment and $46.1 million related to an acquisition.
•Cash provided by financing activities was $9.8 million in fiscal year 2024 compared to cash used of $69.9 million in fiscal year 2023. During fiscal year 2024, net cash provided by financing activities primarily due to the $23.5 million net cash proceeds from the amended credit agreement, a decrease of $28.4 million in principal payments on bank borrowings, and a $29.4 million decrease in share repurchases offset partially by the additional $2.5 million payment of debt issuance costs. During fiscal year 2023, net cash provided by financing activities primarily consisted of debt repayment of $38.6 million and $29.4 million of shares repurchased.
We believe we have sufficient capital to fund our working capital needs, satisfy our debt obligations, maintain our existing capital equipment, purchase new capital equipment and make strategic acquisitions from time to time. As of December 27, 2024, we had cash and cash equivalents of $313.9 million compared to $307.0 million as of December 29, 2023. Our cash and cash equivalents, cash generated from operations and borrowings under our term loan described below, were our principal sources of liquidity as of December 27, 2024.
We have an existing factoring arrangement with a financial institution in which a portion of its accounts receivable are sold on a nonrecourse basis. As of December 27, 2024, there were outstanding customer invoices amounting to $6.7 million that we factored under this arrangement.
We anticipate that our existing cash and cash equivalents balance and operating cash flow will be sufficient to service our indebtedness and meet our working capital requirements and technology development projects for at least the next twelve months. The adequacy of these resources to meet our liquidity needs beyond that period will depend on our growth, the size and number of any acquisitions, the state of the worldwide economy, our ability to meet our financial covenants with our credit facility, the cyclical expansion or contraction of the semiconductor capital equipment industry and the other industries we serve and capital expenditures required to meet possible increased demand for our products.
In order to expand our business or acquire additional complementary businesses or technologies, we may need to raise additional funds through equity or debt financings. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, our stockholders’ equity interest will be diluted and these securities might have rights, preferences and privileges senior to
Table of Contents
those of our current stockholders. We may also require the consent of our new lenders to raise additional funds through equity or debt financings. No assurance can be given that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.
As of December 27, 2024, we had undistributed earnings of approximately $555.0 million from our foreign subsidiaries that are indefinitely invested outside of the U.S. As of December 27, 2024, we have cash of approximately $273.1 million in our foreign subsidiaries.
Borrowing Arrangements
| December 27,<br>2024 | December 29,<br>2023 | |||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in millions) | Amount | Weighted-<br><br>Average<br><br>Interest Rate | Amount | Weighted-<br><br>Average<br><br>Interest Rate | ||||
| U.S. Term Loan | $ | 493.8 | 8.7 | % | $ | 479.3 | 8.8 | % |
| Fluid Solutions Debt Facilities | 5.9 | 7.4 | % | 6.0 | 9.4 | % | ||
| Debt issuance costs | (7.2) | (6.5) | ||||||
| $ | 492.5 | $ | 478.8 |
On April 4, 2024, the Company entered into a Sixth Amendment (the “Sixth Amendment”) to the Credit Agreement dated as of August 27, 2018 (as amended as of October 1, 2018, March 31, 2021, August 19, 2022, June 29, 2023 and July 27, 2023 (the “Existing Credit Agreement”), and the Existing Credit Agreement as further amended by the Sixth Amendment, the “Credit Agreement”). Pursuant to the Sixth Amendment, the Existing Credit Agreement was amended to, among other things, (i) extend the final maturity date of the term loan and revolving credit facilities under the Credit Agreement by 30 months; (ii) reduce the interest rate applicable to the term loan facility under the Credit Agreement by 0.25% per annum; and (iii) increase the outstanding amount under the Term Loan of $475.4 million to $500 million.
The Sixth Amendment resulted in the receipts of an additional $67.7 million of debt, net of $1.1 million related lender fees from new or existing syndicate lenders which was offset by syndicate lenders who reduced their positions by $44.2 million. The Company capitalized additional $2.5 million of costs related to this amendment and continued to defer previously capitalized costs of $5.2 million. The Company expensed third party transaction costs and the previously capitalized costs of extinguished debt of $3.6 million which was included in the other income (expense), net in the Consolidated Statements of Operations for the year ended December 27, 2024.
On October 8, 2024, the Company entered a Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement to further reduce the interest rate applicable to the term loan facility under the Credit Agreement by 0.25% per annum.
The Term Loan has a maturity date of February 25, 2028. The Company pays monthly interest payments in arrears and quarterly principal payments of 0.625% of the outstanding principal balance as of October 8, 2024, with the remaining principal paid upon maturity.
The revolving credit facility has an available commitment of $150.0 million and a maturity date of August 27, 2027. The Company pays a quarterly commitment fee in arrears equal to 0.25% of the average daily available commitment outstanding. Outstanding letters of credit reduce the availability of the revolving credit facility and, as of December 27, 2024, the Company had $146.5 million, net of $3.5 million of outstanding letters of credit, available under this revolving credit facility.
The letter of credit facility has an available commitment of $50.0 million and a maturity date of August 27, 2027. The Company pays a quarterly fee in arrears equal to 2.5% (subject to certain adjustments to the Term Loan) of the dollar equivalent of all outstanding letters of credit, and a fronting fee equal to 0.125% of the undrawn and unexpired amount of each letter of credit. As of December 27, 2024, the Company had $3.5 million of outstanding letters of credit and $46.5 million of available commitments remaining under the letter of credit facility.
Under the Credit Agreement, the Company may elect that the Term Loan bear interest at a rate per annum equal to either (a) “ABR” (as defined in the Credit Agreement), plus the applicable margin or (b) the “Eurodollar Rate” (as defined in the Credit Agreement), based on SOFR, plus the applicable margin. The applicable margin for the Term Loan is equal to a rate per annum to either (i) at any time that the Company’s corporate family rating is Ba3 (with a stable outlook) or higher from Moody’s and BB (with a stable outlook) or higher from S&P, (x) 3.00% for such Eurodollar term loans and (y) 2.00% for such ABR term loans or (ii) at all other times, (x) 3.25% for such Eurodollar term loans and (y) 2.25% for such ABR term loans. Interest on the Term Loan is payable on (1) in the case of such ABR term loans, the last day of each calendar quarter
Table of Contents
and (2) in the case of such Eurodollar term loans, the last day of each relevant interest period and, in the case of any interest period longer than three months, on each successive date three months after the first day of such interest period.
At December 27, 2024, the Company had an outstanding amount under the Term Loan of $493.8 million, gross of unamortized debt issuance costs of $7.2 million. As of December 27, 2024, the interest rate on the outstanding Term Loan was 7.8%.
The Credit Agreement requires the Company to maintain certain financial covenants including a consolidated fixed charge coverage ratio and a consolidated leverage ratio (as defined in the Credit Agreement) as of the last day of any fiscal quarter. The Company currently has no revolving loans outstanding under the Credit Agreement. The Company was in compliance with all financial covenants as of the fiscal year ended December 27, 2024.
The Company has a credit agreement with a local bank in the Czechia that provides for a revolving credit facility in the aggregate of up to 7.0 million euros (approximately $7.3 million). As of December 27, 2024, no debt was outstanding under this revolving credit facility.
Fluid Solutions has a credit facility with a financial institution in Israel that provides borrowing up to $6.0 million. As of December 27, 2024, Fluid Solutions had a $5.9 million outstanding balance under this facility with interest rate of 6.7%.
As of December 27, 2024, the Company’s total bank debt was $492.5 million, net of unamortized debt issuance costs of $7.2 million. As of December 27, 2024, the Company had $146.5 million, $0.1 million and $7.3 million available to draw from its credit facilities in the U.S., Israel and Czechia, respectively.
The fair value of the Company’s long-term debt was based on Level 2 inputs, and fair value was determined using quoted prices for similar liabilities in inactive markets. The Company’s carrying value approximates fair value for the Company’s long term-debt.
Capital Expenditures
Capital expenditures were $63.5 million for the year ended December 27, 2024 and were primarily attributable to the capital invested in our manufacturing facilities worldwide as well as costs associated with the ongoing design and implementation of our new enterprise resource planning system. For the year ended December 27, 2024, capital expenditures for our Products and Services segments were $40.4 million and $23.1 million, respectively, representing 2.2% and 9.5% of the respective segment revenues. To maintain our manufacturing capacity and support our strategic growth plans, capital expenditures are typically in the range of 2-4% of annual segment revenues for our Products segment and between 5-10% of annual segment revenues for our Services segment. Ultimately, the amount of capital expenditures is dependent on several factors including, but not limited to, the timing and implementation of capital projects, the performance of our business, economic and market conditions, the cash needs and investment opportunities for the business, the need for additional capacity to service anticipated customer demand, equipment lead times, and the availability of cash flows from operations or financing activities.
Contractual Obligations
We have commitments to various third parties to primarily purchase inventories and property, plant and equipment totaling approximately $460.5 million on December 27, 2024.
In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification against certain liabilities to our customers, which may include claims of losses by their own customers resulting out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products. Our potential liability arising out of intellectual property infringement claims by any third party is generally uncapped. As of December 27, 2024, we have not incurred significant costs to defend lawsuits or settle claims related to these indemnification arrangements. As a result, we believe the estimated fair value of these arrangements is minimal.
During the periods presented, we do not have unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Recently Issued and Adopted Accounting Pronouncement
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on UCT’s Consolidated Financial Statements, see Note 1, “Organization and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including credit risk, foreign currency exchange rate risk and interest rate risk.
Credit Risk
A substantial majority of our trade receivables are derived from sales to OEMs. We believe the three largest customer net accounts receivable balances (41.9% as of December 27, 2024) do not represent a significant credit risk, based on cash flow forecasts, balance sheet analysis, and past collection experience. For more information about the customers that represent our accounts receivable balance and our consideration related to credit losses, see Note 13, Revenue Recognition.
We have adopted credit policies and standards intended to accommodate industry growth and inherent risk. We believe credit risks are moderated by the financial stability of our major customers. We assess credit risk through quantitative and qualitative analysis. From these analyses, we establish shipping and credit limits and determine whether we will seek to use one or more credit support protection devices, such as obtaining a parent guarantee, prepayment or standby letter of credit.
Foreign Currency Exchange Rate Risk
We operate in international markets, which expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. Dollar and various foreign currencies. Historically, the majority of our revenue contracts and arrangements with third party suppliers are denominated in U.S. Dollars. Separately, a portion of our expenses, primarily the cost to manufacture, cost of personnel to deliver technical support on our products and professional services, sales and sales support and research and development, are denominated in foreign currencies.
Revenue resulting from selling in currencies and costs incurred in local currencies are exposed to foreign currency exchange rate fluctuations which can affect our operating income. As foreign currency exchange rates vary, operating income may differ from expectations. Increases in the value of the U.S. Dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. Dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us. However, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations.
We use derivative instruments, such as foreign currency exchange contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. These contracts reduce, but do not entirely eliminate the impact of currency exchange rates movement on our assets and liabilities.
Interest Rate Risk
We are exposed to market risk due to changing interest rates under our credit facilities. Our Credit Facility is comprised of a Term B loan and a revolving credit agreement with interest rates as described under Note 7 of Notes to the Consolidated Financial Statements.
At the end of fiscal 2024, the Term B loan had a balance of $493.8 million. A hypothetical 100 basis points increase in our borrowing rates at the end of fiscal 2024, would result in approximately $4.9 million annual increase in interest expense on this existing principal balance.
Table of Contents
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Reports of Independent Registered Public Accounting Firms(PCAOB ID: 238 and PCAOB ID: 659) | 41 |
|---|---|
| Consolidated Balance Sheets as of December 27, 2024andDecember 29, 2023 | 44 |
| Consolidated Statements of Operations for the years ended December 27, 2024,December 29, 2023andDecember 30, 2022 | 45 |
| Consolidated Statements of Comprehensive Income (Loss) for the years endedDecember 27, 2024, December 29, 2023 and December 30, 2022 | 46 |
| Consolidated Statements of Cash Flows for the years endedDecember 27, 2024, December 29, 2023 and December 30, 2022 | 47 |
| Consolidated Statements of Stockholders’ Equity for the years endedDecember 27, 2024, December 29, 2023 and December 30, 2022 | 49 |
| Notes to Consolidated Financial Statements | 50 |
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ultra Clean Holdings, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Ultra Clean Holdings, Inc. and its subsidiaries (the “Company”) as of December 27, 2024, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity, and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 27, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 27, 2024, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 27, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date as the Company did not design and maintain effective controls relating to the: (i) sufficiency of processes related to identifying and analyzing risks to the achievement of objectives across the Company, (ii) sufficiency of competent personnel to analyze risks of material misstatement and develop internal control activities to support the achievement of the Company’s internal control objectives, (iii) monitoring of control activities in accordance with established policies in a timely manner, (iv) information technology general controls over program change and user access for certain information systems for certain of the Fluid Solutions operating subsidiaries in the Products segment that are relevant to the preparation of the Company’s consolidated financial statements, and (v) segregation of duties across various business processes, including journal entries for certain other international operating subsidiaries in the Products segment.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
Table of Contents
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventories – Provisions for Excess or Obsolete Inventories
As described in Notes 1 and 4 to the consolidated financial statements, the Company values its inventories at the lower of cost (first-in, first-out) or net realizable value. 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. As disclosed by management, inherent in the estimates of demand and market value in determining inventory valuation are management’s estimates related to economic trends, market conditions, and future demand for the Company’s products. Inventory write downs inherently involve judgments based on assumptions about expected future demand and the impact of market conditions on those assumptions. Although the Company believes that the assumptions used in estimating inventory write downs are reasonable, significant changes in any one of the assumptions in the future could produce a significantly different result. As of December 27, 2024, the Company’s consolidated inventories balance was $381.0 million.
The principal considerations for our determination that performing procedures relating to the valuation of inventories, specifically the provisions for excess or obsolete inventories, is a critical audit matter are (i) the significant judgment by management when developing the provisions for excess or obsolete inventories, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to future demand, and (iii) as previously disclosed by management, a material weakness existed during the year related to this matter.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s provisions for excess or obsolete inventories, including controls over the development of assumption related to future demand. These procedures also included, among others (i) testing management’s process for developing the provisions for excess or obsolete inventories; (ii) evaluating the appropriateness of management’s estimates; (iii) testing the completeness and accuracy of underlying data used by management in developing the estimate; and (iv) evaluating the reasonableness of the significant assumption used by management related to future demand. Evaluating management’s assumption related to future demand involved evaluating whether the assumption used by management was reasonable considering (i) current and past results, and (ii) whether this assumption was consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 25, 2025
We have served as the Company’s auditor since 2024.
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Ultra Clean Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ultra Clean Holdings, Inc. (the “Company”) as of December 29, 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the years ended December 29, 2023, and December 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 29, 2023 and the consolidated results of its operations and its cash flows for the years ended December 29, 2023, and December 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Moss Adams LLP
San Francisco, California
March 6, 2024, except for Note 16 to the consolidated financial statements,
as to which the date is February 25, 2025.
We served as the Company’s auditor from 2015 to 2024.
Table of Contents
Ultra Clean Holdings, Inc.
Consolidated Balance Sheets
| December 27,<br>2024 | December 29,<br>2023 | |||
|---|---|---|---|---|
| (In millions, except par value) | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 313.9 | $ | 307.0 |
| Accounts receivable, net of allowance for credit losses of $2.1 and $1.0 at December 27, 2024 and December 29, 2023, respectively | 241.1 | 180.8 | ||
| Inventories | 381.0 | 374.5 | ||
| Prepaid expenses and other current assets | 34.1 | 30.9 | ||
| Total current assets | 970.1 | 893.2 | ||
| Property, plant and equipment, net | 325.9 | 328.3 | ||
| Goodwill | 265.3 | 265.2 | ||
| Intangible assets, net | 184.9 | 215.3 | ||
| Deferred tax assets, net | 3.1 | 3.1 | ||
| Operating lease right-of-use assets | 161.0 | 151.7 | ||
| Other non-current assets | 9.6 | 10.9 | ||
| Total assets | $ | 1,919.9 | $ | 1,867.7 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| Current liabilities: | ||||
| Bank borrowings | $ | 16.0 | $ | 17.6 |
| Accounts payable | 212.5 | 192.9 | ||
| Accrued compensation and related benefits | 50.1 | 47.7 | ||
| Operating lease liabilities | 18.6 | 18.1 | ||
| Other current liabilities | 38.4 | 33.7 | ||
| Total current liabilities | 335.6 | 310.0 | ||
| Bank borrowings, net of current portion | 476.5 | 461.2 | ||
| Deferred tax liabilities | 16.1 | 19.0 | ||
| Operating lease liabilities | 149.2 | 143.0 | ||
| Other liabilities | 6.7 | 37.3 | ||
| Total liabilities | 984.1 | 970.5 | ||
| Commitments and contingencies (See Note 10) | ||||
| Equity: | ||||
| UCT stockholders’ equity: | ||||
| Preferred stock — $0.001 par value, 10.0 shares authorized; none outstanding | — | — | ||
| Common stock — $0.001 par value, 90.0 shares authorized; 46.6 and 46.1 shares issued and 45.1 and 44.6 shares outstanding at December 27, 2024 and December 29, 2023, respectively | 0.1 | 0.1 | ||
| Additional paid-in capital | 558.4 | 541.5 | ||
| Common shares held in treasury, at cost, 1.5 and 1.5 shares at December 27, 2024 and December 29, 2023, respectively | (45.0) | (45.0) | ||
| Retained earnings | 370.4 | 346.7 | ||
| Accumulated other comprehensive loss | (10.3) | (4.4) | ||
| Total UCT stockholders' equity | 873.6 | 838.9 | ||
| Noncontrolling interests | 62.2 | 58.3 | ||
| Total equity | 935.8 | 897.2 | ||
| Total liabilities and equity | $ | 1,919.9 | $ | 1,867.7 |
(See accompanying Notes to Consolidated Financial Statements)
Table of Contents
Ultra Clean Holdings, Inc.
Consolidated Statements of Operations
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | ||||
| (In millions, except per share amounts) | ||||||
| Revenues: | ||||||
| Product | $ | 1,853.7 | $ | 1,501.6 | $ | 2,074.7 |
| Services | 243.9 | 232.9 | 299.6 | |||
| Total revenues | 2,097.6 | 1,734.5 | 2,374.3 | |||
| Cost of revenues: | ||||||
| Product | 1,569.7 | 1,290.5 | 1,712.3 | |||
| Services | 171.6 | 166.7 | 197.0 | |||
| Total cost revenues | 1,741.3 | 1,457.2 | 1,909.3 | |||
| Gross margin | 356.3 | 277.3 | 465.0 | |||
| Operating expenses: | ||||||
| Research and development | 28.3 | 28.3 | 28.5 | |||
| Sales and marketing | 57.3 | 51.8 | 54.4 | |||
| General and administrative | 179.5 | 162.0 | 184.3 | |||
| Net loss on divestitures | — | — | 77.4 | |||
| Total operating expenses | 265.1 | 242.1 | 344.6 | |||
| Income from operations | 91.2 | 35.2 | 120.4 | |||
| Interest income | 4.8 | 4.1 | 0.9 | |||
| Interest expense | (46.5) | (48.8) | (33.9) | |||
| Other income (expense), net | 17.7 | (1.8) | 0.9 | |||
| Income (loss) before provision for income taxes | 67.2 | (11.3) | 88.3 | |||
| Provision for income tax | 32.7 | 10.9 | 37.9 | |||
| Net income (loss) | 34.5 | (22.2) | 50.4 | |||
| Less: Net income attributable to noncontrolling interests | 10.8 | 8.9 | 10.0 | |||
| Net income (loss) attributable to UCT | $ | 23.7 | $ | (31.1) | $ | 40.4 |
| Net income (loss) per share attributable to UCT common stockholders: | ||||||
| Basic | $ | 0.53 | $ | (0.70) | $ | 0.89 |
| Diluted | $ | 0.52 | $ | (0.70) | $ | 0.88 |
| Shares used in computing net income (loss) per share: | ||||||
| Basic | 44.9 | 44.7 | 45.2 | |||
| Diluted | 45.3 | 44.7 | 45.7 |
(See accompanying Notes to Consolidated Financial Statements)
Table of Contents
Ultra Clean Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | ||||
| (In millions) | ||||||
| Net income (loss) | $ | 34.5 | $ | (22.2) | $ | 50.4 |
| Other comprehensive income (loss): | ||||||
| Change in cumulative translation adjustment, net of tax | (11.3) | 1.5 | (9.9) | |||
| Change in pension net actuarial gain (loss), net of tax | (1.0) | 0.4 | 1.2 | |||
| Change in fair value of derivatives, net of tax | — | (0.4) | 1.0 | |||
| Total other comprehensive income (loss) | (12.3) | 1.5 | (7.7) | |||
| Comprehensive income (loss) | 22.2 | (20.7) | 42.7 | |||
| Comprehensive income, attributable to noncontrolling interests | (4.4) | (9.4) | (7.5) | |||
| Comprehensive income (loss) attributable to UCT | $ | 17.8 | $ | (30.1) | $ | 35.2 |
(See accompanying Notes to Consolidated Financial Statements)
Table of Contents
Ultra Clean Holdings, Inc.
Consolidated Statements of Cash Flows
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | ||||
| (In millions) | ||||||
| Cash flows from operating activities: | ||||||
| Net income (loss) | $ | 34.5 | $ | (22.2) | $ | 50.4 |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities (excluding assets acquired, liabilities assumed and noncontrolling interests at acquisition): | ||||||
| Depreciation and amortization | 45.7 | 37.6 | 38.4 | |||
| Amortization of intangible assets | 30.4 | 24.1 | 30.0 | |||
| Stock-based compensation | 17.4 | 12.1 | 19.1 | |||
| Amortization of debt issuance costs | 3.0 | 3.9 | 3.9 | |||
| Loss (gain) on sale of property, plant and equipment | 1.2 | (0.9) | (0.2) | |||
| Change in the fair value of financial instruments | (29.2) | 1.7 | 1.0 | |||
| Deferred income taxes | (3.0) | (12.4) | (0.2) | |||
| Net loss on divestiture | — | — | 77.4 | |||
| Changes in assets and liabilities, net of effects of acquisitions: | ||||||
| Accounts receivable | (60.3) | 78.5 | (15.7) | |||
| Inventories | (6.5) | 80.8 | (84.4) | |||
| Prepaid expenses and other current assets | (3.2) | 12.5 | (4.5) | |||
| Other non-current assets | 1.3 | — | (3.4) | |||
| Accounts payable | 26.4 | (61.5) | (68.4) | |||
| Accrued compensation and related benefits | 2.4 | (5.6) | 7.1 | |||
| Income taxes payable | 1.0 | (5.2) | (0.1) | |||
| Operating lease assets and liabilities | 2.6 | 0.4 | (2.2) | |||
| Other liabilities | 1.3 | (7.9) | (1.0) | |||
| Net cash provided by operating activities | 65.0 | 135.9 | 47.2 | |||
| Cash flows from investing activities: | ||||||
| Purchases of property, plant and equipment | (63.5) | (75.8) | (100.1) | |||
| Acquisition of businesses, net of cash acquired | — | (46.1) | — | |||
| Proceeds from sale of equipment | — | 2.2 | 0.5 | |||
| Divestiture of subsidiaries | — | — | 3.4 | |||
| Net cash used in investing activities | (63.5) | (119.7) | (96.2) | |||
| Cash flows from financing activities: | ||||||
| Proceeds from bank borrowings | 67.7 | — | — | |||
| Proceeds from issuance of common stock | 2.0 | 0.8 | 0.7 | |||
| Extinguishment of bank borrowings | (44.2) | — | — | |||
| Principal payments on bank borrowings | (10.2) | (38.6) | (39.7) | |||
| Payment of debt issuance costs | (2.5) | (0.3) | (0.7) | |||
| Employees’ taxes paid upon vesting of restricted stock units | (2.5) | (2.2) | (3.9) | |||
| Payments of dividends to a joint venture shareholder | (0.5) | (0.2) | (0.3) | |||
| Repurchase of shares | — | (29.4) | (12.1) | |||
| Net cash provided by (used in) financing activities | 9.8 | (69.9) | (56.0) | |||
| Effect of exchange rate changes on cash and cash equivalents | (4.4) | 1.9 | (2.7) |
Table of Contents
| Net increase (decrease) in cash and cash equivalents | 6.9 | (51.8) | (107.7) | |||
|---|---|---|---|---|---|---|
| Cash and cash equivalents at beginning of period | 307.0 | 358.8 | 466.5 | |||
| Cash and cash equivalents at end of period | $ | 313.9 | $ | 307.0 | $ | 358.8 |
| Supplemental cash flow information: | ||||||
| Income taxes paid, net of income tax refunds | $ | 34.3 | $ | 31.2 | $ | 36.8 |
| Interest paid | $ | 40.4 | $ | 44.8 | $ | 31.9 |
| Non-cash investing and financing activities: | ||||||
| Property, plant and equipment purchased included in accounts payable and other liabilities | $ | 2.9 | $ | 9.7 | $ | 16.8 |
| Fair value of HIS earn-out at acquisition date | $ | — | $ | 27.1 | $ | — |
(See accompanying Notes to Consolidated Financial Statements)
Table of Contents
Ultra Clean Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
| Common Stock | Treasury shares | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | Additional <br>Paid-in<br>Capital | Shares | Amount | Retained<br>Earnings | Accumulated<br>Other<br>Comprehensive<br>Income (Loss) | Total<br>Stockholders’<br>Equity of UCT | Noncontrolling <br>Interests | Total<br>Equity | |||||||||
| (In millions) | ||||||||||||||||||
| Balance December 31, 2021 | 44.9 | $ | 0.1 | $ | 514.9 | 0.6 | $ | (3.3) | $ | 337.4 | $ | (0.2) | $ | 848.9 | $ | 43.8 | $ | 892.7 |
| Issuance under employee stock plans | 0.7 | — | 0.7 | — | — | — | — | 0.7 | — | 0.7 | ||||||||
| Repurchase of shares | (0.3) | — | — | 0.3 | (12.1) | — | — | (12.1) | — | (12.1) | ||||||||
| Stock-based compensation expense | — | 19.1 | — | — | — | — | 19.1 | — | 19.1 | |||||||||
| Employees’ taxes paid upon vesting of restricted stock units | (0.1) | — | (3.9) | — | — | — | — | (3.9) | — | (3.9) | ||||||||
| Dividend payments to a joint venture shareholder | — | — | — | — | — | — | — | — | (0.3) | (0.3) | ||||||||
| Divestiture of a subsidiary | — | — | — | — | — | — | — | — | (1.9) | (1.9) | ||||||||
| Net income | — | — | — | — | — | 40.4 | — | 40.4 | 10.0 | 50.4 | ||||||||
| Other comprehensive loss | — | — | — | — | — | — | (5.2) | (5.2) | (2.5) | (7.7) | ||||||||
| Balance December 30, 2022 | 45.2 | $ | 0.1 | 530.8 | 0.9 | $ | (15.4) | $ | 377.8 | $ | (5.4) | $ | 887.9 | $ | 49.1 | $ | 937.0 | |
| Issuance under employee stock plans | 0.6 | — | 0.8 | — | — | — | — | 0.8 | — | 0.8 | ||||||||
| Shares transfer to employee stock plans | — | — | (0.5) | — | — | — | — | — | — | |||||||||
| Repurchase of shares | (1.1) | — | — | 1.1 | (29.6) | — | — | (29.6) | — | (29.6) | ||||||||
| Stock-based compensation expense | — | 12.1 | — | — | — | — | 12.1 | — | 12.1 | |||||||||
| Employees’ taxes paid upon vesting of restricted stock units | (0.1) | — | (2.2) | — | — | — | — | (2.2) | — | (2.2) | ||||||||
| Dividend payments to a joint venture shareholder | — | — | — | — | — | — | — | — | (0.2) | (0.2) | ||||||||
| Net income (loss) | — | — | — | — | — | (31.1) | — | (31.1) | 8.9 | (22.2) | ||||||||
| Other comprehensive income | — | — | — | — | — | — | 1.0 | 1.0 | 0.5 | 1.5 | ||||||||
| Balance December 29, 2023 | 44.6 | $ | 0.1 | $ | 541.5 | 1.5 | $ | (45.0) | $ | 346.7 | $ | (4.4) | $ | 838.9 | $ | 58.3 | $ | 897.2 |
| Issuance under employee stock plans | 0.6 | — | 2.0 | — | — | — | — | 2.0 | — | 2.0 | ||||||||
| Employees' taxes paid upon vesting of restricted stock units | (0.1) | — | (2.5) | — | — | — | — | (2.5) | — | (2.5) | ||||||||
| Stock-based compensation expense | — | — | 17.4 | — | — | — | — | 17.4 | — | 17.4 | ||||||||
| Net income | — | — | — | — | — | 23.7 | — | 23.7 | 10.8 | 34.5 | ||||||||
| Dividend payments to a joint venture shareholder | — | — | — | — | — | — | — | — | (0.5) | (0.5) | ||||||||
| Other comprehensive loss | — | — | — | — | — | — | (5.9) | (5.9) | (6.4) | (12.3) | ||||||||
| Balance December 27, 2024 | 45.1 | $ | 0.1 | $ | 558.4 | 1.5 | $ | (45.0) | $ | 370.4 | $ | (10.3) | $ | 873.6 | $ | 62.2 | $ | 935.8 |
(See accompanying Notes to Consolidated Financial Statements)
Table of Contents
Ultra Clean Holdings, Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Ultra Clean Holdings, Inc., (the “Company” or “UCT”) a Delaware corporation, was founded in November 2002 and became a publicly traded company on the NASDAQ Global Market in March 2004. The Company is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services, primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. The Company’s Products business primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules, sub-fab process equipment support racks, as well as other high-level assemblies. The Company’s Services business provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment markets.
Fiscal Year
The Company uses a 52-53 week fiscal year ending on the Friday nearest December 31. All references to quarters refer to fiscal quarters and all references to years refer to fiscal years.
Principles of Consolidation
The Company’s Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries and all intercompany accounts and transactions have been eliminated upon consolidation.
Noncontrolling interests
Noncontrolling interests are recognized to reflect the portion of the equity of the majority-owned subsidiaries which is not attributable, directly or indirectly, to the controlling stockholder. The Company’s consolidated entities include partially-owned entities, which are Cinos Co., Ltd (“Cinos Korea”), a South Korean company that provides outsourced cleaning and recycling of precision parts for the semiconductor industry through its operating facilities in South Korea and whose results the Company consolidates, and Cinos Xian Clean Technology, Ltd. (“Cinos China”), a Chinese entity that is majority owned by Cinos Korea. The interest held by others in Cinos Korea and in Cinos China are presented as noncontrolling interests in the accompanying Consolidated Financial Statements. The noncontrolling interests will continue to be attributed its share of gains and losses even if that attribution results in a deficit noncontrolling interests’ balance.
Segments
The Financial Accounting Standards Board’s (“FASB”) guidance regarding disclosure about segments in an enterprise and related information establishes standards for the reporting by public business enterprises of information about reportable segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the manner in which management organizes the reportable segments within the Company for making operational decisions and assessments of financial performance. The Company’s chief operating decision-maker is the Chief Executive Officer. The Company operates in two reportable segments: Products and Services. See Note 16 to the Company’s Consolidated Financial Statements.
Foreign Currency Translation and Remeasurement
As of December 27, 2024, the functional currency of the Products business’ foreign subsidiaries is the U.S. Dollar except for the subsidiaries of Ham-Let (Israel-Canada) Ltd. (“Ham-Let” or “Fluid Solutions”) in the United Kingdom and Netherlands, which is the local currency. The functional currency of the Services division’s foreign subsidiaries is the local currency, except for that of its Singapore, Scotland and Ireland entities, which is the U.S. Dollar.
For the Company’s foreign subsidiaries where the local currency is the functional currency, the Company translates the financial statements of these subsidiaries to U.S. Dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenue, costs and expenses. Translation gains and losses are recorded in accumulated other
Table of Contents
comprehensive income (loss) (“AOCI”) within UCT stockholders’ equity. For the Company’s foreign subsidiaries where the U.S. Dollar is the functional currency and functional currency differs from their local currency, any gains and losses resulting from the remeasurement of the assets and liabilities of these subsidiaries are recorded in other income (expense), net.
Use of Estimates
The presentation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions include, but not limited to, inventory valuation, accounting for income taxes, business combinations, contingent earn-out liabilities, valuation of goodwill, intangible assets and long-lived assets. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustments. Actual amounts may differ from those estimates.
Cash and Cash Equivalents
The Company considers currency on hand, demand deposits, time deposits, and all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the United States and internationally.
Accounts Receivable
The majority of our accounts receivable are derived from sales to large multinational semiconductor capital equipment manufacturers throughout the world, are recorded at their invoiced amount, and do not bear interest.
Allowance for Expected Credit Losses
The Company maintains an allowance for expected losses resulting from the inability of its customers to make required payments. The Company evaluates its allowance for expected credit losses based on a combination of factors. In circumstances where specific invoices are deemed uncollectible, the Company provides a specific allowance against the amount due to reduce the net recognized receivable to the amount it reasonably believes will be collected. The Company also provides allowances based on its write-off history. Provision for credit loss was not material for fiscal years ended December 27, 2024, December 29, 2023 and December 30, 2022.
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company performs credit evaluations of its customers’ financial condition and generally requires no collateral.
Cash is placed on deposit at large global financial institutions. Such deposits may be in excess of insured limits. Management believes that the financial institutions that hold the Company’s cash are creditworthy and, accordingly, minimal credit risk exists with respect to these balances.
Fair Value of Measurements
The Company measures its cash equivalents, derivative contracts, contingent earn-out liabilities and pension obligation at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.
Table of Contents
Level 3 — Unobservable inputs that are supported by little or no market activities.
The carrying values of cash and cash equivalents, accounts receivable, net, prepaid expenses and other current assets, accounts payable, accrued compensation and related benefits, and other current liabilities approximate their fair values due to their relatively short maturities as of December 27, 2024 and December 29, 2023.
Derivative Financial Instruments
The Company uses forward contracts to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions typically expected to occur within 24 months. The purpose of the hedge is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated costs and eventual cash flows. The Company recognizes derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. The Company records changes in the fair value of the derivatives in the accompanying Consolidated Statements of Operations as other income (expense), net, or as a component of AOCI in the accompanying Consolidated Balance Sheets.
Inventories
Inventories are stated at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. 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 and future demand for the Company’s products.
Inventory write downs inherently involve judgments based on assumptions about expected future demand and the impact of market conditions on those assumptions. Although the Company believes that the assumptions it used in estimating inventory write downs are reasonable, significant changes in any one of the assumptions in the future could produce a significantly different result. There can be no assurances that future events and changing market conditions will not result in significant increases in inventory write downs. For further discussion of the Company’s inventories see Note 4 of Notes to the Consolidated Financial Statements.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, or, in the case of equipment under finance leases, the present value of future minimum lease payments at inception of the related lease. The Company also capitalizes interest on borrowings related to eligible capital expenditures. Direct costs incurred to develop software for internal use are capitalized. Costs related to the design or maintenance of internal use software are expensed as incurred.
Depreciation expense is computed using the straight-line method over the estimated useful lives of assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives or the term of the lease. The estimated useful life of an asset is reassessed whenever applicable facts and circumstances indicate a change in the estimated useful life of such asset has occurred. For further discussion of the Company’s property, plant and equipment see Note 4 of Notes to the Consolidated Financial Statements.
Long-lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable. The Company assesses the fair value of the assets based on the amount of the undiscounted future cash flows that the assets are expected to generate and recognizes an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset are less than the carrying value of the asset. If the Company identifies an impairment, the Company reduces the carrying value of the group of assets to comparable market values, when available and appropriate, or to its estimated fair value based on a discounted cash flow approach.
At the end of fiscal years 2024, 2023 and 2022, the Company assessed the carrying value of its long-lived assets, including property, plant and equipment as well as its intangible assets and concluded that no impairment was required.
Leases
The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement and reassesses that conclusion if the arrangement is modified. When the Company determines the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or a finance lease. Operating and finance leases with lease terms of greater than one year result in the Company recording a right-of-use (“ROU”) asset and lease liability on its balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease
Table of Contents
term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are initially recognized based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses the implicit interest rate if readily determinable or when the implicit interest rate is not readily determinable, the Company uses its incremental borrowing rate.
The incremental borrowing rate is not a commonly quoted rate and is derived through a combination of inputs including the Company’s credit rating and the impact of full collateralization. The incremental borrowing rate is based on the Company’s collateralized borrowing capabilities over a similar term of the lease payments. The Company utilizes the incremental borrowing rate based on bank loan rates at the respective locations for leases where appropriate and the consolidated group bank loan rate where the Company does not have local bank financings.
The operating lease ROU asset also includes any lease payments made in advance and is reduced by any lease incentives. Specific lease terms used in computing the ROU assets and lease liabilities may include options to extend or terminate the lease when the Company believes it is reasonably certain that it will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. Operating leases are included in operating lease ROU assets and in operating lease liabilities on the Company’s consolidated balance sheet. The Company’s finance leases at December 27, 2024 and December 29, 2023 were not significant. For further discussion of the Company’s leases see Note 14 of Notes to the Consolidated Financial Statements.
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if indicators of potential impairment exist. Finite-lived intangible assets are presented at cost, net of accumulated amortization, and are amortized on either a straight-line method or on an accelerated method over their estimated economic lives. The Company reviews goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate that the carrying value exceeds their fair value, such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present. There were no impairments of the Company’s goodwill and purchased intangible assets in fiscal year 2024 or 2023. For further discussion of the Company’s goodwill and intangible assets see Note 6 of Notes to the Consolidated Financial Statements.
Deferred Debt Issuance Costs
Debt issuance costs incurred in connection with obtaining debt financing are deferred and presented as a direct deduction from Bank Borrowings in the accompanying Consolidated Balance Sheets. Deferred costs are amortized on an effective interest method basis over the contractual term.
Defined Benefit Pension Plan
The Company has several noncontributory defined benefit pension plans covering substantially all of the employees of two of its foreign entities upon termination of their employee services. The benefits for these plans are based on expected years of service and average compensation. The net period costs are recognized as employees render the services necessary to earn the postretirement benefits. The Company records annual amounts relating to the pension plan based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases and turnover rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current and expected rates of return and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive gain (loss) and amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under the plan are reasonable based on its experience and market conditions. For further discussion of the Company’s defined benefit pension plan see Note 9 of Notes to the Consolidated Financial Statements.
Revenue Recognition
Revenue is recognized when the Company satisfies performance obligations as evidenced by the transfer of control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company performs the following five steps to determine when to recognize revenue: (1) identification of the contract(s) with its customers, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfied. The Company infrequently sells certain finished goods inventory on a bill and hold basis. The terms of the bill and hold agreement provide that title to the specified inventory is transferred to the customer prior to shipment and the
Table of Contents
Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard. There were no significant bill and hold arrangements for fiscal year 2024, 2023 and 2022. For further discussion of the Company’s revenue recognition see Note 13 of Notes to the Consolidated Financial Statements.
Shipping and Handling Costs
Shipping and handling costs are included as a component of cost of revenues.
Research and Development Costs
Research and development costs are expensed as incurred.
Stock-Based Compensation Expense
The Company maintains stock-based compensation plans which allow for the issuance of equity-based awards to directors and certain employees. These equity-based awards include restricted stock awards (“RSAs”), performance stock units (“PSUs”) and restricted stock units (“RSUs”). The RSAs and RSUs use the closing price of stock price on the day preceding the grant date as a proxy for fair value and compensation expense. The PSUs contain market conditions, and compensation expense is measured using a Monte Carlo simulation model and recognized over the requisite service period based on the expected market performance as of the grant date. Forfeitures are recognized as they occur.
The Company also maintains an employee stock purchase plan (“ESPP”) that provides for the issuance of shares to all eligible employees of the Company at a discounted price.
For further discussion of the Company’s employee stock plans see Note 12 of Notes to the Consolidated Financial Statements.
Government Subsidies
Government subsidies are recognized where there is reasonable assurance that the subsidy will be received and all attached conditions will be complied with. When the subsidy relates to an expense item, it is recognized as a reduction of that expense on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the subsidy relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset. When the subsidy does not relate to specific expenses or assets, the income is accounted for in the period where there is reasonable assurance that the subsidy will be received. For further discussion of the Company’s government subsidies see Note 17 of Notes to the Consolidated Financial Statements.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to realize our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future federal, state, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider recent cumulative income (loss). A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
Income tax positions must meet a more likely than not recognition threshold to be recognized. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of income as income tax expense.
The Company accounts for Global Intangible Low-Taxed Income as period costs when incurred. For further discussion of the Company’s income taxes see Note 8 of Notes to the Consolidated Financial Statements
Table of Contents
Net Income (Loss) per Share
Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding for the period. Diluted net income per share is calculated by dividing net income by the weighted average number of common shares outstanding and common equivalent shares from dilutive restricted stock using the treasury stock method, except when such shares are anti-dilutive. In accordance with Accounting Standards Codification 718, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of in-the-money stock options and restricted stock units. This results in the assumed buyback of additional shares, thereby reducing the dilutive impact of equity awards. For further information of the Company’s income per share see Note 15 of Notes to Consolidated Financial Statements.
Business Combinations
The Company recognizes assets acquired (including goodwill and identifiable intangible assets), liabilities assumed and noncontrolling interest at fair value on the acquisition date. Subsequent changes to the fair value of such assets acquired and liabilities assumed are recognized in earnings, after the expiration of the measurement period, a period not to exceed 12 months from the acquisition date. Acquisition-related expenses and acquisition-related restructuring costs are recognized in earnings in the period in which they are incurred. For further discussion of the Company’s business combinations see Note 2 of Notes to the Consolidated Financial Statements
Accounting Standards Recently Adopted
In November 2023, FASB issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU No. 2023-07”), which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU No. 2023-07 does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments.
The Company adopted ASU No. 2023-07 on December 27, 2024, with retrospective disclosure of prior periods presented. There was no impact to its results of operations, cash flows and financial condition.
Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU No. 2023-09”), which amends the guidance in ASC 740, Income Taxes. ASU No. 2023-09 is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The Company will adopt ASU No. 2023-09 prospectively in its fiscal year 2025.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU No. 2024-03”), which requires disaggregated disclosure of certain costs and expenses, including purchases of inventory, employee compensation, depreciation, amortization and depletion, within relevant income statement captions. ASU No. 2024-03 is effective for annual periods beginning after December 15, 2026 and for interim periods beginning after December 15, 2027 on a retrospective or prospective basis, with early adoption permitted. The Company is evaluating the effect that ASU No. 2024-03 will have on its financial statement disclosures.
2. BUSINESS COMBINATIONS
On October 25, 2023, the Company acquired 100% of the shares of HIS Innovations Group (“HIS”), a privately held company based in Hillsboro, Oregon. HIS is a leading supplier to the semiconductor sub-fab segment including the design, manufacturing, and integration of components, process solutions, and fully integrated sub-systems. The acquisition strengthens the Company's leadership in developing and supplying critical products to the semiconductor industry, and extends our reach into the sub-fab area.
The purchase price of HIS for purposes of the Company’s purchase price allocation was determined to be $73.6 million, which includes initial cash consideration of $46.5 million and the fair value of potential earn-out payments of approximately $27.1 million. These potential earn-out payments represent up to $70.0 million of cash consideration that may be payable based on the financial performance of the acquired business during the fiscal years 2023, 2024, and 2025. The fair value of the potential earn-out payments was determined utilizing a Monte Carlo simulation model. As of
Table of Contents
December 27, 2024, the estimated fair value of the earn-out payments was approximately $0.1 million. The change in the accrual is due to lower-than-expected financial performance. See Note 5 Fair Value for further discussion.
The Company has assigned the purchase price of HIS to the tangible assets, liabilities and identifiable intangible assets acquired, based on their estimated fair values. The excess of purchase price over the aggregate fair value was recorded as goodwill. Goodwill associated with the acquisition is primarily attributable to the future technology, market presence and knowledgeable and experienced workforce. The fair value assigned to identifiable intangible assets acquired was determined using the income approach taking into account the Company’s consideration of a number of inputs, including a third-party analysis that was based upon estimates and assumptions provided by the Company. These estimates and assumptions were determined through established and generally accepted valuation techniques and with the assistance of a valuation specialist.
During the third quarter of fiscal year 2024, the Company completed the acquisition accounting and the valuation of the fair value of the assets acquired and the liabilities assumed.
The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition, including all measurement period adjustments:
| (In millions) | Amount | |
|---|---|---|
| Cash and cash equivalents | $ | 0.4 |
| Accounts receivable | 5.6 | |
| Inventories | 11.4 | |
| Prepaid expenses and other assets | 2.7 | |
| Property, plant and equipment | 9.3 | |
| Purchased intangible assets | 51.6 | |
| Operating lease right-of-use assets | 7.5 | |
| Accounts payable | (8.1) | |
| Accrued compensation and related benefits | (0.7) | |
| Other current liabilities | (0.9) | |
| Deferred tax liabilities | (12.1) | |
| Operating lease liabilities | (9.6) | |
| Total identifiable net assets | $ | 57.1 |
| Goodwill | 16.5 |
The following table summarizes the intangible assets acquired and the useful lives of these assets:
| Useful<br>Life | Purchased<br>Intangible <br>Assets | ||
|---|---|---|---|
| (In years) | (In millions) | ||
| Customer relationships | 7 | $ | 35.2 |
| IP knowhow | 5 | 11.2 | |
| Developed technology | 5 | 4.6 | |
| Backlog | 1 | 0.6 | |
| Total purchased intangible assets | $ | 51.6 |
The results of operations for the Company for the year ended December 29, 2023 included operating activities for HIS since its acquisition date of October 25, 2023. Pro forma and historical post-closing results of operations for the HIS acquisition were not material to the Company’s Consolidated Statements of Operations. In addition, acquisition-related costs of $1.0 million and $4.7 million were included in the results of operations for the year ended December 27, 2024 and December 29, 2023, respectively. Acquisition costs are included in general and administrative expenses in the Company’s consolidated results of operations.
3. BUSINESS DIVESTITURES
In 2022, the Company executed the sale of four of its non-semiconductor operating subsidiaries of Fluid Solutions. Each of these entities was reported within the Products reportable segment. The purpose of the divestitures was to allow the
Table of Contents
Company to remain focused on its core semiconductor business. As a result of these divestitures, the Company recorded a net loss of $77.4 million during fiscal year 2022, which was recorded in the Consolidated Statements of Operations. The recorded net loss included the write-off of intangible assets, goodwill and net assets of $27.8 million, $19.7 million and $29.9 million, respectively. Goodwill was allocated to the divestitures based on the relative fair value of each component in relation to its respective reporting unit. See Note 6 Goodwill and Intangible Assets for further discussion.
4. BALANCE SHEET INFORMATION
Inventories consisted of the following:
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | ||
|---|---|---|---|---|
| Raw materials | $ | 195.4 | $ | 197.9 |
| Work in process | 130.8 | 107.2 | ||
| Finished goods | 54.8 | 69.4 | ||
| Total | $ | 381.0 | $ | 374.5 |
Property, plant and equipment, net, consisted of the following:
| (In millions) | Useful Life<br>(In years) | December 27,<br>2024 | December 29,<br>2023 | ||
|---|---|---|---|---|---|
| Land | n/a | $ | 5.7 | $ | 5.6 |
| Buildings | 50 | 52.2 | 57.1 | ||
| Leasehold improvements | * | 138.7 | 110.8 | ||
| Machinery and equipment | 5 - 10 | 222.4 | 207.4 | ||
| Computer equipment and software | 3 - 10 | 78.2 | 72.2 | ||
| Furniture and fixtures | 5 | 4.8 | 5.0 | ||
| 502.0 | 458.1 | ||||
| Accumulated depreciation | (214.0) | (170.3) | |||
| Construction in progress | 37.9 | 40.5 | |||
| Total | $ | 325.9 | $ | 328.3 |
* Lesser of estimated useful life or remaining lease term
Capitalized interest was not significant for the fiscal years ended December 27, 2024, December 29, 2023 and December 30, 2022.
5. FAIR VALUE
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following table summarizes, for assets or liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy:
| Fair Value Measurement at<br>Reporting Date Using | ||||||||
|---|---|---|---|---|---|---|---|---|
| Description | December 27, 2024 | Quoted Prices in<br>Active Markets for<br>Identical Assets<br>(Level 1) | Significant<br>Other Observable<br>Inputs<br>(Level 2) | Significant<br>Unobservable<br>Inputs<br>(Level 3) | ||||
| (In millions) | ||||||||
| Other non-current assets: | ||||||||
| Plan assets | $ | 0.1 | $ | — | $ | — | $ | 0.1 |
| Other liabilities: | ||||||||
| Pension obligation | $ | 1.7 | $ | — | $ | — | $ | 1.7 |
| Contingent earn-out | $ | 0.1 | $ | — | $ | — | $ | 0.1 |
Table of Contents
| Fair Value Measurement at<br>Reporting Date Using | ||||||||
|---|---|---|---|---|---|---|---|---|
| Description | December 29, 2023 | Quoted Prices in<br>Active Markets for<br>Identical Assets<br>(Level 1) | Significant<br>Other Observable<br>Inputs<br>(Level 2) | Significant<br>Unobservable<br>Inputs<br>(Level 3) | ||||
| (In millions) | ||||||||
| Other non-current assets: | ||||||||
| Plan assets | $ | 1.3 | $ | — | $ | — | $ | 1.3 |
| Other current liabilities: | ||||||||
| Forward contracts | $ | 0.1 | $ | — | $ | 0.1 | $ | — |
| Other liabilities: | ||||||||
| Pension obligation | $ | 1.6 | $ | — | $ | — | $ | 1.6 |
| Contingent earn-out | $ | 29.1 | $ | — | $ | — | $ | 29.1 |
The estimated fair value of foreign currency forward contracts is based upon quoted market prices obtained from independent pricing services for similar derivative contracts and these financial instruments are characterized as Level 2 assets in the fair value hierarchy.
The estimated fair value of pension obligation is based on expected years of service and average compensation. The valuation model used to value pension obligation utilizes mortality rate, inflation, interest rate risks and changes in the life expectancy for pensioners. These assumptions are routinely made in the appraisal process by the independent actuary resulting in a Level 3 classification. As of December 27, 2024, the Company's aggregate pension benefit obligations is $12.3 million and was exceeded by the fair value of the pension plan assets of $10.6 million, resulting in underfunded pension benefit obligations of $1.7 million. The Company recognizes the overfunded or underfunded status of defined benefit pension plans, measured as the difference between the fair value of the plan assets and the benefit obligation. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability.
The Company measures its contingent earn-out liabilities at fair value on a recurring basis using a Monte Carlo simulation model. The significant unobservable inputs used in the model include the forecasted operating profit of the acquired business during calendar year 2025. Significant increases or decreases to the forecasted results would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent earn-out liability on the acquisition date is reflected as cash used in financing activities in the consolidated statements of cash flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in operating activities in the consolidated statements of cash flows. In 2024 and 2023, the Company recorded $29.0 million gain and $2.0 million loss, respectively from changes in the fair value of contingent earn-out related to the acquisition of HIS. These amounts were recorded as other income (expense), net, in the Consolidated Statements of Operations.
There were no transfers in or out of any level during the fiscal year ended December 27, 2024 or December 29, 2023. Fair value adjustments were noncash, and therefore did not impact the Company’s liquidity or capital resources.
6. GOODWILL AND INTANGIBLE ASSETS
The Company’s methodology for allocating the purchase price relating to an acquisition is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the consideration transferred over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.
To test goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company concludes it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company does not proceed to perform a quantitative impairment test. If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative goodwill impairment test will be performed by comparing the fair value of each reporting unit to its carrying value. A quantitative impairment analysis, if necessary, considers the income approach, which requires estimates of the present value of expected future cash flows to determine a reporting unit’s fair value. Significant estimates include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates, and future economic and market conditions. A goodwill impairment charge is recognized for the amount by which the reporting unit’s fair value is less than its carrying value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The process of evaluating the potential impairment of goodwill and intangible
Table of Contents
assets requires significant judgment. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results.
In the fourth quarters of 2024 and 2023, the Company performed qualitative impairment assessments for each of the Company's reporting units. The qualitative assessments indicated that it was more likely than not that the fair values of its reporting units exceeded its carrying value and, therefore, did not result in an impairment.
In connection with the divestiture of certain Fluid Solutions subsidiaries during fiscal year 2022, the Company wrote off goodwill and intangible assets of $19.7 million and $27.8 million, respectively.
Details of aggregate goodwill of the Company are as follows:
| (In millions) | Products | Services | Total | |||
|---|---|---|---|---|---|---|
| Balance at December 30, 2022 | $ | 175.3 | $ | 73.5 | $ | 248.8 |
| Acquisition of HIS | 16.4 | — | 16.4 | |||
| Balance at December 29, 2023 | $ | 191.7 | $ | 73.5 | $ | 265.2 |
| HIS Fair value adjustment | 0.1 | — | 0.1 | |||
| Balance at December 27, 2024 | $ | 191.8 | $ | 73.5 | $ | 265.3 |
Intangible Assets
Intangible assets are generally recorded in connection with a business acquisition. The Company evaluates the useful lives of its intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization. In addition, the Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable and evaluates indefinite-lived intangible asset for impairment annually, or more frequently if indicators of potential impairment exist. Management considers such indicators as significant differences in product demand from the estimates, changes in the competitive and economic environment, technological advances, and changes in cost structure.
Details of intangible assets were as follows:
| As of December 27, 2024 | As of December 29, 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in millions) | Useful Life<br>(In years) | Gross<br>Carrying<br>Amount | Accumulated<br>Amortization | Carrying<br>Value | Gross<br>Carrying<br>Amount | Accumulated<br>Amortization | Carrying<br>Value | ||||||
| Customer relationships | 6 - 10 | $ | 207.2 | $ | (117.4) | $ | 89.8 | $ | 207.2 | $ | (97.5) | $ | 109.7 |
| Recipes | 20 | 73.2 | (23.2) | 50.0 | 73.2 | (19.5) | 53.7 | ||||||
| Intellectual property/knowhow | 7 - 15 | 48.9 | (22.8) | 26.1 | 48.9 | (18.4) | 30.5 | ||||||
| Tradename | 4 - 6* | 32.5 | (22.9) | 9.6 | 32.5 | (22.1) | 10.4 | ||||||
| Standard operating procedures | 20 | 8.6 | (2.7) | 5.9 | 8.6 | (2.3) | 6.3 | ||||||
| Developed technology | 5 | 4.6 | (1.1) | 3.5 | 4.6 | (0.2) | 4.4 | ||||||
| Backlog | 1 | 0.6 | (0.6) | — | 0.6 | (0.3) | 0.3 | ||||||
| Total | $ | 375.6 | $ | (190.7) | $ | 184.9 | $ | 375.6 | $ | (160.3) | $ | 215.3 |
*The Company concluded that the asset life of UCT tradename of $9.0 million is indefinite and is therefore not amortized but is reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
The Company amortizes its intangible assets on a straight-line or accelerated basis over the estimated economic life of the assets. Amortization expense was approximately $30.4 million for the year ended December 27, 2024, $24.1 million for the year ended December 29, 2023, and $30.0 million for the year ended December 30, 2022. Amortization expense related to recipes, standard operating procedures, developed technology and certain intellectual property/know-how is charged to cost of revenues and the remainder is charged to general and administrative expense. As of December 27, 2024, future
Table of Contents
estimated amortization expense is expected to be as follows:
| (In millions) | Amortization<br>Expense | |
|---|---|---|
| 2025 | $ | 28.1 |
| 2026 | 27.2 | |
| 2027 | 26.9 | |
| 2028 | 23.8 | |
| 2029 | 16.2 | |
| Thereafter | 53.7 | |
| Total | $ | 175.9 |
7. BORROWING ARRANGEMENTS
On April 4, 2024, the Company entered into a Sixth Amendment (the “Sixth Amendment”) to the Credit Agreement dated as of August 27, 2018 (as amended as of October 1, 2018, March 31, 2021, August 19, 2022, June 29, 2023 and July 27, 2023 (the “Existing Credit Agreement”), and the Existing Credit Agreement as further amended by the Sixth Amendment, the “Credit Agreement”). Pursuant to the Sixth Amendment, the Existing Credit Agreement was amended to, among other things, (i) extend the final maturity date of the term loan and revolving credit facilities under the Credit Agreement by 30 months; (ii) reduce the interest rate applicable to the term loan facility under the Credit Agreement by 0.25% per annum; and (iii) increase the outstanding amount under the Term Loan of $475.4 million to $500 million.
The Sixth Amendment resulted in the receipts of an additional $67.7 million of debt, net of $1.1 million related lender fees from new or existing syndicate lenders which was offset by syndicate lenders who reduced their positions by $44.2 million. The Company capitalized additional $2.5 million of costs related to this amendment and continued to defer previously capitalized costs of $5.2 million. The Company expensed the third party transaction costs and the previously capitalized costs of extinguished debt of $3.6 million which was included in the other income (expense), net in the Consolidated Statements of Operations for the year ended December 27, 2024.
On October 8, 2024, the Company entered a Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement to further reduce the interest rate applicable to the term loan facility under the Credit Agreement by 0.25% per annum.
The Term Loan has a maturity date of February 25, 2028. The Company pays monthly interest payments in arrears and quarterly principal payments of 0.625% of the outstanding principal balance as of October 8, 2024, with the remaining principal paid upon maturity.
The revolving credit facility has an available commitment of $150.0 million and a maturity date of August 27, 2027. The Company pays a quarterly commitment fee in arrears equal to 0.25% of the average daily available commitment outstanding. Outstanding letters of credit reduce the availability of the revolving credit facility and, as of December 27, 2024, the Company had $146.5 million, net of $3.5 million of outstanding letters of credit, available under this revolving credit facility.
The letter of credit facility has an available commitment of $50.0 million and a maturity date of August 27, 2027. The Company pays a quarterly fee in arrears equal to 2.5% (subject to certain adjustments to the Term Loan) of the dollar equivalent of all outstanding letters of credit, and a fronting fee equal to 0.125% of the undrawn and unexpired amount of each letter of credit. As of December 27, 2024, the Company had $3.5 million of outstanding letters of credit and $46.5 million of available commitments remaining under the letter of credit facility.
Under the Credit Agreement, the Company may elect that the Term Loan bear interest at a rate per annum equal to either (a) “ABR” (as defined in the Credit Agreement), plus the applicable margin or (b) the “Eurodollar Rate” (as defined in the Credit Agreement), based on SOFR, plus the applicable margin. The applicable margin for the Term Loan is equal to a rate per annum to either (i) at any time that the Company’s corporate family rating is Ba3 (with a stable outlook) or higher from Moody’s and BB (with a stable outlook) or higher from S&P, (x) 3.00% for such Eurodollar term loans and (y) 2.00% for such ABR term loans or (ii) at all other times, (x) 3.25% for such Eurodollar term loans and (y) 2.25% for such ABR term loans. Interest on the Term Loan is payable on (1) in the case of such ABR term loans, the last day of each calendar quarter and (2) in the case of such Eurodollar term loans, the last day of each relevant interest period and, in the case of any interest period longer than three months, on each successive date three months after the first day of such interest period.
At December 27, 2024, the Company had an outstanding amount under the Term Loan of $493.8 million, gross of unamortized debt issuance costs of $7.2 million. As of December 27, 2024, the interest rate on the outstanding Term Loan was 7.8%.
Table of Contents
The Credit Agreement requires the Company to maintain certain financial covenants including a consolidated fixed charge coverage ratio and a consolidated leverage ratio (as defined in the Credit Agreement) as of the last day of any fiscal quarter. The Company currently has no revolving loans outstanding under the Credit Agreement. The Company was in compliance with all financial covenants as of the fiscal year ended December 27, 2024.
The Company has a credit agreement with a local bank in the Czechia that provides for a revolving credit facility in the aggregate of up to 7.0 million euros (approximately $7.3 million). As of December 27, 2024, no debt was outstanding under this revolving credit facility.
Fluid Solutions has a credit facility with a financial institution in Israel that provides borrowing up to $6.0 million. As of December 27, 2024, Fluid Solutions had an $5.9 million outstanding balance under this facility with interest rate of 6.7%.
As of December 27, 2024, the Company’s total bank debt was $492.5 million, net of unamortized debt issuance costs of $7.2 million. As of December 27, 2024, the Company had $146.5 million, $0.1 million and $7.3 million available to draw from its credit facilities in the U.S., Israel and Czechia, respectively.
The fair value of the Company’s long-term debt was based on Level 2 inputs, and fair value was determined using quoted prices for similar liabilities in inactive markets. The Company’s carrying value approximates fair value for the Company’s long term-debt.
As of December 27, 2024, the Company’s future debt principal payment obligations for the respective fiscal years were as follows:
| (In millions) | Debt<br>(Principal only) | |
|---|---|---|
| 2025 | $ | 18.3 |
| 2026 | 12.3 | |
| 2027 | 12.3 | |
| 2028 | 456.8 | |
| Total | $ | 499.7 |
8. INCOME TAXES
Income before provision for income taxes was generated from the following geographic areas:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | |||
| United States | $ | (106.4) | $ | (133.5) | $ | (61.9) |
| Foreign | 173.6 | 122.2 | 150.2 | |||
| Total pretax income | $ | 67.2 | $ | (11.3) | $ | 88.3 |
The provision for income taxes consisted of the following:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | |||
| Current: | ||||||
| Federal | $ | (0.1) | $ | 0.1 | $ | (0.8) |
| State | 0.5 | 0.3 | 1.1 | |||
| Foreign | 35.1 | 22.7 | 37.5 | |||
| Total current | 35.5 | 23.1 | 37.8 | |||
| Deferred: | ||||||
| Federal | 0.4 | (9.4) | 0.3 | |||
| State | 0.1 | (1.5) | 0.2 | |||
| Foreign | (3.3) | (1.3) | (0.4) | |||
| Total deferred | (2.8) | (12.2) | 0.1 | |||
| Total provision | $ | 32.7 | $ | 10.9 | $ | 37.9 |
Table of Contents
The effective tax rate differs from the U.S. federal statutory tax rate as follows:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| December 27, 2024 | December 29, 2023 | December 30, 2022 | ||||
| Federal income tax provision at statutory rate | 21.0 | % | 21.0 | % | 21.0 | % |
| State income taxes, net of federal benefit | (8.1) | % | 48.5 | % | (1.6) | % |
| Effect of foreign operations | (11.0) | % | 21.5 | % | (6.7) | % |
| Change in valuation allowance | 37.4 | % | (34.0) | % | 24.3 | % |
| Foreign income inclusions | 18.9 | % | (141.2) | % | 4.0 | % |
| Nondeductible executive compensation | 1.4 | % | (7.0) | % | 1.8 | % |
| Stock-based compensation | (0.5) | % | (3.7) | % | (0.3) | % |
| Acquisition related expenses | (9.1) | % | (8.0) | % | — | |
| Tax credits | (0.7) | % | 6.2 | % | (0.7) | % |
| Tax reserves | (1.5) | % | (0.1) | % | 1.1 | % |
| Other | 0.9 | % | 0.3 | % | — | % |
| Effective Tax Rate | 48.7 | % | (96.5) | % | 42.9 | % |
Significant components of deferred tax assets and liabilities are as follows:
| Year Ended | ||||
|---|---|---|---|---|
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | ||
| Deferred tax assets: | ||||
| Interest expense limitation | $ | 39.5 | $ | 29.4 |
| Operating lease liabilities | 28.3 | 27.3 | ||
| Tax loss carryforwards | 40.4 | 19.9 | ||
| Capitalized research and development costs | 12.5 | 10.9 | ||
| Inventory valuation and basis difference | 7.4 | 5.3 | ||
| Accruals | 4.6 | 4.4 | ||
| Tax credits | 6.5 | 7.3 | ||
| Other timing differences | 8.2 | 7.1 | ||
| 147.4 | 111.6 | |||
| Valuation allowance | (96.3) | (57.9) | ||
| Total deferred tax assets | 51.1 | 53.7 | ||
| Deferred tax liabilities: | ||||
| Goodwill | (21.7) | (19.7) | ||
| Operating lease right-of-use assets | (27.2) | (26.1) | ||
| Intangibles | (9.6) | (12.9) | ||
| Depreciation | (3.6) | (9.0) | ||
| Other | (2.0) | (1.9) | ||
| Total deferred tax liabilities | (64.1) | (69.6) | ||
| Net deferred tax liabilities | $ | (13.0) | $ | (15.9) |
As of December 27, 2024, the Company had undistributed earnings of certain foreign subsidiaries of approximately $555.0 million that are considered indefinitely reinvested and on which we have not recognized deferred taxes. It is not practicable to determine the tax liability that might be incurred if these earnings were to be distributed. For undistributed earnings of foreign subsidiaries which are not considered indefinitely reinvested deferred taxes have been accrued.
As of December 27, 2024, a valuation allowance of $96.3 million was established for deferred tax assets related to U.S. federal and state assets and certain foreign assets. For fiscal 2024, the valuation allowance increased by $38.4 million. The increase in the valuation allowance is primarily due to an increase in deferred tax assets attributable to U.S. taxable losses
Table of Contents
and additional capital losses recognized by one of our subsidiaries in Israel on its income tax return related to divestitures of certain of its subsidiaries.
The Company’s gross liability for unrecognized tax benefits as of December 27, 2024 and December 29, 2023 was $2.3 million and $2.9 million, respectively. If the remaining balance of unrecognized tax benefits were recognized in a future period, it would result in a tax benefit of $1.4 million as of December 27, 2024 ($2.1 million as of December 29, 2023) and a reduction in the effective tax rate. Increases or decreases to interest and penalties on uncertain tax positions are included in the income tax provision in the Consolidated Statements of Operations. Interest related to uncertain tax positions for the periods ended December 27, 2024, December 29, 2023 and December 30, 2022, was not material. There are no penalties accrued within the liability for unrecognized benefits.
Although it is possible some of the unrecognized tax benefits could be settled within the next twelve months, the Company cannot reasonably estimate the outcome at this time.
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in millions):
| Balance as of December 31, 2021 | $ | 1.6 |
|---|---|---|
| Increases related to prior year tax positions | 0.1 | |
| Increases related to current year tax positions | 1.0 | |
| Balance at December 30, 2022 | $ | 2.7 |
| Increases related to current year tax positions | 0.3 | |
| Settlement | (0.1) | |
| Balance at December 29, 2023 | $ | 2.9 |
| Increases related to prior year tax positions | 0.1 | |
| Increases related to current year tax positions | 0.5 | |
| Reduction due to lapse statute of limitations | (1.2) | |
| Balance at December 27, 2024 | $ | 2.3 |
As of December 27, 2024, the Company had U.S. federal, state and foreign net operating loss carryforwards (“NOLs”) of approximately $53.9 million, $169.2 million and $18.9 million, respectively. The Company's U.S. valuation allowance includes the deferred tax asset on the NOL carryforwards. The U.S. federal NOL’s can be carried forward indefinitely. The state NOLs begin expiring after 2029 and the foreign NOLs begin expiring after 2026. The Company also had federal tax credit carryforwards of approximately $7.3 million which expire in various years from fiscal 2028 through 2044. As of December 27, 2024, the Company had a foreign capital loss carryforward of approximately $56.4 million which can be carried forward indefinitely. The Company’s foreign valuation allowance includes the deferred tax asset on the capital loss carryforward.
The Company files federal, state and foreign income tax returns in several U.S. and foreign jurisdictions. The federal statute of limitation has closed for years prior to 2021. State statutes of limitation are generally closed for years prior to 2020. The statute of limitation for significant foreign jurisdictions has closed for years prior to 2020.
The Company is operating under a Development and Expansion Incentive (“DEI”) in Singapore that is in effect through 2028. The DEI reduces the local tax on certain Singapore income from a statutory rate of 17% to 5% until December 31, 2025 and 6% from 2026 through 2028. The Company has also been granted a tax holiday in Malaysia, subject to certain conditions. The Malaysia tax holiday period which provides a zero rate of tax on qualifying income commenced in fiscal year 2022 and is effective through February 28, 2037. The tax holidays in Singapore and Malaysia are conditional upon meeting certain employment and investment thresholds. The Singapore DEI decreased foreign taxes by $5.4 million, $4.1 million, and $11.9 million for fiscal years 2024, 2023 and 2022, respectively. The tax benefit of the Singapore DEI on net income per share (diluted) was approximately $0.12, $0.09 and $0.26 in fiscal years 2024, 2023 and 2022, respectively. The benefit of the tax holiday in Malaysia is zero for fiscal years 2024, 2023 and 2022 due to losses incurred in these years.
9. RETIREMENT PLANS
Defined Benefit Plan
Cinos Korea has a noncontributory defined benefit pension plan covering substantially all of its employees upon their retirement. The Company's entities in Israel also have noncontributory defined benefit pension plans covering their employees upon their retirement. The benefits for these plans are based on expected years of service and average compensation. The net period costs are recognized as employees render the services necessary to earn the postretirement benefits. The Company records annual amounts relating to the pension plan based on calculations that incorporate various
Table of Contents
actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases and turnover rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current and expected rates of return and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income and amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under the plans are reasonable based on its experience and market conditions.
As of December 27, 2024, the benefit obligation of the plans was $12.3 million and the fair value of the benefit plan assets was $10.6 million which are invested in several fixed deposit accounts with financial institutions. As of December 27, 2024, the underfunded balance of the plans of $1.7 million has been recorded by the Company and is included in other liabilities.
Amounts recognized in the Consolidated Statement of Operations for the years ended December 27, 2024 and December 29, 2023 was $1.7 million and $1.9 million, respectively. The amount recognized in accumulated other comprehensive income was $1.0 million and $0.4 million for fiscal year ended December 27, 2024 and December 29, 2023, respectively. The Company and its subsidiaries contributed $1.0 million and $1.5 million during the fiscal year ended December 27, 2024 and December 29, 2023, respectively.
As of December 27, 2024, the Company’s future payment obligations for the respective fiscal years are as follows:
| (In millions) | ||
|---|---|---|
| 2025 | $ | 1.7 |
| 2026 | 1.7 | |
| 2027 | 2.6 | |
| 2028 | 1.3 | |
| 2029 | 1.2 | |
| Thereafter | 11.2 | |
| Total | $ | 19.7 |
Employee Savings and Retirement Plan
The Company sponsors a 401(k) savings and retirement plan (the “401(k) Plan”) for all U.S. employees who meet certain eligibility requirements. Participants can elect to contribute to the 401(k) Plan, on a pre-tax basis, up to 25% of their salary to a maximum of the IRS limit. The Company matches 50% of each employee's contribution up to a maximum of 6% of the employee's eligible earnings. The Company made discretionary employer contributions of approximately $3.5 million, $3.2 million and $3.3 million to the 401(k) Plan in 2024, 2023 and 2022, respectively.
10. COMMITMENTS AND CONTINGENCIES
Commitment
The Company leases real estate and equipment under various non-cancelable operating leases. For additional information, see Note 14 of the Notes to the Consolidated Financial Statements.
Contingency
From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims individually or in the aggregate cannot be predicted with certainty, the Company has not had a history of outcomes to date that have been material to the statement of operations and does not believe that any of these proceedings or other claims will have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
11. STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS
Treasury Stock
On October 20, 2022, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $150 million of the Company’s common stock over a three-year period. No shares were repurchased under this program in fiscal year 2024. In fiscal years 2023 and 2022, approximately 1.1 million and 0.3 million shares were repurchased under this program with an aggregate cost of $29.4 million and $12.1 million and an average price of $29.16 and $35.31 per share, respectively
Table of Contents
As of December 27, 2024, 1.4 million shares had been repurchased under the program and they are held in treasury stock. The Company records treasury stock using the cost method. The Company may reissue these treasury shares as part of its stock-based compensation programs.
Non-controlling Interests
The Company owns part of the outstanding shares of Cinos Korea, a South Korean company that provides outsourced cleaning and recycling of precision parts for the semiconductor industry through its operating facilities in South Korea and through a partial interest in Cinos China.
The carrying value of the remaining interest held by another shareholder in Cinos Korea and the remaining interest in Cinos China are presented as noncontrolling interests in the accompanying Consolidated Financial Statements. The noncontrolling interests were estimated based on the values of Cinos Korea and Cinos China on a 100% basis. The values were calculated based on the pro-rata portion of total Services earnings before interest expense, taxes, depreciation and amortization contributed by each entity.
12. EMPLOYEE STOCK PLANS
Employee Stock Plans
The Company grants stock awards in the form of restricted stock units (“RSUs”) and performance stock units (“PSUs”) to its employees as part of the Company’s long-term equity compensation plan. These stock awards are granted to employees with a unit purchase price of zero dollars and typically vest over three years, subject to the employee’s continued service with the Company and, in the case of PSUs, subject to achieving certain performance goals and market conditions. The Company also grants common stock to its board members in the form of restricted stock awards (“RSAs”), which vest on the earlier of the next Annual Shareholder Meeting, or 365 days from date of grant. The aggregate number of shares authorized for issuance under the plan is 12,555,695.
Stock-based compensation expense includes compensation costs related to estimated fair values of awards granted. The estimated fair value of the Company’s equity-based awards is amortized on a straight-line basis over the awards’ vesting period and is adjusted for performance as it relates to PSUs.
The following table shows the Company's stock-based compensation included in the Consolidated Statements of Operations:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | |||
| Cost of revenues (1) | $ | 1.6 | $ | 1.3 | $ | 1.5 |
| Research and development | 0.3 | 0.3 | 0.3 | |||
| Sales and marketing | 1.9 | 1.5 | 1.3 | |||
| General and administrative | 13.6 | 9.0 | 16.0 | |||
| Total stock-based compensation | $ | 17.4 | $ | 12.1 | $ | 19.1 |
_____________________________________________________________________________________
(1)Stock-based compensation expenses capitalized in inventory for fiscal years 2024, 2023 and 2022 were immaterial.
As of December 27, 2024, there was $27.0 million of unrecognized compensation cost related to employee awards which is expected to be recognized on a straight-line basis over a weighted average period of approximately 1.7 years, and will be adjusted for subsequent changes in future grants.
For each of the fiscal years ended 2024, 2023 and 2022, vested shares of 0.1 million were withheld to satisfy withholding tax obligations, resulting in the net issuance of 0.5 million, 0.5 million and 0.6 million shares, respectively.
Table of Contents
Restricted Stock Units, Performance Stock Units and Restricted Stock Awards
The following table summarizes the Company’s PSUs, RSUs and RSAs activities through the year ended December 27, 2024:
| Number of Shares | Aggregate<br>Intrinsic<br>Value<br>(In millions) | ||
|---|---|---|---|
| Unvested restricted stock units and restricted stock awards at December 30, 2022 | 1.1 | $ | 37.6 |
| Granted | 0.8 | ||
| Vested | (0.5) | ||
| Forfeited | 0.0 | ||
| Unvested restricted stock units and restricted stock awards at December 29, 2023 | 1.4 | $ | 46.1 |
| Granted | 0.7 | ||
| Vested | (0.5) | ||
| Forfeited | (0.2) | ||
| Unvested restricted stock units and restricted stock awards at December 27, 2024 | 1.4 | $ | 52.0 |
| Vested and expected to vest restricted stock units and restricted stock awards | 1.4 | $ | 51.9 |
During the year ended December 27, 2024, the Company approved and granted 0.6 million RSUs to employees valued at $22.8 million with a weighted average grant date fair value of $40.83 per share.
During the year ended December 27, 2024, the Company also approved and granted 0.1 million PSUs valued at $5.3 million with a weighted average grant date fair value of $42.23 per share.
The total fair value of shares vested during the fiscal year 2024 was $17.5 million for RSUs and $0.7 million for PSUs.
Under the current PSU program, performance goals are set at the time of grant and performance is reviewed at the end of a three-year period. The percentage to be applied to each participant’s target award ranges from zero to 200% based upon the extent to which the financial performance goals are achieved. If specific performance threshold levels for the financial goals are met on an annual basis, the amount earned for that element will be applied to one-third of the participant’s PSU award granted to determine the number of total units earned.
At the end of the three-year performance period, the total units earned, if any, are adjusted by applying two modifiers, each ranging from 25.0% to (25.0%)% based on (i) the Company’s relative total shareholder return (“TSR”) compounded annual growth rate (“CAGR”) which is based on the Company’s stock price changes relative to a group of peer companies and (ii) the “average annual difference in operating margin” is defined as non-GAAP operating margin divided by total revenue comparing the annual operating plan to actual results.
The TSR modifier is intended to ensure that there are limited or no payouts under the PSU program if the Company’s stock performance is significantly below the median TSR. Where the financial goals have been met and where there has been strong relative TSR performance over the three-year performance period, the PSU program may provide substantial rewards to participants with a maximum payout of two times the initial PSU award.
Recipients of PSU awards generally must remain employed by the Company on a continuous basis through the end of the three-year performance period in order to receive any amount of the PSUs covered by that award. In events such as death, disability or retirement, the recipient may be entitled to pro-rata amounts of PSUs as defined in the Plan. Target shares subject to PSU awards do not have voting rights of common stock until earned and issued following the end of the three-year performance period.
For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation model and recognized over the requisite service period based on the expected market performance as of the grant date. For the PSU
Table of Contents
awards, the Company used the following inputs for the Monte Carlo simulation:
| Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | |||||||
| Stock price | $ | 40.82 | $ | 28.19 | $ | 32.17 | |||
| Term | 2.68 years | 2.68 years | 2.68 years | ||||||
| Expected volatilities | 50.6 | % | 57.4 | % | 65.9 | % | |||
| Risk-free rate | 4.8 | % | 3.9 | % | 2.7 | % |
In fiscal year 2024, the Company granted 25,529 common stock valued at $1.2 million with a weighted average date fair value of $46.17 per share to its board members under the 2003 Incentive Plan. The total fair value of shares vested during the fiscal year 2024 was $1.7 million for RSAs. The total unamortized expense of the Company’s unvested RSAs as of December 27, 2024, is approximately $0.5 million.
Employee Stock Purchase Plan
The ESPP permits employees to purchase common stock at a discount through payroll withholdings at certain specified dates (purchase period) within a defined offering period. The purchase price is 85% of the fair market value of the common stock at the end of the purchase period and is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. The aggregate number of shares authorized for issuance under the plan is 1,055,343.
There were 79,072 shares issued under the ESPP during the year ended December 27, 2024.
The Company recorded $0.7 million, $0.4 million and $0.1 million of stock-based compensation expense related to ESPP for fiscal years 2024, 2023 and 2022, respectively.
13. REVENUE RECOGNITION
Revenue is recognized when the Company satisfies the performance obligations as evidenced by the transfer of control of the promised goods or services to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company sells its products and services primarily to customers in the semiconductor capital equipment industry. The Company’s revenues are highly concentrated and therefore highly dependent upon a small number of customers. Typical payment terms with our customers range from thirty to sixty days.
The Company’s Products business segment provides 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. Determination of the warranty reserve 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 revenues may be required in future periods. The warranty reserve is included in other current liabilities on the Consolidated Balance Sheets and is not considered significant.
The Company’s products are manufactured and services provided at the Company's locations throughout the Americas, Asia Pacific and Europe and the Middle East (“EMEA”). Sales to customers are initiated through a purchase order and are governed by our standard terms and conditions, written agreements, or both. Revenue is recognized when performance obligations under the terms of an agreement with a customer are satisfied; generally, this occurs with the transfer of control of the products or when the Company provides the services. Based on the enforceable rights included in our agreements or prevailing terms and conditions, products produced by the Company without an alternative use are not protected by an enforceable right of payment that includes a reasonable profit throughout the duration of the agreement. Consignment sales are recognized in revenue at the earlier of the period that the goods are consumed or after a period of time subsequent to receipt by the customer as specified by terms of the agreement, provided control of the promised goods or services has transferred.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value-add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Certain of our customers may receive cash-based incentives, such as rebates or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. Accruals for unpaid customer rebates of $2.3 million and $2.0 million as of December 27, 2024 and December 29, 2023, respectively, were netted against accounts receivable. The Company's disaggregated revenues are apportioned by segments within the Company's Consolidated Statement of Operations. Certain services performed by the
Table of Contents
Company related to products sold to customers are included in Products revenue in the Consolidated Statement of Operations. These services are not material for any of the years presented.
The Company’s principal markets include Americas, Asia Pacific and EMEA. The Company’s foreign operations are conducted primarily through its subsidiaries in China, Malaysia, Singapore, Israel, Taiwan, South Korea, the United Kingdom and the Czechia. Revenues by geographic area are categorized based on the customer’s location to which the products were shipped or services were performed. The following table sets forth revenue by geographic area (in millions):
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | ||||
| Singapore | $ | 711.5 | $ | 608.7 | $ | 898.9 |
| United States | 566.5 | 526.8 | 738.0 | |||
| Austria | 178.4 | 124.9 | 117.2 | |||
| China | 214.7 | 118.1 | 131.4 | |||
| South Korea | 103.0 | 94.2 | 151.4 | |||
| Taiwan | 82.4 | 71.3 | 97.2 | |||
| Others | 241.1 | 190.5 | 240.2 | |||
| Total | $ | 2,097.6 | $ | 1,734.5 | $ | 2,374.3 |
The Company’s most significant customers (having individually accounted for 10% or more of revenues) are from Products segment and their related revenues as a percentage of total revenues were as follows:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||
| Lam Research Corporation | 31.9 | % | 34.0 | % | 39.5 | % |
| Applied Materials, Inc. | 22.6 | 23.4 | 23.2 | |||
| Total | 54.5 | % | 57.4 | % | 62.7 | % |
Three customers’ gross accounts receivable balances, Applied Materials, Inc., Lam Research Corporation and ASML Holding NV were individually greater than 10.0% of gross accounts receivable as of December 27, 2024, in the aggregate approximately 41.9% of the Company's total accounts receivable.
Two customers’ gross accounts receivable balances, Lam Research Corporation and Applied Materials, Inc. were individually greater than 10.0% of gross accounts receivable as of December 29, 2023, in the aggregate approximately 26.8% of accounts receivable.
14. LEASES
The Company leases offices, facilities and equipment in locations throughout the United States, Asia Pacific and EMEA. The Company’s leases do not provide an implicit rate; thus, the Company uses an estimated incremental borrowing rate in determining the present value of lease payments. Renewal options are typically solely at our discretion and are only included within the lease obligation and right-of-use asset when we are reasonably certain that the renewal options would be exercised. The components of lease expense were summarized as follows:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (Dollars in millions) | December 27, 2024 | December 29, 2023 | ||||
| Operating lease cost | $ | 32.1 | $ | 25.6 | ||
| Short-term lease cost | 2.5 | 2.7 | ||||
| Sublease income | (0.8) | (0.4) | ||||
| Total lease cost | $ | 33.8 | $ | 27.9 | ||
| Operating cash flows used in operating leases | $ | 29.9 | $ | 24.0 | ||
| Weighted-average remaining lease term – operating leases | 9.8 years | 10.1 years | ||||
| Weighted-average discount rate – operating leases | 7.2 | % | 6.7 | % |
Table of Contents
Future minimum payments under operating leases as of December 27, 2024 were summarized as follows:
| (In millions) | Operating Leases | |
|---|---|---|
| 2025 | $ | 29.9 |
| 2026 | 25.8 | |
| 2027 | 25.2 | |
| 2028 | 22.5 | |
| 2029 | 21.4 | |
| Thereafter | 116.0 | |
| Total minimum lease payments | 240.8 | |
| Less: imputed interest | (73.0) | |
| Lease liability | $ | 167.8 |
15. NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per share:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (In millions, except share amounts) | December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | |||
| Numerator: | ||||||
| Net income (loss) attributable to UCT | $ | 23.7 | $ | (31.1) | $ | 40.4 |
| Denominator: | ||||||
| Shares used in computation — basic: | ||||||
| Weighted average common shares outstanding | 44.9 | 44.7 | 45.2 | |||
| Shares used in computation — diluted: | ||||||
| Weighted average common shares outstanding | 44.9 | 44.7 | 45.2 | |||
| Dilutive effect of common shares outstanding subject to repurchase | 0.4 | — | 0.5 | |||
| Shares used in computing diluted net income (loss) per share | 45.3 | 44.7 | 45.7 | |||
| Net income (loss) per share attributable to UCT — basic | $ | 0.53 | $ | (0.70) | $ | 0.89 |
| Net income (loss) per share attributable to UCT — diluted | $ | 0.52 | $ | (0.70) | $ | 0.88 |
Table of Contents
16. REPORTABLE SEGMENTS
The Company’s Chief Executive Officer is the Company's chief operating decision maker (CODM). The CODM primarily uses income from operations to evaluate each segment's performance and allocate resources, primarily through periodic budgeting and segment performance reviews. Significant expenses within segment operating profit include cost of revenue, research and development, and selling, general and administrative expenses, which are each separately presented on the Company’s Consolidated Statements of Operations.
The Company’s reportable segments are determined based on the nature of their revenue streams and the Company’s internal organization structure.
In fiscal year 2024, the Company prepared financial results based on two operating segments (Products and Services) and two reportable segments (Products and Services).
In fiscal year 2023, the Company prepared financial results based on three operating segments (Products, Services, and HIS) and two reportable segments (Products and Services). The Products and HIS operating segments were aggregated into the Products reportable segment. During fiscal year 2024, the Company no longer reported discrete financial information related to the HIS operating segment to the Chief Executive Officer, and therefore, HIS no longer represented an operating segment.
The following table describes each segment:
| Segment | Product or Services | Primary Markets Served | Geographic Areas |
|---|---|---|---|
| Products | Assembly<br>Weldments<br>Machining<br>Fabrication | Semiconductor | Americas<br>Asia Pacific<br>EMEA |
| Services | Cleaning<br>Coating<br>Analytics | Semiconductor | Americas<br>Asia Pacific<br>EMEA |
The CODM uses segment operating profit or loss to evaluate performance and to allocate capital resources. Segment operating profit or loss is defined as a segment’s income or loss from continuing operations before interest and other income (expense), net and provision for income taxes. Any intercompany sales and associated profit (and any other intercompany items) are eliminated from segment results.
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (In millions) | December 27,<br>2024 | December 29,<br>2023 | December 30,<br>2022 | |||
| Revenues: | ||||||
| Products | $ | 1,853.7 | $ | 1,501.6 | $ | 2,074.7 |
| Services | 243.9 | 232.9 | 299.6 | |||
| Total segment revenues | $ | 2,097.6 | $ | 1,734.5 | $ | 2,374.3 |
| Cost of revenues: | ||||||
| Product | $ | 1,569.7 | $ | 1,290.5 | $ | 1,712.3 |
| Services | 171.6 | 166.7 | 197.0 | |||
| Total segment cost of revenues | $ | 1,741.3 | $ | 1,457.2 | $ | 1,909.3 |
Table of Contents
| Operating expenses: | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Products | ||||||||||||
| Research and development | $ | 18.8 | $ | 17.8 | $ | 17.6 | ||||||
| Sales and marketing | 46.7 | 41.4 | 43.9 | |||||||||
| General and administrative | 139.1 | 122.0 | 210.4 | |||||||||
| Total Products operating expenses | $ | 204.6 | $ | 181.2 | $ | 271.9 | ||||||
| Services | ||||||||||||
| Research and development | $ | 9.5 | $ | 10.5 | $ | 10.9 | ||||||
| Sales and marketing | 10.6 | 10.4 | 10.5 | |||||||||
| General and administrative | 40.4 | 40.0 | 51.3 | |||||||||
| Total Services operating expenses | 60.5 | 60.9 | 72.7 | |||||||||
| Total segment operating expenses | $ | 265.1 | $ | 242.1 | $ | 344.6 | ||||||
| Segment operating profit: | ||||||||||||
| Products | $ | 79.4 | $ | 29.9 | $ | 90.4 | ||||||
| Services | 11.8 | 5.3 | 30.0 | |||||||||
| Total segment operating profit | $ | 91.2 | $ | 35.2 | $ | 120.4 | ||||||
| Reconciliation of segment operating profit: | ||||||||||||
| Total segment operating profit | $ | 91.2 | $ | 35.2 | $ | 120.4 | ||||||
| Interest income | 4.8 | 4.1 | 0.9 | |||||||||
| Interest expense | (46.5) | (48.8) | (33.9) | |||||||||
| Other income (expense), net | 17.7 | (1.8) | 0.9 | |||||||||
| Income (loss) before provision for income taxes | $ | 67.2 | $ | (11.3) | $ | 88.3 | ||||||
| Expenditures for segment property, plant and equipment | ||||||||||||
| Products | $ | 40.4 | $ | 62.4 | $ | 67.8 | ||||||
| Services | 23.1 | 13.4 | 32.3 | |||||||||
| Total expenditures for segment assets | $ | 63.5 | $ | 75.8 | $ | 100.1 | ||||||
| Depreciation and amortization | ||||||||||||
| Products | $ | 51.3 | $ | 36.4 | $ | 36.3 | ||||||
| Services | 24.8 | 25.3 | 32.1 | |||||||||
| Total depreciation and amortization | $ | 76.1 | $ | 61.7 | $ | 68.4 | (In millions) | December 27,<br>2024 | December 29,<br>2023 | |||
| --- | --- | --- | --- | --- | ||||||||
| Assets | ||||||||||||
| Products | $ | 1,657.0 | $ | 1,617.5 | ||||||||
| Services | 262.9 | 250.2 | ||||||||||
| Total segment assets | $ | 1,919.9 | $ | 1,867.7 |
Long-lived assets comprise of operating lease right-of-use assets and property, plant and equipment, net, reported based on the location of the asset. The carrying amount of long-lived assets in United States, Malaysia, Israel, South Korea and other foreign countries were $176.9 million, $83.2 million, $75.2 million, $49.8 million and $101.8 million, respectively as of December 27, 2024, and $165.4 million, $84.3 million, $74.3 million, $54.3 million and $101.7 million, respectively as of December 29, 2023.
Table of Contents
17. GOVERNMENT SUBSIDIES
In September 2021, the Company’s manufacturing operations in Singapore have been awarded a grant for up to $1.7 million from the Singapore Economic Development Board, which provides incentive grant payments for research and innovation scheme for the Company in Singapore. Under this agreement, the Company recorded subsidies of $0.2 million in fiscal year 2024, $0.8 million in fiscal year 2023 and $0.4 million in fiscal year 2022. These subsidies were recorded as an offset to cost of revenues and other operating expenses.
The Company also received unconditional subsidies of $0.4 million, $1.9 million and $1.0 million from the Chinese government during fiscal years 2024, 2023 and 2022, respectively. These subsidies were recognized as other income (expense), net in the Consolidated Statements of Operations.
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, our chief executive officer and our chief financial officer concluded the disclosure controls and procedures were not effective as of December 27, 2024, the end of the period covered by this Annual Report on Form 10-K, due to material weaknesses in internal control over financial reporting described below.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of December 27, 2024 using the criteria described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of the material weaknesses described below, management concluded that the Company did not maintain effective internal control over financial reporting as of December 27, 2024.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The Company did not design and maintain effective controls relating to the: (i) sufficiency of processes related to identifying and analyzing risks to the achievement of objectives across the Company, (ii) sufficiency of competent personnel to analyze risks of material misstatement and develop internal control activities to support the achievement of the Company’s internal control objectives; and (iii) monitoring of control activities in accordance with established policies in a timely manner.
These material weaknesses contributed to the following additional material weaknesses:
(a) The Company did not design and maintain effective information technology (“IT”) general controls for certain information systems that are relevant to the preparation of its consolidated financial statements. Specifically, for certain of the Fluid Solutions operating subsidiaries in the Products segment which have not been migrated to the Company’s primary ERP system, the Company did not design and maintain (i) program change management controls to ensure that IT program and data changes are identified, tested, authorized and implemented appropriately, and (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate company personnel.
(b) The Company did not design and maintain effective controls for certain other international operating subsidiaries in the Products segment. Specifically, the Company did not design and maintain effective segregation of duties controls across various business processes, including journal entries.
The material weaknesses described above did not result in any material misstatements to annual or interim consolidated financial statements. However, these material weaknesses could result in misstatements of our consolidated financial statements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
The effectiveness of the Company’s internal control over financial reporting as of December 27, 2024 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8.
Table of Contents
Remediation Plan and Progress
Management has been executing and remains committed to implementing measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively.
In response to all unremediated material weaknesses, management has taken the following actions:
•engaged an external advisor to assist with evaluating and documenting the design and operating effectiveness of internal controls and to assist with the remediation of deficiencies, as necessary,
•hired additional IT, accounting, and finance personnel to support our remediation efforts, including a Vice President of Internal Audit, as well as third-party resources with relevant expertise to augment our internal resources,
•formalized roles and responsibilities within the organization to establish ownership of workstreams to identify and analyze risks of material misstatement, develop internal control activities to support the achievement of the Company’s internal control objectives, and monitor the effective performance of those control objectives,
•performed an entity-wide risk assessment of information technology systems and business processes by operating subsidiary, and
•assessed the specific training needs for newly hired and existing personnel and developed and delivered training programs designed to support our internal controls.
In response to the material weakness “(a)” management has taken the following actions:
•in process of designing and implementing change management and user access review controls for relevant information technology systems at certain Fluid Solutions operating subsidiaries not yet migrated to our primary ERP system. Management also continues to design and implement other user access controls to ensure appropriate segregation of duties that adequately restrict user access to our financial applications and data to appropriate company personnel.
In response to the material weakness “(b)” management has taken the following actions:
•in process of designing and implementing controls over segregation of duties assessments to identify key conflicts, establishing policies and procedures to maintain effective segregation of duties, and identifying and implementing mitigating controls for any key conflicts identified for certain other international operating subsidiaries in the Products segment which have not been migrated to the Company’s primary ERP system.
As we continue to evaluate and work to improve our internal control over financial reporting, we may decide to take additional measures to address the material weaknesses or modify the remediation plans described above. We believe that these actions will remediate the material weaknesses, however the material weaknesses will not be considered remediated until we conclude all measures necessary to remediate the material weaknesses have been designed, implemented, and the applicable controls have operated for a sufficient period of time, and management has concluded, through testing, that these controls are designed and operating effectively. While management believes that the aforementioned plans will remediate the material weaknesses, there is no assurance on the exact timing of the completion of the remediation.
Remediation of Previously Reported Material Weaknesses
We previously disclosed material weaknesses in our internal control over financial reporting related to the following:
•the design of controls to determine the valuation of inventories, including the write down of inventory to its estimated market value less costs to sell and the validation and approval of inventory costing,
•the design of controls to validate the accuracy of certain data used within the operation of controls which affects substantially all financial statement account balances and disclosures, and
•the design of controls related to the review of cash flow forecasts used in the valuation of certain assets and liabilities acquired in a business combination. Specifically, the control activities related to the review of the inputs and assumptions utilized to develop the cash flow forecasts used in the valuation of acquired intangible assets and contingent earn-out liabilities were not designed at an appropriate level of precision.
During the quarter ended September 27, 2024, we completed the following activities as part of remediating these material weaknesses:
Table of Contents
•designed and implemented controls over valuation of inventories, including review and assessment of the methodology for the valuation of inventories, including the write down of inventory to its estimated market value less costs to sell,
•designed and implemented controls over validation and approval of inventory costing,
•established ongoing education and training of control owners on how to assess the accuracy and completeness of relevant data used within the operation of controls, including the adequate levels of evidence and documentation required to support such procedures,
•designed and implemented an additional control activity in each IT dependent manual control to validate the accuracy of data used within the operation of controls,
•designed and implemented controls over the review of cash flow forecasts utilized in the valuation of contingent earn-out liabilities including review of the inputs and assumptions utilized to develop the cash flow forecasts at an appropriate level of precision, and
•designed controls that stand ready to operate in a future business combination to review the inputs and assumptions utilized to develop the cash flow forecasts in the valuation of intangible assets at an appropriate level of precision.
During the quarter ended December 27, 2024, we completed our testing of both the design and operating effectiveness of these controls and have determined that controls operated for a sufficient period of time for management to conclude that these material weaknesses have been remediated as of December 27, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal fourth quarter ended December 27, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
Table of Contents
PART III
Pursuant to Paragraph G (3) of the General Instructions to Form 10-K, portions of the information required by Part III of Form 10-K are incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our December 27, 2024 Annual Meeting of Stockholders.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item concerning directors and corporate governance is incorporated by reference to the section entitled, “Election of Directors” in our Proxy Statement for the December 27, 2024 Annual Meeting of Stockholders.
For information with respect to Executive Officers, see Part I, Item 1 of this Annual Report on Form 10-K, under “Executive Officers.”
The information required by this item with respect to Section 16(a) beneficial reporting compliance is incorporated by reference to the section entitled, “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the December 27, 2024 Annual Meeting of Stockholders.
We have adopted a Code of Business Conduct and Ethics that is designed to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. This code of ethics is available on our website at www.uct.com. To the extent required by law, any amendments to, or waivers from, any provision of the code of ethics will be promptly disclosed to the public. To the extent permitted by such legal requirements, we intend to make such public disclosure by posting the relative material on our website in accordance with SEC rules.
Insider Trading Policies and Procedures
We have adopted insider trading policies and procedures governing the purchase, sale and other dispositions of our securities by directors, officers and employees that are designed to promote compliance with insider trading laws, rules and regulations, and applicable NASDAQ listing standards, as well as procedures designed to further the foregoing purposes. A copy of our insider trading policy is filed with this Annual Report on Form 10-K as Exhibit 19.1.
Item 11. Executive Compensation
The information required by this item regarding the security ownership of certain beneficial owners is incorporated by reference to the sections entitled “Executive Officer Compensation” and “Election of Directors” in our Proxy Statement for the December 27, 2024 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the sections entitled “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement for the December 27, 2024 Annual Meeting of Stockholders.
The table below summarizes our equity plan information as of December 27, 2024:
| (Shares in millions)<br>Plan Category | (a)<br>Number of Securities<br>to be Issued Upon<br>Exercise/Vest of<br>Outstanding Options,<br>Awards<br>Warrants and Rights | (b)<br>Weighted-Average<br>Exercise Price of<br>Outstanding<br>Options, Warrants<br>and Rights | (c) (1)<br>Number of Securities<br>Remaining Available<br>for Future Issuance<br>Under Equity<br>Compensation Plans<br>(Excluding<br>Securities Reflected<br>in Column (a) | |
|---|---|---|---|---|
| Equity compensation plans approved by security holders | 1.4 | $ | — | 1.4 |
(1)Consists of the 2003 Stock Incentive Plan, as amended, and, for purposes of column (c), the Employee Stock Purchase Plan. Since restricted stock units do not have an exercise price, they are excluded from the calculations in column (b) of the table above.
Table of Contents
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the section entitled “Certain Relationships and Related Party Transactions” in our Proxy Statement for the December 27, 2024 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the section entitled “Ratification of the Appointment of Our Independent Registered Public Accounting Firm” in our Proxy Statement for the December 27, 2024 Annual Meeting of Stockholders.
| Auditor Firm Id: | 238 | Auditor Name: | PricewaterhouseCoopers LLP | Auditor Location: | San Jose, California |
|---|
Table of Contents
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a)The following documents are filed as part of this Form 10-K:
1.Financial Statements:
| Form 10-K<br>Page No. | |
|---|---|
| Reportsof Independent Registered Public Accounting Firms | 41 |
| Consolidated Balance Sheets | 44 |
| Consolidated Statements of Operations | 45 |
| Consolidated Statements of Comprehensive Income (Loss) | 46 |
| Consolidated Statements of Cash Flows | 47 |
| Consolidated Statements of Stockholders’ Equity | 49 |
| Notes to Consolidated Financial Statements | 50 |
2.Financial statement schedules not listed have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.
3.Exhibits
Table of Contents
Exhibit Index
Table of Contents
Table of Contents
Table of Contents
| Exhibit<br>Number | Description | Form | File No. | Filing Date | Exhibit | Filed<br>Herewith |
|---|---|---|---|---|---|---|
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||
| 97.1 | Compensation Recoupment Policy | 10-K | 000-50646 | March 6, 2024 | 97.1 | |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
†Denotes management contract or compensatory plan.
Item 16. Form 10-K Summary
None
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Ultra Clean Holdings, Inc. | |
|---|---|
| By: | /S/ JAMES P. SCHOLHAMER |
| James P. Scholhamer | |
| Chief Executive Officer |
Date: February 25, 2025
KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below constitutes and appoints James P. Scholhamer and Sheri Savage, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission hereby ratifying and confirming that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
|---|---|---|
| /S/ CLARENCE L. GRANGER | Chairman | February 25, 2025 |
| Clarence L. Granger | ||
| /S/ JAMES P. SCHOLHAMER | Chief Executive Officer and Director<br>(Principal Executive Officer) | February 25, 2025 |
| James P. Scholhamer | ||
| /S/ SHERI SAVAGE | Chief Financial Officer<br>(Principal Financial Officer) | February 25, 2025 |
| Sheri Savage | ||
| /S/ BRIAN E. HARDING | Chief Accounting Officer<br>(Principal Accounting Officer) | February 25, 2025 |
| Brian E. Harding | ||
| /S/ THOMAS T. EDMAN | Director | February 25, 2025 |
| Thomas T. Edman | ||
| /S/ DAVID T. IBNALE | Director | February 25, 2025 |
| David T. IbnAle | ||
| /S/ EMILY M. LIGGETT | Director | February 25, 2025 |
| Emily M. Liggett | ||
| /S/ ERNEST E. MADDOCK | Director | February 25, 2025 |
| Ernest E. Maddock | ||
| /S/ BARBARA V. SCHERER | Director | February 25, 2025 |
| Barbara V. Scherer | ||
| /S/ JACQUELINE A. SETO | Director | February 25, 2025 |
| Jacqueline A. Seto | ||
| /S/ JOANNE SOLOMON | Director | February 25, 2025 |
| Joanne Solomon |
83
uctt-20241227xexx23hisme
EXECUTION VERSION STOCK PURCHASE AGREEMENT dated as of October 25, 2023 by and among ULTRA CLEAN HOLDINGS, INC., HOFFMAN INSTRUMENTATION SUPPLY, INC., THE STOCKHOLDERS OF HOFFMAN INSTRUMENTATION SUPPLY, INC., and LVL3 INSTRUMENTATION LLC, as Representative of the Company Equityholders relating to the purchase and sale of 100% of the Common Stock of HOFFMAN INSTRUMENTATION SUPPLY, INC.
i TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS Section 1.01. Definitions .....................................................................................................2 Section 1.02. Other Definitional and Interpretative Provisions .......................................20 ARTICLE 2 PURCHASE AND SALE Section 2.01. Purchase and Sale .......................................................................................21 Section 2.02. Purchase Price; Estimated Closing Statement; Allocation of Purchase Price .......................................................................................................................22 Section 2.03. Closing; Pre-Closing Deliverables; Closing Deliverables.........................24 Section 2.04. Company Stock Option Payments; CBA Payments ....................................27 Section 2.05. Closing Balance Sheet; Post-Closing Statement ........................................27 Section 2.06. Post-Closing Adjustment of Purchase Price ...............................................30 Section 2.07. Release of Adjustment Holdback Fund .......................................................31 Section 2.08. Contingent Installment Payment; Post-Closing Earnout Payments ...........31 Section 2.09. Withholding Taxes ......................................................................................36 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 3.01. Corporate Existence and Power .................................................................37 Section 3.02. Authorization...............................................................................................37 Section 3.03. Governmental Authorization .......................................................................38 Section 3.04. Noncontravention ........................................................................................38 Section 3.05. Capitalization ..............................................................................................38 Section 3.06. Subsidiaries .................................................................................................39 Section 3.07. Financial Statements ...................................................................................40 Section 3.08. Absence of Certain Changes .......................................................................40 Section 3.09. No Undisclosed Material Liabilities ...........................................................43 Section 3.10. Material Contracts ......................................................................................43 Section 3.11. Tax Matters .................................................................................................46 Section 3.12. Litigation .....................................................................................................48 Section 3.13. Compliance with Laws and Court Orders ..................................................48 Section 3.14. Properties ....................................................................................................49 Section 3.15. Products ......................................................................................................51 Section 3.16. Intellectual Property ...................................................................................51 Section 3.17. Data Privacy and Cybersecurity .................................................................55 Section 3.18. Insurance Coverage ....................................................................................55 Section 3.19. Licenses and Permits ..................................................................................56 Section 3.20. Top Vendors ................................................................................................57
ii Section 3.21. Inventories...................................................................................................57 Section 3.22. Receivables .................................................................................................57 Section 3.23. Finders’ Fees ..............................................................................................58 Section 3.24. Employees ...................................................................................................58 Section 3.25. Employee Benefit Plans ..............................................................................58 Section 3.26. Labor Matters .............................................................................................62 Section 3.27. Environmental Matters ...............................................................................62 Section 3.28. Related Party Transactions.........................................................................64 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLERS Section 4.01. Corporate Existence and Power .................................................................64 Section 4.02. Authorization...............................................................................................65 Section 4.03. Governmental Authorization .......................................................................65 Section 4.04. Noncontravention ........................................................................................65 Section 4.05. Ownership of Shares ...................................................................................65 Section 4.06. Finders’ Fees ..............................................................................................66 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER Section 5.01. Corporate Existence and Power .................................................................66 Section 5.02. Authorization...............................................................................................66 Section 5.03. Governmental Authorization .......................................................................67 Section 5.04. Noncontravention ........................................................................................67 Section 5.05. Financing ....................................................................................................67 Section 5.06. Litigation .....................................................................................................67 Section 5.07. R&W Insurance Policy ...............................................................................67 Section 5.08. Finders’ Fees ..............................................................................................67 Section 5.09. Purchase for Investment .............................................................................68 ARTICLE 6 COVENANTS OF BUYER AND SELLERS Section 6.01. Further Assurances .....................................................................................68 Section 6.02. Public Announcements ................................................................................68 Section 6.03. Confidentiality .............................................................................................69 Section 6.04. D&O Tail Policy .........................................................................................69 Section 6.05. R&W Insurance Policy ...............................................................................69 Section 6.06. Preservation of Books and Records; Access to Information ......................70 Section 6.07. Reimbursements for Tenant Improvements .................................................70 ARTICLE 7 TAX MATTERS Section 7.01. Pre-Closing Filing and Payment ................................................................71 Section 7.02. Straddle Tax Period Allocation ..................................................................71
iii Section 7.03. Cooperation ................................................................................................72 Section 7.04. Termination of Tax Sharing Agreements ....................................................72 Section 7.05. Tax Contests ................................................................................................72 Section 7.06. Tax Refunds .................................................................................................73 Section 7.07. Tax Deductions ...........................................................................................73 Section 7.08. Post-Closing Actions ...................................................................................74 Section 7.09. Transfer Taxes ............................................................................................74 Section 7.10. Survival .......................................................................................................74 ARTICLE 8 EMPLOYEE BENEFITS SECTION 8.01. Employee Matters ......................................................................................74 ARTICLE 9 SURVIVAL; INDEMNIFICATION; R&W INSURANCE Section 9.01. Survival .......................................................................................................75 Section 9.02. Indemnification ...........................................................................................76 Section 9.03. Independent Investigation; Waiver of Other Representations ....................78 Section 9.04. Third Party Claim Procedures....................................................................80 Section 9.05. Direct Claim Procedures ............................................................................81 Section 9.06. R&W Insurance Policy Process ..................................................................82 Section 9.07. Purchase Price Adjustment .........................................................................82 Section 9.08. Certain Limitations .....................................................................................82 ARTICLE 10 HOLDER REPRESENTATIVE Section 10.01. Designation of Holder Representative ......................................................83 Section 10.02. Decisions Binding .....................................................................................84 Section 10.03. Liability of the Holder Representative ......................................................84 Section 10.04. Indemnification of the Holder Representative ..........................................84 Section 10.05. Replacement of Holder Representative .....................................................84 Section 10.06. Holder Representative Fund .....................................................................85 ARTICLE 11 MISCELLANEOUS Section 11.01. Notices.......................................................................................................85 Section 11.02. Amendments and Waivers .........................................................................86 Section 11.03. Expenses ....................................................................................................86 Section 11.04. Disclosure Schedule References ...............................................................87 Section 11.05. Successors and Assigns .............................................................................87 Section 11.06. Governing Law..........................................................................................88 Section 11.07. Jurisdiction ...............................................................................................88 Section 11.08. WAIVER OF JURY TRIAL ........................................................................88 Section 11.09. Counterparts; Effectiveness ......................................................................88
iv Section 11.10. Entire Agreement ......................................................................................88 Section 11.11. Severability ...............................................................................................89 Section 11.12. Specific Performance ................................................................................89 Section 11.13. Conflict Waiver; Attorney-Client Privilege ..............................................89 Section 11.14. Affiliate Liability .......................................................................................90 Section 11.15. No Third Party Beneficiaries ....................................................................91 Section 11.16. Release of Claims ......................................................................................91 Exhibits Exhibit A: Form of Optionholder Letter Exhibit B: Form of Warrant Termination Agreement Exhibit C: Form of CBA Holder Letter Schedules Company Disclosure Schedule Schedule I: Stockholders Schedule II: Estimated Closing Statement Schedule III: Payment Instructions Schedule IV: Key Employees Schedule V: Accounting Principles Schedule VI: Adjusted EBITDA Calculation Schedule VII: Operating Profit Calculation
STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this “Agreement”) dated as of October 25, 2023 is made by and among Ultra Clean Holdings, Inc., a Delaware corporation (the “Buyer”), Hoffman Instrumentation Supply, Inc. d/b/a HIS Innovations Group, an Oregon corporation (the “Company”), the Stockholders (as defined below) listed on Schedule I hereto (each, a “Seller” and collectively, the “Sellers”) and LVL3 Instrumentation LLC, an Oregon limited liability company, solely in its capacity as representative of the Company Equityholders as set forth herein (the “Holder Representative”). Each of the Buyer, the Company and each Seller are referred to herein as a “Party” and collectively as the “Parties”. W I T N E S S E T H: WHEREAS, the Stockholders set forth on Schedule I hereto collectively own all of the issued and outstanding shares of Company Common Stock (as defined below), as of the Closing; WHEREAS, the Sellers desire to sell to Buyer, and Buyer desires to purchase from the Sellers, all of the issued and outstanding shares of Company Common Stock, upon the terms, in the manner and subject to the conditions set forth in this Agreement; WHEREAS, this Agreement, the other Transaction Documents (as defined below) and the transactions contemplated hereby and thereby (collectively, the “Transactions”) have been duly adopted and approved by the requisite actions of the Company, the Sellers and Buyer; WHEREAS, on or prior to the date hereof, each (a) Optionholder (as defined below) has delivered to the Company a letter in the form attached hereto as Exhibit A (each, an “Optionholder Letter”), (b) Warrantholder (as defined below) has delivered to the Company warrant termination agreement the form attached hereto as Exhibit B (each, a “Warrant Termination Agreement”) and (c) each CBA Holder (as defined below) has delivered to the Company a letter in the form attached hereto as Exhibit C (each, a “CBA Holder Letter”); WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Buyer’s willingness to enter into this Agreement, each of the individuals listed on Schedule IV of this Agreement has entered into a restricted stock unit letter agreement with an Affiliate of Buyer, to become effective at Closing; and WHEREAS, (i) concurrently with the execution and delivery of this Agreement, Buyer is acquiring, in connection with the consummation of the Transactions, a representation and warranty insurance policy covering certain representations and warranties set forth in this Agreement (the “R&W Insurance Policy”), and (ii) Buyer has provided to the Company and the Holder Representative a true and complete copy of the form of the binders for the R&W Insurance Policy and will, substantially concurrent with the execution hereof, pay any applicable deposits required to be paid in connection therewith;
2 NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, the Parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: “Accounting Principles” means U.S. GAAP applied consistently with the past practices of the Company (to the extent in accordance with GAAP), except as set forth on Schedule V. “Action” means any action, suit, inquiry, hearing, investigation, audit (including Tax audit), litigation, arbitration, mediation, grievance, prosecution or proceeding (including any civil, criminal, administrative, regulatory, investigative or appellate proceeding). “Adjustment Holdback Amount” means $500,000. “Advisor Expenses” means any fees, costs or expenses that become payable to Manalto Advisors, LLC or any of its Affiliates or Representatives following the Closing pursuant to that certain Letter Agreement, dated November 7, 2020, by and between Manalto Advisors, LLC and the Company or otherwise. “Affiliate” means, with respect to any Person, any other Person who, as of the relevant time for which the determination of affiliation is being made, directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have correlative meanings. For the avoidance of doubt, following the Closing, the Affiliates of Buyer shall include the Company. “Anti-Boycott Laws” means 15 C.F.R. pt. 760 et seq. and 26 U.S.C. §§ 908 and 999, as om time amended fr to time, and other similar laws and regulations applicable to the Sellers or the Company or its Subsidiaries. “Anti-Corruption Laws” means the Foreign Corrupt Practices Act of 1977, as amended, and any rules or regulations thereunder, or any other Applicable Law regarding anti-corruption in the United States or any non-U.S. jurisdiction applicable to the Sellers or the Company or its Subsidiaries . “Applicable Law” means, with respect to any Person, any transnational, domestic or foreign federal, state or local law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted, promulgated or applied by a Governmental
3 Authority that is binding upon or applicable to such Person, as amended unless expressly specified otherwise. “Base Cash Consideration” means $50,000,000. “Balance Sheet” means the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the Balance Sheet Date. “Balance Sheet Date” means June 30, 2023. “Business Day” means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by Applicable Law to close. “Buyer Fundamental Representation” means those representations and warranties in Section 5.01, Section 5.02, Section 5.04(a) and Section 5.08. “Cash” means the aggregate amount of cash, bank deposits and marketable securities (but, in the case of marketable securities, only short-term, highly liquid investments that are readily convertible to known amounts of cash within forty-five (45) days and are so near their maturity that they present insignificant risk of changes in value because of changes in interest rates); provided that Cash shall (i) be calculated net of (x) restricted balances (including security deposits, bond guarantees, collateral reserve accounts and amounts held in escrow) to the extent not freely usable, distributable or transferable (including as a result of Taxes imposed as a result of such use, distribution or transfer), and (y) outstanding outbound checks, draws, ACH debits and wire transfers and (ii) include inbound checks, draws, ACH credits and wire transfers deposited or available for deposit to the extent there has been a reduction of accounts receivable that would have otherwise been taken into account in Closing Net Working Capital in respect thereof. “Calculation Time” means 11:59 p.m. Pacific Time on October 25, 2023. “CBA” means each cash-equivalent award granted under a Company Equity Plan, whether vested or unvested, that is outstanding and unsettled as of immediately prior to the Closing. “CBA Holder” means, as of immediately prior to the Closing, the holder of a CBA in his, her or its capacity as such. “CBA Share” means, with respect to the CBA Holder, an amount equal to (a) one percent (1%) multiplied by (b) a fraction, the numerator of which is 87,745 and the denominator of which is the Fully Diluted Number. “CBA Threshold” means, without giving effect to the CBA Share, that $34,000,000 of Purchase Price has been actually received by, or is actually due and payable to, the Stockholders, Optionholders and Warrantholders.
4 “Change of Control Event” means, with respect to any Person, the occurrence of any of the following transactions with respect to such Person following the Closing Date: (a) a sale of all or substantially all of the assets and properties of such Person (or any successor to all or substantially all of the assets of such Person) to a Person other than an Affiliate of the Buyer; (b) a merger, consolidation, reconstitution or similar transaction involving such Person (or any successor to all or substantially all of the assets of such Person), the result of which is that a Person other than an Affiliate of Buyer directly or indirectly owns or controls 50% or more of the voting securities of the continuing or surviving entity immediately after such transaction; or (c) a sale or exchange, directly or indirectly, of the issued and outstanding equity interests of such Person (or any successor to all or substantially all of the assets of such Person) by the direct or indirect holders thereof in a single transaction, or series of related transactions, the result of which a Person other than an Affiliate of the Buyer owns or controls, directly or indirectly, 50% or more of the voting securities of such Person (or any successor to all or substantially all of the assets of such Person) immediately after such transaction; provided that a Change of Control Event of Buyer shall not constitute a Change of Control Event of the Company (or any successor to all or substantially all of the assets of the Company). “Closing Consideration” means an amount in cash equal to (i) the Estimated Purchase Price, minus (ii) the Adjustment Holdback Amount, minus (iii) the Indemnity Holdback Amount. “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and any rules or regulations promulgated thereunder. “Code” means the Internal Revenue Code of 1986, as amended, and any rules or regulations promulgated thereunder. “Collective Bargaining Agreement” means any written or oral agreement, memorandum of understanding or other contractual obligation between the Company or any of its Subsidiaries and any labor organization or other authorized employee representative collectively representing Service Providers. “Company Common Stock” means the common stock, no par value, of the Company. “Company Disclosure Schedule” means the disclosure schedule dated as of the date of this Agreement and delivered by the Company to Buyer in connection with the execution and delivery of this Agreement. “Company Employee” means an employee of the Company or any of its Subsidiaries. “Company Equityholder” means each Stockholder, Optionholder, CBA Holder and Warrantholder. “Company Equity Plan” means the Company’s 2019 Omnibus Equity Incentive Plan, or any other plan, arrangement or standalone agreement adopted or entered into by
5 the Company or any of its Affiliates pursuant to which it may or has granted or issued to any current or former Service Provider any equity or equity-based awards relating to Company Common Stock, including options, warrants, restricted units, unit appreciation rights, phantom units, profits interests or any other similar award. “Company Fundamental Representation” means those representations and warranties in Section 3.01(a), Section 3.02, Section 3.04(a), Section 3.05, Section 3.06, and Section 3.23. “Company Stock Option” means each option to purchase shares of Company Common Stock granted under a Company Equity Plan, whether vested or unvested, that is outstanding and unexercised as of immediately prior to the Closing. “Company Warrant” means each warrant exercisable for, exchangeable into, or otherwise settled in shares of Company Common Stock, whether vested or unvested, that is outstanding and unexercised as of the Closing. “Continuing Employees” has the meaning specified in Section 8.01. “Contract” means any written or oral agreement, lease, sublease, license, sublicense, contract, sale or purchase order, instrument, obligation, or commitment that is or purports to be legally binding, including any exhibits, annexes, appendices or attachments thereto, and any amendments, modifications, supplements, extension or renewals thereof. “COVID-19” means the infectious disease known as coronavirus disease 2019, or COVID-19, caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), and any evolutions thereof or related or associated epidemics, pandemics or disease outbreaks. “Employee Plan” means any (i) “employee benefit plan” as defined in Section 3(3) of ERISA, (ii) compensation, employment, consulting, severance, termination protection, change in control, transaction bonus, retention or similar plan, agreement, arrangement, program or policy or (iii) other plan, agreement, arrangement, program or policy providing for compensation, bonuses, profit-sharing, equity or equity-based compensation or other forms of incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangement), medical, dental, vision, prescription or fringe benefits, life insurance, relocation or expatriate benefits, perquisites, disability or sick leave benefits, employee assistance program, workers’ compensation, supplemental unemployment benefits or post-employment or retirement benefits (including compensation, pension, health, medical or insurance benefits), in each case whether or not written (x) that is sponsored, maintained, administered, contributed to or entered into by the Company or any of its Affiliates for the current or future benefit of any current or former Service Provider or (y) for which the Company or any of its Subsidiaries has any direct or indirect liability. For the avoidance of doubt, a Collective Bargaining Agreement shall constitute an agreement for purposes of clauses (ii) and (iii).
6 “Employee Welfare Benefit Plan” has the meaning specified in Section 3(1) of ERISA. “Environmental Laws” means any Applicable Law or any binding enforcement agreement with any Governmental Authority, relating to protection of human health and safety (as related to exposure to Hazardous Substances), the environment, or to Hazardous Substances. “Environmental Permits” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of Governmental Authorities relating to or required by Environmental Laws and affecting, or relating in any way to, the business of the Company or any of its Subsidiaries as currently conducted. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any rules or regulations promulgated thereunder. “ERISA Affiliate” with respect to an entity means any other entity that, together with such first entity, would be treated as a single employer under Section 414 of the Code. “Estimated Cash” means $1,005,625.00, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of Closing Cash as of the date hereof. “Estimated CBA Consideration” means $0.00, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of the CBA Consideration as of the date hereof. “Estimated Indebtedness” means $19,154,070.66, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of Indebtedness as of the date hereof. “Estimated Option Consideration” means $33,481.78, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of the Option Consideration as of the date hereof. “Estimated Per Share Closing Consideration” means $294.17, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of the Per Share Closing Consideration as of the date hereof. “Estimated Purchase Price” means an amount in cash equal to (i) the Base Cash Consideration, plus (ii) the Estimated Cash, plus (iii) the difference, which may be a positive or negative number, between (x) the Estimated Working Capital and (y) the Target Working Capital, minus (iv) the Estimated Indebtedness, minus (v) the Estimated Transaction Expenses. “Estimated Share Consideration” means $26,801,034.31, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of the Share Consideration as of the date hereof.
7 “Estimated Transaction Expenses” means $2,383,773.04, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of the Company’s Transaction Expenses as of the date hereof. “Estimated Warrant Consideration” means $0.00, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of the Warrant Consideration as of the date hereof. “Estimated Working Capital” means $7,972,556.71, as set forth on the Estimated Closing Statement, which is the Company’s good faith estimate of Closing Net Working Capital as of the date hereof. “Export and Import Control Laws” means (i) U.S. laws, regulations, or orders governing imports, exports, and customs, (ii) non-U.S. laws, regulations, or orders governing imports, exports, and customs in all other countries in which the Company has conducted and/or currently conducts business, and (iii) Anti-Boycott Laws. “Fraud” means, with respect to any Party, (i) an intentional misrepresentation of a material fact in a specific representation or warranty expressly set forth in Article 3, Article 4 or Article 5; (ii) with actual knowledge by the Party making such representation or warranty that such representation or warranty was materially false when made (iii) with the specific intent on the part of the Party making such representation or warranty to induce the Party to which such representation or warranty was made to act, or refrain from acting, in reliance upon such materially false representation or warranty (iv) that such receiving Party, in justifiable reliance upon such materially false representation or warranty took or refrained from taking action; and (v) such Party actually suffered damage by reason of such reliance. For the avoidance of doubt, “Fraud” does not include (a) constructive fraud, statutory fraud, equitable fraud, negligent misrepresentation or omission or promissory fraud or (b) any fraud based on constructive knowledge, negligent misrepresentation or recklessness. “Fully Diluted Number” means, without duplication, immediately prior to the Closing: (i) the aggregate number of shares of Company Common Stock issued and outstanding, plus (ii) the aggregate number of shares of Company Common Stock issuable upon the exercise of all Company Stock Options outstanding immediately prior to the Closing (regardless of whether any such outstanding Company Stock Option has become exercisable in accordance with the Company Equity Plan and/or any other terms applicable to it), plus (iii) the aggregate number of shares of Company Common Stock issuable upon the exercise of all Company Warrants outstanding immediately prior to the Closing (regardless of whether any such outstanding Company Warrant has become exercisable in accordance with the Company Warrant and/or any other terms applicable to it); provided, that (a) each share of Company Common Stock held in the Company’s treasury immediately prior to the Closing shall not be included in the calculation of the Fully Diluted Number, (b) no Company Common Stock issuable upon the exercise of any Company Stock Option outstanding immediately prior to Closing shall be included in the calculation of the Fully Diluted Number unless and until the aggregate Purchase Price then paid or due and payable divided by the Fully Diluted Number (without giving effect to clauses (b) and
8 (c) of this proviso) exceeds the exercise price per share of such Company Stock Option, and (c) no Company Common Stock issuable upon the exercise of any Company Warrant outstanding immediately prior to the Closing shall be included in the calculation of the Fully Diluted Number unless and until the aggregate Purchase Price then paid or due and payable divided by the Fully Diluted Number (without giving effect to clauses (b) and (c) of this proviso) exceeds the exercise price per share of such Company Warrant. For the avoidance of doubt, the Fully Diluted Number shall be recalculated with respect to any portion of the Purchase Price that becomes due and payable following the Closing (as if such amounts and all previously paid amounts had been due and payable at the Closing) at such time as Payment Instructions are required to be delivered by the Holder Representative to Buyer pursuant to this Agreement. “Fundamental Representations” means the Company Fundamental Representations, the Seller Fundamental Representations and the Buyer Fundamental Representations. “Generative AI Tools” means any and all artificial intelligence tools, machine learning algorithms (including large language models), neural networks, and other similar systems, Software or platforms, in each case, capable of producing any type of content or output (including, but not limited to, text (including Software code), imagery, video, audio, data or other media). “Governing Documents” means the legal document(s) by which any Person (other than an individual) establishes its legal existence or which govern its internal affairs, including the charter, articles or certificate of incorporation, association or formation, bylaws, operating agreement, limited liability company agreement, partnership agreement, investor rights’ agreement, shareholders’ agreement, voting agreement, voting trust agreement, joint venture agreement, registration rights agreement and any similar agreement, and any amendments or supplements to any of the foregoing. “Governmental Authority” means any transnational, domestic or foreign federal, state or local governmental, regulatory or administrative authority, department, court, agency or official, including any political subdivision thereof. “Hazardous Substances” means any pollutant, contaminant, waste or chemical in the form, concentration or condition of which it is regulated by or may form a basis of liability under Environmental Laws as toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous or having any constituent elements displaying any of the foregoing produc-, bycharacteristics, including petroleum, its derivatives ts and other hydrocarbons, or any per- or polyfluoroalkyl substances in the form and to the extent regulated under any Environmental Law. “Holdback Fund” means an amount equal to the Adjustment Holdback Amount, plus the Indemnity Holdback Amount withheld from the aggregate Purchase Price at Closing by Buyer.
9 “Indebtedness” means, without duplication, with respect to the Company, calculated in accordance with the Accounting Principles, all obligations and other Liabilities (including all obligations in respect of principal, accrued interest, penalties, fees, prepayment penalties (other than prepayment penalties in respect of Indebtedness owed to Manufacturers Capital, Intech Funding Corp, or First Citizens Bank) breakage costs, premiums and other expenses) of the Company for (i) borrowed money (including overdraft facilities), (ii) evidenced by notes, bonds, debentures or similar Contracts or securities, (iii) created or arising under any conditional sale or other title retention agreement issued or assumed as full or partial payment with respect to property acquired by the Company (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) secured by a purchase money mortgage or other Lien to secure all or part of the purchase price of the property subject to such Lien, (v) for the deferred purchase price of assets, property, goods or services, including all seller notes, earnout payments and purchase price adjustment payments, (vi) for capitalized liabilities of the Company as lessee under leases that are capitalized or required to be capitalized in accordance with the Accounting Principles, which for the avoidance of doubt shall exclude any impact of operating leases capitalized in accordance with the Financial Accounting Standards Board’s Accounting Standards Update 2016-02, Leases (Topic 842), (vii) obligations under or in respect of letters of credit, acceptance credit, bankers’ acceptances or similar facilities (to the extent drawn), (viii) for Contracts relating to interest rate and currency protection, swap agreements, collar agreements and other hedging agreements (at the termination value thereof), (ix) in respect of forward sale and purchase agreements, (x) for all unpaid income Taxes of the Company and its Subsidiaries accrued (or required under U.S. GAAP to be accrued) for any Pre-Closing Tax Period (including (A) any liability for Taxes or other liabilities as a result of or relating to Section 965 or an election under Section 965(h) of the Code and (B) any Taxes required to be included under Sections 951 or 951A of the Code with respect to any non-U.S. Subsidiaries for the taxable year of such non-U.S. Subsidiaries that includes (but does not end on) the Closing Date, calculated as if the taxable year of each controlled foreign corporation (within the meaning of Section 957 of the Code) giving rise to such amounts ended on the Closing Date), (xi) any accrued but unpaid obligation or liability in respect of underfunded or unfunded defined benefit pension plans or retiree health or welfare benefit plans or deferred compensation plans, (xii) severance or other termination-related payments or obligations that are due or accrued as of the Closing but unpaid (except to the extent taken into account as a Transaction Expense or Closing Net Working Capital), (xiii) the employer portion of any payroll, social security, employment and similar Taxes payable or incurred in connection with the payments described in clauses (xi) and (xii), (xiv) the maximum amount of unpaid settlement obligations under those certain settlement agreements set forth on Section 1.01-DEBT of the Company Disclosure Schedule, (xv) any other amounts payable by the Company to a Related Party that remains unpaid as of the Closing other than ordinary course employment compensation consistent with the applicable salary or wage rate set forth in Section Section 3.24(a) of the Company Disclosure Schedule; and (xvi) in the nature of guarantees of the obligations described in clauses (i) through (xvi) above of any other Person. For the avoidance of doubt, Indebtedness includes all Specified Debt and all other Indebtedness included on the Estimated Closing Statement.
10 “Indemnified Taxes” means any and all Taxes (a) for which the Company or any of its Subsidiaries is liable attributable to any Pre-Closing Tax Period, together with any interest, penalty or addition to Tax accruing after the Closing Date on any Taxes described in this clause (a), (b) of any Person for which the Company or any of its Subsidiaries is liable as a transferee or successor, by Contract or pursuant to any Applicable Law, (c) arising out of or resulting from any inclusion under Sections 951 or 951A of the Code (or any similar or corresponding provision of state or local Law) in respect of any “foreign corporation” owned (directly or indirectly) by the Company to the extent such inclusion results from any transactions or ownership of assets occurring between (x) the beginning of the taxable year of such foreign corporation that includes the Closing Date and (y) the Closing, or (d) any Taxes resulting from any breach or inaccuracy of any representation set forth in Section 3.11, provided, however, that the foregoing Indemnified Taxes will not include any Taxes (A) to the extent accounted for or included as a liability in the Closing Indebtedness, Closing Company Transaction Expenses or the Closing Net Working Capital, (B) that are attributable to any action taken outside the ordinary course of business on the Closing Date after the Closing that is not contemplated by this Agreement or (C) in the case of Taxes otherwise described the preceding clause (d), would not have been payable but for the unavailability, in any Taxable period (or portion thereof) beginning after the Closing Date, of any amount of any tax attribute of the Company or any of its Subsidiaries (including net operating loss or Tax credit) originally arising in a Pre-Closing Tax Period. “Indemnity Holdback Amount” means $150,000. “Intellectual Property Rights” means any and all intellectual property and similar proprietary rights throughout the world, including all (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 provisionals, non-provisionals, reissues, divisionals, continuations, continuations-in-part, extensions, supplementary protection certificates and reexaminations thereof and all foreign equivalents of the foregoing) registered or applied for in the United States and all other nations throughout the world, and all inventions disclosed in each such registration, patent or patent application, (iii) trademarks, service marks, brand names, trade dress, logos, certifications, trade names, corporate names, domain names and social media identifiers and accounts, 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), works of authorship, mask work rights, 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) Software, (vi) trade secrets, know-how and other confidential or proprietary information (including manufacturing and production processes and procedures and techniques, results of experimentation and testing, technical data and research and development information) and, whether or not confidential, business information (including pricing and cost information, business and marketing plans and customer and supplier lists), (vii) industrial designs (whether or not registered) and all registrations and
11 applications therefor, (viii) databases and data collections, (ix) rights of publicity, (x) copies and tangible embodiments of any of the foregoing, in whatever form or medium, (xi) all rights to apply for, obtain, prosecute, claim priority to, register, maintain and defend any of the foregoing, (xii) all rights in all of the foregoing provided by treaties, conventions and common law and (xiii) all rights to sue or recover and retain damages, costs and attorneys’ fees for past, present and future infringement, misappropriation or other violation of any of the foregoing. “International Plan” means any Employee Plan that is not a U.S. Plan. “IRS” means the Internal Revenue Service. “IT Assets” means any and all computers, Software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, and other information technology assets and equipment (including laptops and mobile devices), and all documentation related to any of the foregoing, in each case, owned by, or licensed or leased to (or purported to be owned by or licensed or leased to), the Company or any Subsidiary. “knowledge” of any Person that is not an individual means the knowledge of such Person’s officers after reasonable inquiry. “Liability” means any debt, liability or obligation, whether due or to become due, absolute or contingent, inchoate or otherwise, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, secured or unsecured, or determined or determinable, and includes all costs and expenses relating thereto. “Licensed Intellectual Property Rights” means any and all Intellectual Property Rights owned by a third party and licensed or sublicensed, or purported to be licensed or sublicensed, to either the Company or any Subsidiary or for which the Company or any Subsidiary has obtained, or has purported to have obtained, a covenant not to be sued or similar right. “Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, license, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset which 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 a material adverse effect on (i) the condition (financial or otherwise), business, assets or results of operations of the Company and its Subsidiaries, taken as a whole, excluding any adverse effect resulting from (A) changes in the general economic or political conditions in the United States not having a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and any of its Subsidiaries operate, (B) changes (including changes of Applicable Law, including in compliance with Applicable Laws resulting from or relating to COVID-19 or other disease, virus, or outbreak) or conditions generally affecting the industry in which the Company and its
12 Subsidiaries operate and not specifically relating to or having a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and its Subsidiaries operate, (C) acts of war, sabotage or terrorism or natural disasters involving the United States of America not having a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and its Subsidiaries operate, (D) the public announcement of this Agreement or the Transactions contemplated by this Agreement, (E) the failure of the Company to meet, with respect to any period or periods, any internal projections, forecasts, estimates of earnings or revenues, or business plans (except that the underlying causes of any such changes may be considered in determining whether a Material Adverse Effect has occurred), or (F) crises affecting public health, safety or welfare, including any epidemic, pandemic, or disease outbreak (including the COVID-19 virus), public health emergencies, including the continuation, escalation or worsening of such conditions not specifically relating to or having a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and its Subsidiaries operate, or (ii) the Company’s or any Seller’s ability to consummate the transactions contemplated by this Agreement. “Multiemployer Plan” means a “multiemployer plan” as defined in Section 3(37) of ERISA. “Net Working Capital” means (A) the sum of the current assets of the Company and its Subsidiaries (excluding Closing Cash, intercompany receivables that are not eliminated in consolidation and all income Tax assets, and any deferred tax assets), minus (B) the sum of the current liabilities of the Company and its Subsidiaries (excluding Closing Indebtedness, any amounts accrued for Closing Company Transaction Expenses and all income Tax liabilities and any deferred tax liabilities, but including, for the avoidance of doubt, an accrual for 2023 employee bonuses), in the case of each component of (A) and (B), determined in accordance with the Accounting Principles. “Optionholder” means, as of immediately prior to the Closing, each holder of a Company Stock Option in his, her or its capacity as such. “Order” means any judgment, decree, injunction, ruling, award, subpoena, verdict or order of any Governmental Authority or arbitrator. “Owned Intellectual Property Rights” means any and all Intellectual Property Rights owned, or purported to be owned, by either the Company or any Subsidiary. “PBGC” means the Pension Benefit Guaranty Corporation. “Permitted Equity Liens” means (a) restrictions on any sale, assignment or transfer of securities under applicable securities Laws, and (b) restrictions on any sale, assignment or transfer of the Company Common Stock or other equity interests of the Company or its Subsidiaries set forth in the Governing Documents of the Company or its Subsidiaries.
13 “Permitted Liens” means (a) statutory Liens for Taxes not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with the Accounting Principles, (b) mechanics’, carriers’, workers’, repairers’ and similar statutory Liens arising or incurred in the ordinary course of business for amounts not overdue, (c) Liens arising in the ordinary course of business under worker’s compensation, unemployment insurance, social security, retirement and similar legislation, (d) Liens or other defects, the existence of which have not had and would not reasonably be expected to have, individually or in the aggregate, any material impact on the Company or any of its Subsidiaries, (e) Liens for which either affirmative title insurance coverage, bonding or an indemnification in favor of the Company or any of its Subsidiaries that is the titleholder to the subject property has been obtained and is in effect, (f) Liens securing the Indebtedness reflected as liabilities in the Financial Statements or referred to in notes to the Financial Statements, (g) with respect to the Real Property, (i) Liens imposed or promulgated by Applicable Law with respect to real property, including zoning, entitlement, building and other land use regulations imposed by Governmental Authorities having jurisdiction over the Real Property, which are not violated by the current use or occupancy of the applicable Real Property or the business operated thereon and (ii) covenants, conditions, restrictions, easements and other similar matters that would be disclosed by an inspection or accurate survey of any parcel of Real Property; provided that the same, individually and in the aggregate, do not impair in any material respect the occupancy, use or operation of any Real Property for purposes of the ownership or operation of the business of the Company and its Subsidiaries, (h) Liens that shall be released, waived or otherwise terminated at or prior to the Closing, and (i) Liens identified on Section 1.01-PL of the Company Disclosure Schedule. “Per Option Share Closing Consideration” means, with respect to each share of Company Common Stock subject to a Company Stock Option outstanding as of immediately prior to the Closing (after giving effect to any acceleration resulting from or in connection with the transactions contemplated by this Agreement), an amount equal to the excess of the Estimated Per Share Closing Consideration over the exercise price per share of such Company Stock Option as set forth on the Payment Instructions; provided that if the exercise price per share of such Company Stock Option exceeds the Estimated Per Share Closing Consideration, then the Per Option Share Closing Consideration shall be $0. “Per Share Closing Consideration” means a dollar amount equal to the quotient obtained by dividing (i) the Closing Consideration, plus the aggregate exercise price in respect of all Company Stock Options outstanding immediately prior to the Closing (to the extent such Company Stock Options are included in the Fully Diluted Number), plus the aggregate exercise price in respect of all Company Warrants outstanding immediately prior to the Closing (to the extent such Company Warrants are included in the Fully Diluted Number) by (ii) the Fully Diluted Number. “Per Warrant Share Closing Consideration” means, with respect to each share of Company Common Stock subject to a Company Warrant outstanding as of immediately prior to the Closing (after giving effect to any acceleration resulting from or in connection with the transactions contemplated by this Agreement), an amount equal to the excess of
14 the Estimated Per Share Closing Consideration over the exercise price per share of such Company Warrant as set forth on the Payment Instructions; provided that if the exercise price per share of such Company Warrant exceeds the Estimated Per Share Closing Consideration, then the Per Warrant Share Closing Consideration shall be $0. “Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a Governmental Authority. “Personal Information” means, “personal information,” “personally identifiable information,” “personal data,” and any terms of similar import, in each case as defined under any Applicable Law relating to data privacy, data protection, cybersecurity and/or the processing of such information or data. “Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date; and, with respect to a Straddle Tax Period, the portion of such Tax period ending on the Closing Date. “Pro Rata Indemnity Share” means, with respect to each Seller, a fraction (expressed as a percentage) (i) the numerator of which is the Fully Diluted Number of shares of Company Common Stock held or deemed held by such Seller immediately prior to the Closing, and (ii) the denominator of which is the aggregate Fully Diluted Number of shares held by all Sellers immediately prior to the Closing, as set forth as the “Pro Rata Indemnity Share” opposite each Seller’s name on the Payment Instructions; provided for the avoidance of doubt, (a) that the aggregate Pro Rata Indemnity Shares of all Sellers shall equal one hundred percent (100%) and (b) Pro Rata Indemnity Shares shall be recalculated with respect to any portion of the Purchase Price that becomes due and payable following the Closing at such time as Payment Instructions are required to be delivered by the Holder Representative pursuant to this Agreement. “Pro Rata Share” means, with respect to each Stockholder, Optionholder and Warrantholder, a fraction (expressed as a percentage) (i) the numerator of which is the Fully Diluted Number of shares of Company Common Stock held or deemed held by such Stockholder, Optionholder and Warrantholder immediately prior to the Closing, and (ii) the denominator of which is the Fully Diluted Number, in each case as of immediately prior to the Closing, as set forth as the “Pro Rata Share” opposite such Person’s name on the Payment Instructions; provided that for the avoidance of doubt, (a) the aggregate Pro Rata Shares of all Stockholders, Optionholders and Warrantholders shall equal one hundred percent (100%) and (b) the Pro Rata Shares shall be recalculated with respect to any portion of the Purchase Price that becomes due and payable following the Closing at such time as Payment Instructions are required to be delivered by the Holder Representative to Buyer pursuant to this Agreement. “Related Party” means, with respect to any Person, such Person’s direct or indirect Affiliates, Subsidiaries, members, managers, general or limited partners, other equityholders, successors, assignees, directors, officers, employees or immediate family members (or any direct or indirect Affiliates, Subsidiaries, representatives, members,
15 managers, general partners, other equityholders, successors, assignees, directors, officers, employees or immediate family members of any of the foregoing). “Release” means any release, spill, leak, pumping, pouring, emitting, emptying, discharge, injection, escape, leaching, dumping, placing, discarding, abandonment, disposal, deposit, dispersing or migration into or through the environment. “Representatives” means, with respect to any Person, the partners, employees, officers, directors, managers, members, equity financial orowners, agents, consultants, other advisors, counsel or other representatives of such Person or any of its Affiliates. “Sanctioned Country” means any country or other territory that is itself the subject of comprehensive Sanctions (as of the date of this Agreement, Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk, and Luhansk regions of Ukraine). “Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by any Sanctions Authority. “Sanctions Authority” means (i) the United States (including the United States Department of Commerce, the United States Department of State, and the United States Department of the Treasury’s Office of Foreign Assets Control), (ii) the United Nations Security Council, (iii) the European Union, (iv) the United Kingdom, including HM’s Treasury, and (v) the respective Governmental Authorities of any of the foregoing. “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002. “Seller Employee Plan” means any Employee Plan that is sponsored, maintained or entered into by a Seller or any of its Affiliates other than the Company or any of its Subsidiaries. “Seller Fundamental Representation” means, with respect to any Seller, those representations and warranties in Section 4.01, Section 4.02, Section 4.04(a), Section 4.05 and Section 4.06. “Service Provider” means any director, officer, employee, consultant, advisor, individual independent contractor or other similar service provider of the Company or any of its Subsidiaries. “Software” means any and all (i) software, computer programs, applications, systems, specifications and embedded versions thereof (including operating systems) and all software implementation of algorithms (including those for artificial intelligence technologies, machine learning technologies and deep learning technologies), models and methodologies, firmware, middleware, APIs, development and design tools, applets, compilers and assemblers, whether in source code, object code, human readable form or other form, (ii) databases, data files and compilations, including any and all libraries, data and collections of data, whether machine readable, on paper or otherwise, (iii) text, diagrams, descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware,
16 microcode and implementations, development tools, templates, menus, buttons and icons, (iv) technology supporting, and the contents and audiovisual displays of, any internet site(s) and (v) documentation, other works of authorship and media, including programmers’ notes and source code annotations, user manuals and training materials, relating to or embodying any of the foregoing or on which any of the foregoing is recorded. “Stockholder” means a holder of Company Common Stock immediately prior to Closing. “Straddle Tax Period” means a Tax period that begins on or before the Closing Date and ends thereafter. “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. “Target Working Capital” means $9,955,821.92. “Tax” means (i) any tax, levy, governmental fee or other like assessment or charge of any kind whatsoever (including any payments required to be made to any state abandoned property administrator or other public official pursuant to an abandoned property, escheat or similar Law), together with any interest, penalty, addition to tax or additional amount, and any liability for any of the foregoing as transferee or successor, (ii) in the case of the Company or any of its Subsidiaries, 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 a member of an affiliated, consolidated, combined, unitary or similar group, or a party to any agreement or arrangement, as a result of which liability of such Company or any of its Subsidiaries to a Governmental Authority is determined or taken into account with reference to the activities of any other Person and (iii) liability of the Company or any of its Subsidiaries for the payment of any amount as a result of being party to any Tax Sharing Agreement. “Tax Return” means any Tax return, statement, report, election, declaration, disclosure, schedule or form (including any estimated tax or information return or report) filed or required to be filed with any Taxing Authority. “Tax Sharing Agreement” means any agreement or arrangement (whether or not written) entered into prior to the Closing binding the Company or any of its Subsidiaries 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 (other than any customary commercial contract entered into in the ordinary course of business the principal subject matter of which is not Taxes). “Taxing Authority” means any Governmental Authority responsible for the imposition or collection of any Tax.
17 “Title IV Plan” means any Employee Plan (other than any Multiemployer Plan) that is subject to Title IV of ERISA. “Transaction Documents” means this Agreement, the Optionholder Letters, the Warrant Termination Agreements and the CBA Holder Letters. “Transaction Expenses” means (i) all fees, costs and other expenses of any investment bankers, financial advisors, attorneys, accountants and other consultants, advisors or other Representatives incurred by or on behalf of, or payable by, the Company and each of its Subsidiaries in connection with the preparation for, negotiation or consummation of the transactions contemplated by the Transaction Documents, including the Holder Representative Fund ,(ii) any assignment, change in control or similar fees expressly due and payable as a result of the execution and delivery of this Agreement and ns contemplatedthe other Transaction Documents or the consummation of the transactio hereby or thereby, including any stay or retention, change in control, transaction or similar bonuses, compensation, incentive and/or severance payments, equity or equity-based compensation arrangement or other payment to be made to any Service Provider arising as a result of, or in connection with, the execution or delivery of this Agreement or the other Transaction Documents or the consummation of the transactions contemplated hereby or thereby, but, in each case, not any such amount payable in connection with actions taken by Buyer after the Closing; provided, that, notwithstanding anything in the foregoing to the contrary, this clause (ii) shall include (to the extent unpaid as of the Closing) or exclude the retention amounts that become payable following the Closing as set forth on Section 1.01-TX of the Company Disclosure Schedules, (iii) any fees, costs, expenses and other Liabilities incurred (or that would be incurred or made) as a result of the termination or settlement of any Related Party Contract or account that is required to be terminated or settled pursuant to Section 3.28(c), (iv) fifty percent (50%) of the costs associated with the D&O Tail as provided for in Section 6.04, and (v) the employer portion of any payroll, employment or similar Taxes associated with any payments arising as a result of the execution or delivery of this Agreement or the other Transaction Documents or the consummation of the transactions contemplated hereby or thereby, including the payments contemplated by clauses (ii) and (iii) above and payments relating to the Company Stock Options and the CBA (including Post-Closing Payments, with such amounts to be deducted from the aggregate amount of any Post-Closing Payment); provided that Transaction Expenses shall not include, and Buyer shall bear, all costs and expenses related to the R&W Insurance Policy, including the total premium, underwriting costs, brokerage commission, and other fees and expenses of such policy . “Transaction Expenses Payoff Instructions” means reasonably satisfactory documentation setting forth an itemized list of all, and amounts of all, Unpaid Transaction Expenses, including the identity of each payee, dollar amounts owed and wire transfer instructions, an IRS Form W-9 for such payee, and any other information necessary to effect the final payment in full thereof. “Transfer Tax” means sales, use, transfer, real property transfer, recording, documentary, value added, stamp, registration and stock transfer Taxes and any similar
18 Taxes (and any applicable interest or penalties and the cost of preparing and filing Tax Returns with respect thereto). “Unpaid Transaction Expenses” means the aggregate amount of Transaction Expenses that are unpaid as of immediately prior to the Closing. “U.S. GAAP” means generally accepted accounting principles in the United States, applied on a basis consistent with the Company’s past practices used in preparing the Financial Statements. “U.S. Plan” means any Employee Plan that covers Service Providers located primarily within the United States. “Warrantholder” means, as of immediately prior to the Closing, each holder of a Company Warrant in his, her or its capacity as such. “WARN” means the Worker Adjustment and Retraining Notification Act and any comparable foreign, state or local law. (b) Each of the following terms is defined in the Section set forth opposite such term: Term Section 2024 Base Earnout Amount 2.08(c)(i) 2024 Earnout Payment 2.08(b)(i) 2024 Operating Profit Threshold 2.08(c)(ii) 2024 Shortfall Earnout Amount 2.08(c)(iii) 2025 Base Earnout Amount 2.08(c)(iv) 2025 Earnout Payment 2.08(b)(ii) 2025 Operating Profit Threshold 2.08(c)(v) 2025 Shortfall Earnout Amount 2.08(c)(vi) Accounting Referee 2.05(c) Actual 2023 EBITDA 2.08(c)(vii) Actual Operating Profit 2.08(c)(viii) Adjustment Shortfall Amount 2.06(a)(i)(B) Aggregate Base Earnout Amount 2.08(c)(ix) Agreement Preamble Annual Financial Statements 3.07(a) Applicable Data Protection Law 3.17(a) Applicable Data Protection Requirements 3.17(a) Buyer Preamble Buyer Indemnified Parties 9.02(a) Buyer Released Parties 11.16(a) Calculation Objection Notice 2.08(d)(iii) CBA Consideration 2.02(d) CBA Holder Letter Recitals Closing 2.03(a)
19 Closing Balance Sheet 2.05 Closing Cash 2.05 Closing Company Transaction Expenses 2.05 Closing Date 2.03(a) Closing Indebtedness 2.05 Closing Net Working Capital 2.05 Closing Purchase Price 2.05 Company Preamble Company Insurance Policies 3.18 Company Organizational Documents 3.01 Company Securities 3.05(b) Contest 7.05 Contingent Installment Payment Amount 2.08(a) Contingent Payment 2.08(d)(iii) Contingent Payment Calculation Statements 2.08(d)(ii) Contingent Payment Calculations 2.08(d)(ii) Contingent Payment Determination Date 2.08(d)(iii) Continuing Employees 8.01 D&O Tail 6.04 Data Breach 3.17(b) Deductible 9.02(c)(i) De Minimis Loss 9.02(c)(i) Direct Claim 9.05 e-mail 11.01 Earnout Calculation 2.08(d)(ii) Earnout Calculation Delivery Date 2.08(d)(ii) Earnout Calculation Statement 2.08(d)(ii) Earnout Payments 2.08(b)(ii) Estimated Closing Statement 2.02(b) Final Adjustment Amount 2.05 Financial Statements 3.07(a) Holder Representative Preamble Holder Representative Fund 10.06(a) Indemnified Party 9.04(a) Indemnifying Party 9.04(a) Installment Calculation 2.08(d)(i) Installment Calculation Delivery Date 2.08(d)(i) Installment Calculation Statement 2.08(d)(i) Interim Financial Statements 3.07(a) Losses 9.02(a) Majority Company Equityholders 10.05(a) Material Contract 3.10(a) New Plans 8.01 Non-Recourse Party 11.14 Notice of Objection 2.05(b) Option Consideration 2.02(d)
20 Optionholder Letter Recitals Overpayment Amount 2.06(a)(i) Payment Instructions 2.02(d) Payoff Amount 2.03(b)(i) Payoff Letter 2.03(b)(i) Permits 3.19(a) Post Closing Payment 2.02(d) Pre-Closing Tax Return 7.01(a) Privileged Communications 11.13(c) Post-Closing Statement 2.05 Purchase Price 2.02 R&W Insurance Policy Recitals Real Property 3.14(a) Real Property Lease 3.14(b) Related Party Contract 3.10(a)(xxi) Review Period 2.08(d)(iii) Section 280G Payments 3.25(o) Seller or Sellers Preamble Seller Indemnified Parties 9.02(e) Seller Released Matters 11.16(a) Seller Releasing Parties 11.16(a) Seller Warranty Breach 9.02(c) Sellers Group Law Firm 11.13(a) Share Consideration 2.02(d) Shortfall Amount 2.08(c)(x) Shortfall Operating Profit Target 2.08(c)(xi) Specified Breach 9.02(d) Specified Debt 2.03(b)(i) Subsidiary Securities 3.06(b)(ii) Survival Termination Date 9.01 Top Vendors 3.20 Third-Party Claim 9.04(a) Transactions Recitals Underpayment Amount 2.06(a)(ii) Update Report 2.08(g) Waived Payments 3.25(o) Warrant Consideration 2.02(d) Warranty Cap 9.02(c)(iii) Section 1.02. Other Definitional and Interpretative Provisions. The words “hereof,” “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein,
21 including the Company Disclosure Schedule, are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein shall have the meaning as defined in this Agreement, and any accounting term not otherwise defined herein has the meaning assigned to it in accordance with U.S. GAAP. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. References to “him,” “her,” “it,” “itself” and other like references shall be deemed to include the masculine or feminine reference, as the case may be. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation,” whether or not they are in fact followed by those words or words of like import. “Writing,” “written” and comparable terms refer to printing, typing and other means of reproducing words (including by electronic media) in a visible form. The word “will” shall be construed to have the same meaning and effect as the word “shall.” The word “or” when used in this Agreement is not exclusive. References to any statute, rule, regulation, law or Applicable Law shall be deemed to refer to all Applicable Laws as amended or supplemented and to any rules, regulations and interpretations promulgated thereunder as of the Closing Date. References to any Contract are to that Contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that with respect to any Contract required to be listed on any schedules hereto, or any Contract required by any Transaction Document to be disclosed, all amendments, modifications, supplements, extensions and renewals thereto must also be listed on the appropriate schedule and copies thereof disclosed. References to any Person include the successors and permitted assigns of such Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. References to “days” shall refer to calendar days unless Business Days are specified. When calculating the period of time before which, within which or following which any act is to be done or step taken, the date that is the reference date in beginning the calculation of such period shall be excluded (for example, if an action is to be taken within two (2) days of a triggering event and such event occurs on a Tuesday, then the action must be taken by the end of the day on Thursday) and if the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day. References to “ordinary course,” “ordinary course of business,” “ordinary course of business consistent with past practice” or phrases of similar import shall in each case mean “in the ordinary course of business consistent with past practice”. All monetary figures shall be in United States dollars unless otherwise specified. The parties have participated jointly in the negotiation and drafting of this Agreement and each has been represented by counsel of its choosing and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. ARTICLE 2 PURCHASE AND SALE Section 2.01. Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, each Seller shall sell to Buyer, and Buyer shall purchase from each Seller, all
22 of the issued and outstanding shares of Company Common Stock held by such Seller at the Closing, free and clear from all Liens (other than Permitted Equity Liens) and together with all rights of any nature whatsoever that attach (or may in the future attach) to such shares of Company Common Stock. The Sellers hereby waive, subject to and at and after the Closing, all rights of pre-emption or other restrictions on transfer that may exist in relation to the shares of Company Common Stock under the Company Organizational Documents or otherwise. Buyer shall not be obliged to close the sale or purchase of any of the shares of Company Common Stock held by the Sellers unless the sale or purchase of all of the shares of Company Common Stock is closed simultaneously in accordance with this Agreement and the Company’s Governing Documents. Section 2.02. Purchase Price; Estimated Closing Statement; Allocation of Purchase Price. (a) The aggregate purchase price (“Purchase Price”) payable for the Company Common Stock, Company Stock Options, CBA and Company Warrant shall be the amount of cash calculated as follows: (i) the Base Cash Consideration; (ii) plus the amount, if any, by which Closing Net Working Capital exceeds Target Working Capital; (iii) minus the amount, if any, by which Target Working Capital exceeds Closing Net Working Capital; (iv) plus Closing Cash; (v) minus Closing Indebtedness; (vi) minus Closing Company Transaction Expenses; (vii) plus the Contingent Installment Payment Amount (if any) due to the Company Equityholders pursuant to Section 2.08(a); (viii) plus any Earnout Payment due to the Company Equityholders pursuant to Section 2.08(b). (b) Prior to the date hereof, the Company prepared and delivered to Buyer and the Holder Representative a statement (the “Estimated Closing Statement”) (including all calculations in reasonable detail and supporting schedules) attached hereto as Schedule II, setting forth in reasonable detail the Company’s good faith estimate as of the Closing Date of (i) Estimated Working Capital, (ii) Estimated Cash, (iii) Estimated Indebtedness, (iv) Estimated Transaction Expenses, (v) the Estimated Purchase Price based thereon, (vi) the Estimated Share Consideration, (vii) the Estimated Option Consideration, (viii) the Estimated CBA Consideration, (ix) the Estimated Warrant Consideration, (x) the Estimated Per Share Closing Consideration, (xi) the Per Option Share Closing
23 Consideration, and (xii) the Per Warrant Share Closing Consideration. The Estimated Purchase Price shall be subject to adjustment as provided in Section 2.06. (c) The Company has taken all action as was required (including obtaining any necessary corporate consents) so that promptly after the Closing, subject to the provisions of this Article 2, each Company Stock Option, CBA and Company Warrant outstanding immediately prior to the Closing shall be cancelled upon (i) in the case of each Optionholder, receipt by such Optionholder, from the Company, per share of Company Common Stock subject to such Company Stock Option, in cash and without interest, the Per Option Share Closing Consideration (if any) as set forth on the Payment Instructions, (ii) in the case of the CBA Holder, receipt by such CBA Holder, from the Company, of the CBA Consideration (if any), in cash and without interest as set forth on the Payment Instructions and (iii) in the case of each Warrantholder, receipt by such Warrantholder, from the Company, per share of Company Common Stock subject to such Company Warrant, the Per Warrant Share Closing Consideration (if any), in cash and without interest as set forth on the Payment Instructions, and, in each case, the right of such Optionholder, CBA Holder and Warrantholder, as the case may be, to receive a portion of the payments due to Company Equityholders following the Closing in accordance with, and subject to the terms and conditions of, this Article 2; provided, however, that to the extent any such payments are subject (or may become subject) to Section 409A of the Code, the timing of such payments, if any, will comply with the requirements of Section 409A of the Code. (d) The portion of the Closing Consideration (if any) with respect to (i) the shares of Company Common Stock acquired by Buyer from the Sellers pursuant to this Agreement (the “Share Consideration”) shall be paid by Buyer (or its designee) to Sellers, (ii) the Company Stock Options cancelled in accordance with the terms of the Company Equity Plan, the Optionholder Letter and pursuant to this Agreement (the “Option Consideration”) shall be paid by Buyer (or its designee) to the Company in lieu of the issue and allotment of shares of Company Common Stock by the Company to Buyer promptly following the Closing, but in any event within one (1) Business Day of Closing, and in accordance with Applicable Law, for further distribution by the Company via the Company’s payroll system to the Optionholders promptly following the Closing, (iii) the CBAs cancelled in accordance with the terms of the Company Equity Plan, the CBA Holder Letter and pursuant to this Agreement (the “CBA Consideration”) shall be paid by Buyer (or its designee) to the Company for further distribution by the Company via the Company’s payroll system to the CBA Holder promptly following the Closing and (iv) the Company Warrants cancelled in accordance with the terms of the Company Warrants, the Warrant Termination Agreement and pursuant to this Agreement (the “Warrant Consideration”) shall be paid by Buyer (or its designee) to the Warrantholders in lieu of issue and allotment of shares of Company Common Stock by the Company to Buyer, in each case, in accordance with Holder Representative’s written instructions, which shall provide (a) for each Seller to receive at the Closing, for each share of Company Common Stock owned by such Seller at such time, an amount in cash equal to the Per Share Closing Consideration, (b) for each Optionholder to receive from the Company promptly following the Closing, for each share of Company Common Stock subject to a Company Stock Option held by such Optionholder at such time, an amount in cash equal to the Per Option Share Closing Consideration (if any), net of any required withholding of Taxes under
24 Applicable Law, (c) for each CBA Holder to receive from the Company promptly following the Closing, for each CBA held by such CBA Holder at such time, an amount in cash equal to the Estimated CBA Consideration (if any), net of any required withholding of Taxes under Applicable Law and (d) for each Warrantholder to receive from the Company at the Closing, for each share of Company Common Stock subject to a Company Warrant held by such Warrantholder at such time, an amount in cash equal to the Per Warrant Share Closing Consideration (if any) (such instructions, as updated from time to time by the Holder Representative as provided herein, the “Payment Instructions”), which Payment Instructions as of the Closing are set forth on Schedule III. Following the Closing, if and when any amount is payable from the Holdback Fund by the Company, any Underpayment Amount is payable by the Company, any Contingent Installment Payment amount is payable by the Company, any Earnout Payment amount is payable by the Company or any reimbursement amount is payable by the Company pursuant to Section 6.07 (each, a “Post Closing Payment”), then the Holder Representative shall deliver to Buyer updated Payment Instructions that provide (1) for each CBA Holder, to the extent the CBA Threshold has been achieved, to receive an amount in cash equal to its CBA Share of such Post Closing Payment less any applicable Advisor Expenses then due and payable by the Company, (2) for each other Company Equityholder to receive an amount in cash equal to its Pro Rata Share of such Post Closing Payment less any applicable Advisor Expenses less amounts paid pursuant to the immediately foregoing clause (1) and (2) for the complete and accurate payment of all Advisor Expenses that have become due and payable as a result of such Post Closing Payment becoming due and payable. (e) It is expressly acknowledged and agreed that the preparation of the Payment Instructions (as updated from time to time) and the allocation of the Closing Consideration, Post Closing Payments and Advisor Expenses set forth or to be set forth therein are the sole responsibility of the Holder Representative and the Sellers. Notwithstanding anything to the contrary in this Agreement or any investigation or examination conducted, or any knowledge possessed or acquired by Buyer or any of its Affiliates with respect to the Payment Instructions, it is expressly acknowledged and agreed that (i) Buyer and its Affiliates (including, after the Closing, the Company) shall be entitled to rely on the Payment Instructions and to make payments in accordance therewith, and (ii) assuming Buyer makes the payments contemplated by this Agreement in accordance with the Payment Instructions, in no event shall Buyer or its respective Affiliates (including, after the Closing, the Company) have any liability to any Person (including any Company Equityholder, any financial advisor to the Company or Sellers or any of their respective Affiliates or Representatives) in connection with any claims arising from or relating to the preparation or contents of the Payment Instructions, including, for the avoidance of doubt, alleged inaccuracy or miscalculation in, or otherwise relating to, the Payment Instructions. Section 2.03. Closing; Pre-Closing Deliverables; Closing Deliverables. (a) Closing. The closing of the purchase and sale of the shares of Company Common Stock (the “Closing”) shall take place on the date hereof at the offices of Davis Polk & Wardwell LLP, 1600 El Camino Real, Menlo Park, California or remotely by the exchange of documents and signatures (or their electronic counterparts) or at such other
25 time or place as Buyer and the Holder Representative may agree in writing. The date on which the Closing occurs is referred to herein as the “Closing Date”. (b) Pre-Closing Deliverables. Prior to the Closing Date: (i) The Company has delivered to Buyer written confirmations, in form and substance reasonably satisfactory to Buyer (each, a “Payoff Letter”), with respect to the Indebtedness listed on Section 2.03(b)(i) of the Company Disclosure Schedule (the “Specified Debt”), which specify, among other things, (1) the aggregate amount required to be paid in order to repay the Specified Debt in full on the Closing Date (including any and all accrued but unpaid interest and prepayment penalty obligations due upon repayment) (the “Payoff Amount”) and (2) wire instructions to make such payoff. (ii) The Company has delivered to Buyer, with respect to any Unpaid Transaction Expenses, (A) the Transaction Expenses Payoff Instructions and (B) as applicable, an invoice from each payee referred to in the Transaction Expenses Payoff Instructions. (c) Buyer Closing Payments and Deliverables. At the Closing, Buyer shall: (i) pay, or cause to be paid to Sellers an aggregate amount equal to the Estimated Share Consideration, with the amount paid to each Seller to be the portion of such aggregate amount to which such Seller is entitled pursuant to the Payment Instructions provided by the Holder Representative, in immediately available funds by wire transfer to the account designated by such Seller set forth on Schedule III; (ii) pay, or cause to be paid to the Company, an aggregate amount equal to the Estimated Option Consideration (if any), in immediately available funds by wire transfer to an account designated by the Company set forth on Schedule III, in lieu of issue and allotment of shares of Company Common Stock by the Company to Buyer, and Buyer shall promptly following the Closing, but in any event within one (1) Business Day following Closing, and in accordance with Applicable Law cause the Company to pay via the Company’s payroll system such amounts to the Optionholders (net of any required withholding of Taxes under Applicable Law); (iii) pay, or cause to be paid to the Company, an aggregate amount equal to the Estimated CBA Consideration (if any), in immediately available funds by wire transfer to an account designated by the Company set forth on Schedule III, and Buyer shall promptly following the Closing, but in any event within one (1) Business Day following Closing, and in accordance with Applicable Law cause the Company to pay via the Company’s payroll system such amounts to the CBA Holder (net of any required withholding of Taxes under Applicable Law); (iv) pay, or cause to be paid to the Warrantholders, an aggregate amount equal to the Estimated Warrant Consideration (if any), with the amount paid to each Warrantholder to be the portion of such aggregate amount to which such
26 Warrantholder is entitled pursuant to the Payment Instructions provided by the Holder Representative, in immediately available funds by wire transfer to the account designated by such Warrantholder set forth on Schedule III; (v) pay, or cause to be paid, to the account of each Person to which any Specified Debt that is indicated on the Payoff Letters is owed, an amount equal to the Payoff Amount owing to such Person as set forth on the applicable Payoff Letter; (vi) pay, or cause to be paid, on behalf of the Company, to the account of each Person to which any Unpaid Transaction Expenses are owed, an amount equal to the Transaction Expenses owing to such Person as of the Closing as set forth on the Transaction Expenses Payoff Instructions; (vii) deliver, or cause to be delivered, to the Holder Representative, counterparts to each of the Transaction Documents to be entered into at Closing to which Buyer and/or one or more of its Affiliates is a party, duly executed by Buyer and/or such Affiliates, as applicable; (viii) a copy of the final R&W Insurance Policy which will be bound and issued on or prior to the Closing Date; and (ix) deliver, or cause to be delivered, such other documents and instruments as the Holder Representative may reasonably request from Buyer to consummate the transactions contemplated hereby and by the other Transaction Documents. (d) Seller Closing Deliverables. At or prior to the Closing, Sellers or the Holder Representative shall deliver to Buyer, or cause the Company to deliver to Buyer, as applicable: (i) the shares of Company Common Stock, free and clear of all Liens (other than Permitted Equity Liens), together with certificates for the shares of Company Common Stock duly endorsed or accompanied by stock powers duly endorsed in blank, with any required transfer stamps affixed thereto; (ii) true and complete copies of the Optionholder Letters from each Optionholder, duly executed by each such Optionholder; (iii) true and complete copies of the Warrant Termination Agreements from each Warrantholder, duly executed by each Warrantholder and the Company; (iv) true and complete copies of the CBA Holder Letters from each CBA Holder, duly executed by each such CBA Holder; (v) counterparts to each of the other Transaction Documents to be entered into at Closing to which any of the Company, Sellers, any other Company Equityholder and/or any of their respective Affiliates are a party, duly executed by such Persons, as applicable;
27 (vi) to the extent requested by Buyer, resignations of all officers and directors of the Company and each of its Subsidiaries from their positions with the Company or its Subsidiaries, in form and substance reasonably satisfactory to Buyer; (vii) an IRS Form W-9 with respect to each Seller and each Warrantholder (or, if a Seller or Warrantholder, as applicable, is disregarded as an entity separate from another Person for U.S. federal income Tax purposes, such other Person), duly completed and executed by such Seller or Warrantholder, as applicable; (viii) evidence of the Company’s receipt of the D&O Tail in accordance with Section 6.04; (ix) such other documents and instruments as Buyer may reasonably request from the Company, Sellers, the Holder Representative or any other Company Equityholder to consummate the transactions contemplated hereby and by the other Transaction Documents. Section 2.04. Company Stock Option Payments; CBA Payments. Promptly on or after the Closing, but in any event within one (1) Business Day following Closing, Buyer shall cause the Company to pay, or cause to be paid, via the Company’s payroll, to each Optionholder and CBA Holder, as the case may be, the portion of the Estimated Option Consideration (if any) and the CBA Consideration (if any) to which such Optionholder or such CBA Holder, as the case may be, is entitled to receive at the Closing pursuant to the Payment Instructions provided by the Holder Representative, net of any required withholding of Taxes under Applicable Law. With immediate effect from, and subject to, the Closing, all Company Stock Options held by such Optionholder and CBAs held by such CBA Holder shall be cancelled and extinguished, in perpetuity, automatically and without any further action required by any Person (including the Company, any shareholder of the Company and the applicable Optionholder or CBA Holder). Section 2.05. Closing Balance Sheet; Post-Closing Statement. (a) As promptly as practicable, but no later than ninety (90) days after the Closing Date, Buyer will prepare and deliver, or cause to be prepared and delivered to the Holder Representative, a written statement signed by the chief financial officer of Buyer setting forth Buyer’s good faith calculation of as of the Calculation Time of (i) the balance sheet of the Company (the “Closing Balance Sheet”), (ii) the Net Working Capital of the Company (the “Closing Net Working Capital”) derived from such balance sheet, (iii) the Indebtedness of the Company (the “Closing Indebtedness”), (iv) Cash of the Company (the “Closing Cash”) (v) the Company’s Transaction Expenses (the “Closing Company Transaction Expenses”), (vi) the resulting calculation of the Purchase Price based thereon (the “Closing Purchase Price”), and (vii) the resulting calculation of the difference between the Closing Purchase Price and the Estimated Purchase Price (the “Final Adjustment Amount”) (such written statement, the “Post-Closing Statement”). The Post-Closing Statement will be prepared, and the Final Adjustment Amount (and each
28 component thereof) will be determined, in each case in a manner consistent with the definitions set forth herein and based on the Company’s books and records and other information available at the time and calculated in accordance with the Accounting Principles. (b) If the Holder Representative disagrees with Buyer’s calculation of any item set forth in the Post-Closing Statement delivered pursuant to Section 2.05(a), the Holder Representative may, within forty-five (45) days after delivery of the Post-Closing Statement referred to in Section 2.05(a), deliver a notice to Buyer (a “Notice of Objection”) identifying those items or amounts as to which the Holder Representative disagrees and the Holder Representative’s calculation of such items or amounts, together with a reasonably detailed written explanation of the reasons for disagreement with each such item or amount. To the extent not specifically set forth in any such Notice of Objection, the Holder Representative shall be deemed to have agreed with all other items and amounts contained in the Post-Closing Statement, which shall be final, binding and conclusive for all purposes hereunder, and no Party may dispute any item or amount not set forth in such Notice of Objection. If the Holder Representative fails to deliver such a Notice of Objection within such thirty (30) day period, the Holder Representative shall be deemed to have agreed to the Post-Closing Statement and the items and amounts set forth therein, which shall be final, binding and conclusive for all purposes hereunder, and no Party may thereafter dispute any item or amount in the Post-Closing Statement. (c) If a Notice of Objection is duly delivered pursuant to Section 2.05(b), the Holder Representative and Buyer shall, during the thirty (30) days following such delivery, or any mutually agreed extension thereof, use commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the Final Adjustment Amount (and each component thereof). If, after the expiration of such period or any mutually agreed extension thereof, the Holder Representative and Buyer are unable to reach such agreement on all such items and amounts, they shall promptly thereafter jointly retain and submit the remaining disputed items for resolution to Ernst & Young LLP or, if Ernst & Young LLP is unable or unwilling to serve, an independent accounting firm as shall be mutually agreed upon in writing by Buyer and the Holder Representative (the “Accounting Referee”). Buyer and the Holder Representative shall instruct the Accounting Referee promptly to review this Agreement, the proposed Post- Closing Statement and the Notice of Objection. In resolving any disputed items set forth in a Notice of Objection, the Accounting Referee (i) shall act as an independent expert and not as an arbitrator, (ii) shall consider only those items or amounts in the Post-Closing Statement as to which the Holder Representative has disagreed in a Notice of Objection and which have not been resolved prior to submission to the Accounting Referee, (iii) shall not be entitled to hold any ex parte conversations, meetings, hearings (other than conversations or meetings solely involving the submission of a request for documents or information by the Accounting Referee to such Party) or take or order the taking of depositions or other testimony under oath, (iv) shall prepare its determination in accordance with the Accounting Principles and will base its determination solely on written submissions by Buyer and the Holder Representative, and (v) with respect to each matter submitted to it, shall not resolve such matter in a manner that is more favorable to Buyer than the Post-Closing Statement or more favorable to the Holder Representative than the
29 Notice of Objection. The Accounting Referee is not authorized to, and shall not, make any other determination including (A) any determination with respect to any matter included in the Post-Closing Statement or the Notice of Objection that was not submitted for resolution to the Accounting Referee or (B) any determination as to compliance by any Party to this Agreement with any of its covenants in this Agreement. The Accounting Referee shall have exclusive jurisdiction over, and resort to the Accounting Referee as provided in this Section 2.05(c) shall be the only recourse and remedy of the Parties against one another with respect to, any disputes arising out of or relating to the amounts of any adjustments pursuant to this Section 2.05(c). Any disputes not within the scope of the disputes to be resolved by the Accounting Referee pursuant to this Section 2.05(c) (as well as any disputes about the scope of disputes to be resolved by the Accounting Referee pursuant to this Section 2.05(c)) shall be resolved pursuant to Article 9. (d) The Accounting Referee shall deliver to the Holder Representative and Buyer, as promptly as practicable and no later than thirty (30) days after its appointment, a written report setting forth a determination as to any disputed items and its calculation of the Final Adjustment Amount (and each component thereof), which shall be final, conclusive and binding upon the Holder Representative, the Company Equityholders and Buyer absent fraud or manifest error and shall be enforceable by any court of competent jurisdiction. The dispute resolution by the Accounting Referee under this Section 2.05(d) shall constitute an expert determination and shall not constitute an arbitration. (e) The fees, costs and expenses of the Accounting Referee shall be borne by Buyer in the proportion that the aggregate dollar amount of the items that are successfully disputed by the Holder Representative (as finally determined by the Accounting Referee) bears to the aggregate dollar amount of the items submitted to the Accounting Referee and by the Holder Representative (on behalf of the Company Equityholders) in the proportion that the aggregate dollar amount of the disputed items that are unsuccessfully disputed by the Holder Representative (as finally determined by the Accounting Referee) bears to the aggregate dollar amount of the items submitted to the Accounting Referee. For instance, if the Holder Representative challenges the calculation of the proposed adjustment amount in the proposed Post-Closing Statement by an amount of $100,000, but the Accounting Referee determines that the Holder Representative has a valid claim for only $40,000, Holder Representative (on behalf of the Sellers) shall bear 60% (i.e., $60,000/$100,000) of the fees and expenses of the Accounting Referee and Buyer shall bear the other 40% of such fees and expenses (i.e., $40,000/$100,000). (f) The Holder Representative and Buyer agree that they will cooperate and assist, and shall cause their respective representatives and Subsidiaries (including post- Closing, in the case of Buyer, the Company and its Subsidiaries) to assist, in the preparation and review of the Post-Closing Statement and the determination of the Final Adjustment Amount. Without limiting the foregoing, Buyer (and its Affiliates, including post-Closing, the Company and its Subsidiaries) shall make available to Holder Representative and its accountants and Representatives, during normal business hours and without undue interruption of Buyer or the Company’s and its Subsidiaries business, the books, records, work papers, personnel and any information of the Company, its Subsidiaries and Buyer
30 that Holder Representative and its Representatives may reasonably request to enable them to evaluate the Post-Closing Statement delivered by Buyer. Section 2.06. Post-Closing Adjustment of Purchase Price. (a) Within five (5) Business Days after the final determination of the Final Adjustment Amount (and each component thereof), the Holder Representative shall deliver to Buyer updated Payment Instructions, which shall be updated to reflect the determination of the Final Adjustment Amount, any modifications to the Pro Rata Share of any Company Equityholder pursuant to the terms of this Agreement and the amount of any applicable Advisor Expenses. Within five (5) Business Days after the final determination of the Final Adjustment Amount: (i) If the Estimated Purchase Price exceeds the Closing Purchase Price (the amount of such excess, the “Overpayment Amount”), then: (A) if the Overpayment Amount is equal to or less than the Adjustment Holdback Amount (to the extent of the Adjustment Holdback Amount remaining as of the date of the payment of the Final Adjustment Amount), the Adjustment Holdback Amount payable to the Company Equityholders pursuant to Section 2.07 shall be reduced by the Overpayment Amount; or (B) if the Overpayment Amount exceeds the Adjustment Holdback Amount (such excess, the “Adjustment Shortfall Amount”), then (x) the Adjustment Holdback Amount payable to the Company Equityholders pursuant to Section 2.07 shall be reduced to $0 and (y) at Buyer’s option, Buyer may reduce the Indemnity Holdback Amount payable to the Company Equityholders pursuant to Section 2.07 by an amount that does not exceed the lesser of the Adjustment Shortfall Amount and the amount of the Indemnity Holdback Amount then remaining in the Holdback Fund. (ii) If the Closing Purchase Price exceeds the Estimated Purchase Price (the amount of such excess, the “Underpayment Amount”), then Buyer shall pay, or cause to be paid, in accordance with same the procedures set forth in Section 2.02(d) and Section 2.03(c) for payments to the Company Equityholders, an amount in cash, without interest, equal to the Underpayment Amount to the Company Equityholders in accordance with their respective CBA Share and Pro Rata Shares, as applicable. Notwithstanding anything to the contrary herein, Buyer shall not be required to make any payment pursuant to this Section 2.06(a)(i)(B) until the Holder Representative delivers to Buyer updated Payment Instructions reflecting the allocation of the Underpayment Amount to the Company Equityholders, provided that Buyer shall pay, or cause to be paid, any Underpayment Amount pursuant to this Section 2.06(a)(i)(B) within five (5) Business Days of Holder Representative’s delivery of such Payment Instructions.
31 Section 2.07. Release of Adjustment Holdback Fund. Within five (5) Business Days after the payment of the Final Adjustment Amount pursuant to Section 2.06, Buyer shall pay, or cause to be paid, an amount in cash, without interest, equal to any amount remaining of the Adjustment Holdback Amount to the Company Equityholders in accordance with their respective CBA Share and Pro Rata Shares, as applicable. Within five (5) Business Days following the Survival Termination Date, Buyer shall pay, or cause to be paid, an amount in cash, without interest, equal to any amount remaining of the Indemnity Holdback Amount to the Company Equityholders in accordance with their respective CBA Share and Pro Rata Shares, as applicable. Notwithstanding anything to the contrary herein, Buyer shall not be required to make any payment pursuant to this Section 2.07 until the Holder Representative delivers to Buyer updated Payment Instructions reflecting the allocation of the applicable holdback amount to the Company Equityholders, any modifications to the Pro Rata Share of any Company Equityholder pursuant to the terms of this Agreement and the amount of any applicable Advisor Expenses, provided that Buyer shall pay, or cause to be paid, such amount pursuant to this Section 2.07 within five (5) Business Days of Holder Representative’s delivery of such Payment Instructions. Section 2.08. Contingent Installment Payment; Post-Closing Earnout Payments. (a) Contingent Installment Payment Amount. In accordance with this Section 2.08, Buyer shall pay, or cause to be paid, to the Company Equityholders, an amount (which amount shall not be less than $0 or greater than $50,000,000) equal to: (i) the product of Actual 2023 EBITDA, multiplied by 8.3, minus (ii) the Base Cash Consideration (such amount, the “Contingent Installment Payment Amount”). In no event will the Base Cash Consideration plus the Contingent Installment Payment Amount exceed $100,000,000 in the aggregate. (b) Earnout Payments. In accordance with Section 2.08(e): (i) if the Company achieves the 2024 Operating Profit Threshold (as defined below), then Buyer shall pay, or cause to be paid, to the Company Equityholders, an amount equal to (A) the 2024 Base Earnout Amount (as defined below), plus (B) the 2024 Shortfall Earnout Amount (as defined below), if any (together, the “2024 Earnout Payment”); and (ii) if the Company achieves the 2025 Operating Profit Threshold (as defined below), then Buyer shall pay, or cause to be paid, to the Company Equityholders, an amount equal to (A) the 2025 Base Earnout Amount (as defined below), plus (B) the 2025 Shortfall Earnout Amount (as defined below), if any (together, the “2025 Earnout Payment” and, together with the 2024 Earnout Payment, the “Earnout Payments”); provided, that, (1) if the Company does not achieve the 2024 Operating Profit Threshold, then no 2024 Earnout Payment shall be payable hereunder, (2) if the Company does not achieve the 2025 Operating Profit Threshold, then no 2025 Earnout Payment shall be payable hereunder, (3) if there is no Shortfall Amount (as defined below), then the 2024 Shortfall Earnout Amount and 2025 Shortfall
32 Earnout Amount shall each equal $0, (4) in no event will the 2024 Base Earnout Amount plus the 2025 Base Earnout Amount exceed $20,000,000 in the aggregate, (5) in no event will the 2024 Shortfall Earnout Amount plus the 2025 Shortfall Earnout Amount exceed the Shortfall Amount and (6) in no event will the Earnout Payments plus the Contingent Installment Payment Amount, in the aggregate, exceed an amount equal to $120,000,000 minus the Base Cash Consideration. (c) Definitions. For purposes of this Section 2.08: (i) “2024 Base Earnout Amount” means an amount (which amount shall not be less than $0) equal to the product of: (A) (1) the Company’s and its Subsidiaries’ consolidated Actual Operating Profit for the Company’s fiscal year ending December 31, 2024, divided by (2) $43,300,000 (which quotient shall not exceed 100%), multiplied by (B) the Aggregate Base Earnout Amount. (ii) “2024 Operating Profit Threshold” means that the Company’s and its Subsidiaries’ consolidated Actual Operating Profit for the Company’s fiscal year ending December 31, 2024 exceeds $15,400,000. (iii) “2024 Shortfall Earnout Amount” means an amount (which amount may be $0) equal to: (A) the product of (1) the Company’s and its Subsidiaries’ consolidated Actual Operating Profit for the Company’s fiscal year ending December 31, 2024, divided by (2) Shortfall Operating Profit Target (which quotient shall not exceed 100%), multiplied by (B) the Shortfall Amount (if any). (iv) “2025 Base Earnout Amount” means an amount (which amount shall not be less than $0) equal to: (A) the product of (1) the Company’s and its Subsidiaries’ consolidated Actual Operating Profit for the Company’s fiscal years ending December 31, 2024 and December 31, 2025, divided by (2) $43,300,000 (which quotient shall not exceed 100%), multiplied by (B) the Aggregate Base Earnout Amount, less (C) the 2024 Base Earnout Amount (if any). (v) “2025 Operating Profit Threshold” means that Company’s and its Subsidiaries’ consolidated Actual Operating Profit for the Company’s fiscal year ending December 31, 2024 and December 31, 2025 exceeds $34,600,000. (vi) “2025 Shortfall Earnout Amount” means an amount (which amount may be $0) equal to: (A) the product of (1) the Company’s and its Subsidiaries’ consolidated Actual Operating Profit for the Company’s fiscal years ending December 31, 2024 and December 31, 2025, divided by (2) Shortfall Operating Profit Target (which quotient shall not exceed 100%), multiplied by (B) the Shortfall Amount (if any), less the 2024 Shortfall Earnout Amount (if any). (vii) “Actual 2023 EBITDA” means the Company’s and its Subsidiaries’ consolidated adjusted EBITDA for the Company’s fiscal year ending December 31, 2023, calculated in accordance with Schedule VI and, in the case of each item therein, in accordance with the Accounting Principles.
33 (viii) “Actual Operating Profit” means, for the applicable fiscal period, the Company’s and its Subsidiaries’ consolidated adjusted income (loss) from operations, calculated in accordance with Schedule VII and, in the case of each item therein, in accordance with the Accounting Principles. (ix) “Aggregate Base Earnout Amount” means $20,000,000. (x) “Shortfall Amount” means an amount equal to (A) $100,000,000, less (B) the Base Cash Consideration, less (C) the Contingent Installment Payment Amount (which amount may be $0). (xi) “Shortfall Operating Profit Target” means an amount equal to (A) $43,300,000, plus (B) the amount (if any) by which $10,500,000 exceeds the Company’s and its Subsidiaries’ consolidated Actual Operating Profit for the Company’s fiscal year ending December 31, 2023. (d) Procedures Applicable to Determination of the Installment and Earnout Payments. (i) On or before the ninetieth (90th) day following December 31, 2023 (such date, the “Installment Calculation Delivery Date”), Buyer shall prepare and deliver to the Holder Representative a written statement (the “Installment Calculation Statement”) setting forth in reasonable detail Buyer’s calculation of the Contingent Installment Payment Amount pursuant to Section 2.08(a) (the “Installment Calculation”). (ii) On or before the ninetieth (90th) day following each of December 31, 2024 and December 31, 2025 (each such date, an “Earnout Calculation Delivery Date”), Buyer shall prepare and deliver to the Holder Representative a written statement (the “Earnout Calculation Statement” and, together with the Installment Calculation Statement, the “Contingent Payment Calculation Statements”) setting forth in reasonable detail Buyer’s calculation of the Earnout Payment for 2024 or 2025, as the case may be, pursuant to Section 2.08(b) (each, an “Earnout Calculation” and, together with the Installment Calculation, the “Contingent Payment Calculations”). (iii) The Holder Representative shall have sixty (60) days after receipt of any Contingent Payment Calculation Statement (the “Review Period”) to review the Contingent Payment Calculation Statement and the Contingent Payment Calculation set forth therein. During the Review Period, the Holder Representative and its Representatives and accountants shall have the right to reasonably inspect Buyer’s and the Company’s and its Subsidiaries’, as applicable, contracts, books and records during normal business hours at Buyer’s or the Company’s, offices, as applicable, together, with reasonable access to the individuals responsible for the preparation of the Contingent Payment Calculation (during normal business hours and upon reasonable advance notice), and solely for purposes reasonably related to the determinations of the applicable Contingent Payment Calculation. Prior to the
34 expiration of the Review Period, the Holder Representative may object to the Contingent Calculation set forth in the Contingent Payment Calculation Statement by delivering a written notice of objection (an “Calculation Objection Notice”) to Buyer. Any Calculation Objection Notice shall specify the items in the Contingent Payment Calculation disputed by the Holder Representative and shall describe in reasonable detail the basis for such objection, as well as the estimated amount in dispute. If the Holder Representative fails to deliver a Calculation Objection Notice to Buyer prior to the expiration of the Review Period, then the Contingent Payment Calculation set forth in the Contingent Payment Calculation Statement shall be final and binding on the Parties hereto and the Company Equityholders. If the Holder Representative timely delivers a Calculation Objection Notice, Buyer and the Holder Representative shall use reasonable commercial efforts for a period of thirty (30) days (or such longer period as they may mutually agree in writing) to resolve any such disagreement specified in the Calculation Objection Notice. If, at the end of such period, they are unable to resolve such disagreements, then the Accounting Referee shall resolve any remaining disagreements between the parties with respect to the applicable Contingent Payment Calculation. Each of Buyer and the Holder Representative shall promptly provide their assertions regarding such disagreements in writing to the Accounting Referee and to each other. The Accounting Referee shall be instructed to render its determination with respect to such disagreements as soon as reasonably possible (which the Parties hereto agree should not be later than thirty (30) days following the day on which any such disagreements are referred to the Accounting Referee). The Accounting Referee shall base its determination solely on (A) the written submissions of Buyer and the Holder Representative and (B) the extent (if any) to which the Contingent Payment Calculation and the Contingent Installment Payment or applicable Earnout Payment, as applicable (each, a “Contingent Payment”), require adjustment in order to be determined in accordance with Section 2.08(a) or Section 2.08(b), as applicable (including the definitions of the defined terms in Section 2.08(c)). The determination of the Accounting Referee shall be final, conclusive and binding on the Parties hereto and the Company Equityholders absent fraud or manifest error and shall be enforceable by any court of competent jurisdiction. The date on which the applicable Contingent Payment is finally determined in accordance with this Section 2.08(d) is hereinafter referred to as a “Contingent Payment Determination Date.” All fees and expenses of the Accounting Referee relating to the work, if any, to be performed by the Accounting Referee hereunder shall be borne pro rata as between Buyer, on the one hand, and the Holder Representative (on behalf of the Company Equityholders), on the other hand, in proportion to the allocation of the dollar value of the amounts in dispute between Buyer and the Holder Representative made by the Accounting Referee such that the Party prevailing on the greater dollar value of such disputes pays the lesser proportion of the fees and expenses. (e) Timing and Method of Contingent Payments. Any Contingent Payment that Buyer is required to pay pursuant to Section 2.08(a) or Section 2.08(b) hereof shall be paid or caused to be paid by Buyer in accordance with same the procedures set forth in Section 2.03(c) for payments to the Company Equityholders, to the Company Equityholders in
35 CBA Shaccordance with their respective are and Pro Rata Shares, as applicable. Notwithstanding anything to the contrary herein, Buyer shall not be required to make any payment pursuant to this Section 2.08 until the Holder Representative delivers to Buyer updated Payment Instructions reflecting the allocation of the applicable Contingent Payment amount to the Company Equityholders, any modifications to the Pro Rata Share of any Company Equityholder pursuant to the terms of this Agreement and the amount of any applicable Advisor Expenses, provided that Buyer shall pay such Contingent Payment that Buyer is required to pay pursuant to Section 2.08(a) within five (5) Business Days of Holder Representative’s delivery of such Payment Instructions. (f) Disclaimers. Except as expressly set forth herein, (i) this Section 2.08 shall impose no restrictions on the operations, business or activities of Buyer, the Company or any of their respective Affiliates following the Closing, and (ii) Buyer and its Affiliates shall have the right to operate the business and activities of Buyer, the Company and their respective Affiliates following the Closing in any way that Buyer or its Affiliates deems appropriate in its sole discretion. Notwithstanding the foregoing, from and after the Closing and until December 31, 2025, (A) Buyer shall, and shall cause the Company and its Subsidiaries to, act in good faith and not take any action with the primary intention to reduce or delay any Contingent Payment payable pursuant to Section 2.08(a) or Section 2.08(b) (other than in connection with the good faith enforcement of Buyer’s rights under this Agreement, including under Section 2.08(d)), (B) Buyer shall not abandon or discontinue the Company’s and its Subsidiaries’ business, (C) Buyer shall not make the Company or its Subsidiaries liable for any overhead or similar expenses of Buyer or other Affiliates of Buyer, including any public company reporting costs or any other expense of Buyer or its Affiliates not associated with the business of the Company as conducted prior to the Closing and (D) Buyer shall maintain a financial record keeping system that enables it to separately account for the Actual Operating Profit and Actual 2023 EBITDA of the Company’s and its Subsidiaries’ business as owned by Buyer in accordance with the Accounting Principles. (g) Information Obligations. From and after December 31, 2023 and through the December 31, 2025, Buyer shall provide, on a fiscal quarterly basis commencing with the first full fiscal quarter after December 31, 2023, a written report to the Holder Representative in reasonable detail regarding a report of the Company’s and its Subsidiaries’ consolidated Actual Operating Profit for such period (each such report, an “Update Report”). Buyer may require the Holder Representative or any other involved third party to sign a customary confidentiality agreement and shall not be required to afford such access to any Person who are involved in any competing business. (h) Contingent Payments Not a Security. The Parties hereto do not intend the right of the Company Equityholders to receive any Contingent Payment pursuant to this Section 2.08 to be a security. Accordingly, the right of a Company Equityholder to receive any Contingent Payment pursuant to this Section 2.08 (i) shall not be represented by a certificate, (ii) does not represent an ownership interest in Buyer, the Company or any of their Affiliates, and (iii) does not entitle a Company Equityholder to any rights common to equityholders of Buyer, the Company or any of their Affiliates, other than as expressly set forth herein. The right of a Company Equityholder to receive any Contingent Payment
36 pursuant to this Section 2.08 shall not be pledged without the prior written consent of Buyer. Notwithstanding the foregoing, a Company Equityholder may transfer all or any of such rights (a) as a gift to any member of his or her family or to any trust for the benefit of any such family member of such Company Equityholder, provided that any such transferee shall agree in writing with Buyer, as a condition precedent to such transfer, to be bound by all of the provisions of this Agreement relating to the Contingent Payments, or (b) by will or the laws of descent and distribution, in which event each such transferee shall be bound by all of the provisions of this Agreement relating to the Contingent Payments or (c) by court order, in which event each such transferee shall be bound by all of the provisions of this Agreement relating to the Contingent Payments. As used in this Section 2.08(h), the word “family” shall include any spouse, lineal ancestor or descendant, brother or sister. (i) Change of Control Event. In connection with the consummation of a Change of Control Event of the Company prior to December 31, 2025, Buyer shall be required, as a condition precedent to the consummation of such transaction and in full satisfaction of its obligations pursuant to this Section 2.08, to pay, in accordance with and pursuant to Section 2.08(e), an amount equal to the maximum amount of unpaid Contingent Payments that are earned or capable of being earned by Sellers as of such Change of Control Event. In connection with the consummation of a Change of Control Event of Buyer prior to December 31, 2025, Buyer shall be required, as a condition precedent to the consummation of such transaction, to cause the continuing or surviving entity immediately following such transaction (and including, for avoidance of doubt, any entity that acquires all or substantially all of the assets of Buyer) to affirmatively assume the obligations under this Section 2.08 and the payment of the Contingent Payments. (j) Right of Set-Off. Notwithstanding anything to the contrary herein, Buyer may set-off against and reduce the amount of any Contingent Payment due to any Company Equityholder by any amount payable by such Company Equityholder (i) pursuant to Section 2.06(a)(i) to the extent that such amount exceeds the Adjustment Holdback Amount, or (ii) otherwise to Buyer or any of its Affiliates. (k) Tax Treatment of Contingent Payments. The parties hereto acknowledge and agree that (i) any Contingent Payment, when made, shall be treated, for U.S. federal income tax purposes, as additional consideration paid to the Company Equityholders and (ii) a portion of each such payment shall be treated as interest to the extent required by Section 483 of the Code. Section 2.09. Withholding Taxes. Notwithstanding any other provision of this Agreement, Buyer, its Affiliates and the Company and its Subsidiaries shall be entitled to deduct and withhold from any amount otherwise payable to any Person pursuant to this Agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of Applicable Law. Other than withholding in respect of amounts treated as compensation for services and withholding in respect of any Seller that does not timely provide the forms described in Section 2.03(d)(vii), Buyer shall use commercially reasonable efforts to notify the Person in respect of which such withholding is proposed to be made at least five (5) Business Days prior to such withholding and shall use commercially reasonable efforts to cooperate with such Person to reduce or eliminate
37 such withholding to the extent permitted by Applicable Law, including taking into consideration all relevant and duly executed Tax forms. Amounts so withheld and paid over to the appropriate Governmental Authority shall be treated for all purposes of this Agreement as having been paid to the applicable Person in respect of which such deduction and withholding was made. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the Company Disclosure Schedule, the Company hereby represents and warrants to Buyer as of the date hereof that: Section 3.01. Corporate Existence and Power. (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers required to carry on its business as now conducted. 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 those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has heretofore delivered to Buyer true and complete copies of the Governing Documents of the Company as currently in effect (collectively, the “Company Organizational Documents”). The Company Organizational Documents are in full force and effect, and no other Company Organizational Documents are applicable to or binding upon the Company or any of its Subsidiaries. (b) Neither the Company nor any Subsidiary of the Company is in violation of or in default under any provision of the Company Organizational Documents or such Subsidiary’s Governing Documents, as applicable, and there exists no condition, fact or event which, after notice, lapse of time or both, would result in any such violation or default. Section 3.02. Authorization. (a) The Company has full power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and each of the other Transaction Documents to which it is a party, and the consummation by the Company of the transactions contemplated hereby or thereby, have been duly authorized by all necessary actions on the part of the Company. This Agreement and each of the other Transaction Documents to which the Company is a party has been duly executed and delivered by the Company and constitute the legal, valid and binding agreement of the Company enforceable against the Company in accordance with its and their terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Applicable Laws affecting creditors’ rights generally and general principles of equity).
38 (b) There are no votes, approvals, consents or other proceedings of the holders of the Company’s capital stock necessary in connection with the execution and delivery of, or the performance by the Company of its obligations under, this Agreement and the other Transaction Documents to which it is a party, or the consummation of the transactions contemplated hereby or thereby. No other approval or action by the Company or any holder of Company Common Stock is required in connection with the consummation of the transactions contemplated by this Agreement or any of the other Transaction Documents. Section 3.03. Governmental Authorization. No consent, waiver, approval, Order, license, or declaration, registration or filing with, or notification to, any Person or Governmental Authority is required on the part of the Company in connection with the execution, delivery and performance of this Agreement or the other Transaction Documents to which it is a party or the compliance by the Company with any of the provisions hereof or thereof, or the consummation of the Transactions, except for such consents, waivers, approvals, Orders, licenses or authorizations the failure of which to obtain would not, individually or in the aggregate, (i) be material to the Company and its Subsidiaries, taken as a whole, or (ii) materially impair or delay the Company’s ability to perform its obligations under this Agreement or any other Transaction Document to which it is a party or to consummate the Transactions. Section 3.04. Noncontravention. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby by the Company do not and will not (a) violate the Company Organizational Documents or the certificate of incorporation or bylaws or equivalent Governing Documents of any Subsidiary, (b) violate any Applicable Law, (c) except as set forth on Section 3.04 of the Company Disclosure Schedule, 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, would constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company or any Subsidiary of the Company or to a loss of any benefit to which the Company or any Subsidiary of the Company is entitled under any provision of any agreement or other instrument binding upon the Company or any Subsidiary of the Company, except in the case of this clause (c), for such consents the failure of which to obtain, and such defaults, that would not, individually or in the aggregate, (x) be material to the Company and its Subsidiaries, taken as a whole, or (y) materially impair or delay the Company’s ability to perform its obligations under this Agreement or any of the other Transaction Documents to which it is a party or to consummate the Transactions, (d) result in the creation or imposition of any Lien (other than a Permitted Lien) on any asset of the Company or any Subsidiary of the Company, or (e) give any Company Equityholder dissenters’, appraisal or similar rights with respect to transactions contemplated by this Agreement or any of the other the Transaction Documents under Applicable Law. Section 3.05. Capitalization. (a) As of the date hereof, the authorized capital stock of the Company consists of 100,000 shares of Company Common Stock, 91,106 of which are issued and outstanding. There are no shares of the Company’s capital stock held by the Company in its treasury or by any Subsidiary of the Company. All outstanding shares of
39 capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. (b) Except as set forth on Section 3.05(b), of the Company Disclosure Schedule, there are no outstanding (i) equity interests or other voting securities of or ownership interests in the Company, (ii) securities of the Company convertible into or exchangeable for equity interests or other voting securities of or ownership interests in the Company, (iii) warrants, calls, options or other rights to acquire from the Company, or other obligation of the Company to issue, any equity interests, voting securities or securities convertible into or exchangeable for equity interests or voting securities of the Company or (iv) restricted equity interests, stock appreciation rights, performance units, contingent value rights, “phantom” stock or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any equity interests of or voting securities of the Company (collectively, “Company Securities”). Except as set forth on Section 3.05(b) of the Company Disclosure Schedule, there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities, and no shares of Company Common Stock or any other Company Securities were issued in violation of any preemptive rights. Except as set forth in Section 3.05(b) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any voting agreement with respect to the voting of any Company Securities. Section 3.06. Subsidiaries. (a) Each Subsidiary of the Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted and 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 those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. All Subsidiaries of the Company and their respective jurisdictions of incorporation are identified on Section 3.06 of the Company Disclosure Schedule. (b) All of the outstanding capital stock or other voting securities of each Subsidiary of the Company is owned by the Company, directly or indirectly, free and clear of any Lien (other than Permitted Equity Liens) and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities) (other than Permitted Equity Liens). There are no outstanding (i) securities of the Company or any Subsidiary of the Company convertible into or exchangeable for shares of capital stock or voting securities of any Subsidiary of the Company or (ii) options or other rights to acquire from the Company or any Subsidiary of the Company, or other obligation of the Company or any Subsidiary of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of any Subsidiary of the Company (collectively, the “Subsidiary Securities”). There are no outstanding obligations of the Company or any
40 Subsidiary of the Company to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities. Section 3.07. Financial Statements. (a) The Company has delivered to Buyer prior to the date hereof true and complete copies of the unaudited consolidated balance sheets of the Company and its Subsidiaries as of December 31, 2022 and 2021 and the related unaudited consolidated statements of operations, stockholders’ equity and cash flows for each of the years then ended (together with the notes thereto, the “Annual Financial Statements”), the unaudited consolidated balance sheets and the related unaudited interim consolidated statements of operations and cash flows of the Company and its Subsidiaries for the six (6) months ended June 30, 2023 (the “Interim Financial Statements”, and together with the Annual Financial Statements, the “Financial Statements”), which (i) are derived from the books and records of the Company and its Subsidiaries, (ii) are set forth in Section 3.07(a)(ii) of the Company Disclosure Schedule, (iii) fairly and accurately present, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then-ended, subject, in the case of the Interim Financial Statements, to normal year-end adjustments, which are not material in amount, and (iv) have been prepared in accordance with the Accounting Principles applied on a consistent basis throughout the periods then- ended. (b) Except as set forth in Section 3.07(b) of the Company Disclosure Schedule, the Company and its Subsidiaries have (i) maintained accurate books and records reflecting its assets and liabilities and maintained systems of internal accounting controls designed to ensure the reliability of financial reporting and the preparation of financial statements and (ii) implemented disclosure controls and procedures designed to ensure that material information is made known to the management of the Company. (c) There are no significant deficiencies in the design or operation of the Company’s internal accounting controls that could adversely affect in any material respect the ability of the Company or its Subsidiaries to record, process, summarize and report financial data or material weaknesses in internal controls over financial reporting. Section 3.08. Absence of Certain Changes. (a) Except as set forth in Section 3.08(a) of the Company Disclosure Schedule, since the Balance Sheet Date, the business of the Company and each Subsidiary of the Company has been conducted in the ordinary course consistent with past practices and there has not been any event, occurrence, development or state of circumstances or facts that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (b) Without limiting the foregoing, except as set forth in Section 3.08(b) of the Company Disclosure Schedule, since the Balance Sheet Date, the Company has not:
41 (i) adopted any change to, or amend or otherwise alter, the Company Organizational Documents or the Governing Documents of any Subsidiary of the Company (whether by merger, consolidation or otherwise); (ii) split, combined or reclassified any equity interests, voting securities or other ownership interests of the Company or any of its Subsidiaries or declared, set aside or paid any dividend or other distribution (whether in cash, equity interests or other property or any combination thereof) in respect of any Company Security, or redeemed, repurchased or otherwise acquired or offered to redeem, repurchase or otherwise acquire any such securities; (iii) (A) issued, delivered or sold, or authorized the issuance, delivery or sale of, any Company Securities, including any award under the Company Equity Plans (or other equity incentive award) or (B) amended any term of any Company Security or Subsidiary Security (in each case, whether by merger, consolidation or otherwise); (iv) entered into, adopted a plan of or effected any restructuring, reorganization or complete or partial liquidation, dissolution, merger or consolidation of the Company or any of its Subsidiaries; (v) suffered any extraordinary losses or waived any rights of material value (regardless of whether in the ordinary course of business or consistent with past practice) in excess of $250,000 in the aggregate; (vi) incurred any capital expenditures or any obligations or Liabilities in respect thereof, except for capital expenditures that do not exceed $750,000 individually or $1,500,000 in the aggregate; (vii) (A) acquired (by merger, consolidation, acquisition of securities or assets or otherwise), directly or indirectly, any securities or material assets, properties or businesses other than supplies in the ordinary course of business of the Company in a manner that is consistent with past practice, or (B) acquired any real property; (viii) (A) accelerated the collection of accounts receivable or the realization of other current assets, delayed the payment of accounts payables or other current liabilities, or (B) otherwise conducted its cash management customs and practices, in each case, other than in the ordinary course of business consistent with past practice in all material respects (including with respect to levels of capital expenditures and cash management practices generally); (ix) other than in the ordinary course of business consistent with past practice, sold, leased, licensed or otherwise transferred or disposed of, or abandoned or allowed to lapse, or created or incurred any Lien (other than Permitted Liens) on, any of the Company’s assets, securities, or properties;
42 (x) sold, assigned, leased, licensed or otherwise transferred or disposed of, abandoned or permited to lapse, failed to take any action necessary to maintain, defend, enforce or protect, or created or incurred any Lien (other than Permitted Liens) on, any Intellectual Property Right, other than granting non-exclusive licenses of such Intellectual Property Rights to customers of the Company or any Subsidiary in the ordinary course of business consistent with past practice; (xi) updated, modified, revised or otherwise changed (A) any external privacy policy of the Company or any Subsidiary or (B) any internal policies or procedures relating to Personal Information or the collection, storage, use, sharing, disposal or other processing thereof, in each case, other than to the extent required under Applicable Data Protection Laws; (xii) provided or agreed to provide access to, or granted any rights or contingent rights to access, any source code of any Software of the Company or any Subsidiary, in each case to any Person other than the current Service Providers who presently have access for bona fide purposes; (xiii) other than in the ordinary course of business consistent with past practice and excluding capital contributions made to Subsidiaries of the Company, made any loans, advances or capital contributions to, or investments in, any Person; (xiv) created, incurred, assumed, suffered to exist or otherwise became liable with respect to any Indebtedness other than Indebtedness included in Closing Indebtedness; (xv) (A) other than in the ordinary course of business consistent with past practice, entered into, renewed, amended or modified in any material respect or terminated any Material Contract, or (B) otherwise waived, released or assigned any material rights, claims or benefits of the Company under any Material Contract; (xvi) cancelled or terminated any Company Insurance Policy or caused any of the coverage thereunder to lapse; (xvii) except as required by Applicable Law or the terms of any Employee Plan as in effect on the date hereof, (A) granted or materially increased any severance, retention or termination pay to, or entered into or amended any severance, retention, termination, bonus, deferred compensation, change in control or severance agreement with, any current or former Service Provider, (B) materially increased the compensation or benefits provided to any current or former Service Provider, (C) established, adopted, entered into or amended any Employee Plan, (D) other than as required under this Agreement, granted or repurchased any equity or equity-based awards to, or discretionarily accelerated the vesting or payment of any such awards held by, any current or former Service Provider, (E) (x) hired any employees with annual base compensation in excess of $150,000 or (y) terminated or gave notice to terminate the employment of any employee with
43 annual base compensation in excess of $150,000, or (F) effected or permitted a “mass layoff” or similar event under the WARN Act; (xviii) changed the Company’s methods of accounting, except as required by concurrent changes in Applicable Law, by U.S. GAAP, or as agreed to by the independent accountants of the Company; (xix) settled or compromised, or offered or proposed to settle or compromise, (A) any Action involving or against the Company with an amount in dispute or settlement or compromise amount in excess of $25,000 or (B) any Action that relates to the Transactions; (xx) made, changed or revoked any Tax election, changed any annual tax accounting period, adopted or changed any method of accounting, changed the entity classification of the Company for income Tax purposes, filed any amended Tax Return or filed claims for Tax refunds, entered into any closing agreement, settled, compromised, conceded or abandoned any Tax claim, audit or assessment relating to the Company, or consented to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company; or (xxi) agreed, resolved or committed to do any of the foregoing. Section 3.09. No Undisclosed Material Liabilities. There are no Liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a Liability, other than: (a) liabilities provided for in the Balance Sheet or disclosed in the notes thereto; (b) incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date; and (c) set forth on Section 3.09 of the Company Disclosure Schedule. Section 3.10. Material Contracts. (a) Except as set forth in the corresponding subsection of Section 3.10 of the Company Disclosure Schedule, neither the Company nor any Subsidiary is a party to or bound by (each, a “Material Contract”): (i) any Contract pursuant to which the Company or any Subsidiary has made payments of more than $250,000 in the aggregate in the twelve (12) calendar months ended June 30, 2023; (ii) any Contract with a customer pursuant to which the Company or any Subsidiary received payments of more than $100,000 in the twelve (12) calendar months ended June 30, 2023;
44 (iii) any Contract with a Top Vendor that expires within one year after June 30, 2023; (iv) any sales, distribution or other similar agreement providing for the sale by the Company or any Subsidiary after the Closing of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to the Company and the Subsidiaries of $400,000 or more or (B) aggregate payments to the Company and the Subsidiaries of $100,000 or more; (v) any partnership, joint venture or other similar agreement or arrangement; (vi) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); (vii) any Contract (a) relating to Indebtedness or (b) that is a mortgage, deed of trust, pledge, security agreement or other instrument granting a Lien (other than a Permitted Lien) on any of the Company’s or its Subsidiaries’ assets; (viii) any Contract that is a material settlement, conciliation, or similar Contract that imposes any monetary obligation in excess of $50,000 or other material obligations upon the Company or its Subsidiaries after the date of this Agreement; (ix) any lease (whether of real or personal property) providing for annual rental payments of $50,000 or more; (x) any Real Property Lease, including pursuant to which any Seller or any third party has a right to use, occupy or possess any Real Property or has granted to a third party the right to use, occupy or possess any Real Property; (xi) any Contract with a Governmental Authority or any currently outstanding bid, proposals or other offers related to Contracts with a Governmental Authority; (xii) any option, license, franchise or similar agreement; (xiii) any agreement pursuant to which (A) the Company or any Subsidiary obtains any license, sublicense, option, right to use, right of first offer, right of first refusal or other preferential right, covenant not to be sued, or other right or immunity with respect to, any Intellectual Property Right (other than any commercial off-the-shelf software, which are generally available on non- discriminatory pricing terms, licensed or sublicensed by the Company or any Subsidiary with an annual cost lower than $50,000 in the aggregate) or (B) the Company or any Subsidiary grants any license, sublicense, option, right to use, right of first offer, right of first refusal or other preferential right, covenant not to be sued, or other right or immunity with respect to, any Intellectual Property Right (other
45 than non-exclusive licenses granted to customers of the Company or any Subsidiary in the ordinary course of business consistent with past practice); (xiv) any agreement (including escrow agreements) pursuant to which the Company or any Subsidiary has provided, or agreed to provide, any source code containing or embodying any Software included in the Owned Intellectual Property Rights, or provided any right or contingent right to such source code to any Person; (xv) any agency, dealer, reseller, sales representative, marketing or other similar Contract that is material to the Company and its Subsidiaries, taken as a whole; (xvi) any Contract that restricts the Company or any of its Subsidiaries from (A) competing in any line of business, with any Person, in any geographic area or in any product or service line, (B) developing, manufacturing, marketing, distributing, promoting, licensing or selling any products or services or soliciting any customers or prospective customers or (C) soliciting for employment or hiring any individual or entity or group of individuals or entities; (xvii) any stockholders agreement, investors rights agreement, registration rights agreement or similar Contract; (xviii) any Contract granting any Person an option or a right of first refusal or first offer or similar preferential right to purchase or acquire any securities or asset of the Company or any Subsidiary of the Company; (xix) any Contract containing (a) minimum purchase commitments or “requirements” provisions, (b) “most favored nation”, right of first offer or refusal, exclusive dealing provisions or (c) any put or call options; (xx) any Contract made by the Company under which there is (or is expected to be) an outstanding advance, capital contribution or loan to any other Person, or investment in any Person, other than advances to employees for business expenses in the ordinary course of business; (xxi) other than the Company Organizational Documents and the Governing Documents of the Company’s Subsidiaries, any Contract with a Related Party of the Company or any Subsidiary of the Company (each, a “Related Party Contract”); (xxii) any Contract providing for a change in control, retention or transaction bonus with a Service Provider; and (xxiii) any other agreement, commitment, arrangement or plan not made in the ordinary course of business that is material to the Company and its Subsidiaries, taken as a whole.
46 (b) Except as set forth in Section 3.10(b) of the Company Disclosure Schedule, (i) the Company and each of its Subsidiaries has performed all material obligations required to be performed by it to date under each Material Contract to which it is a party, (ii) neither the Company nor, to the knowledge of the Company, any other party thereto is in material breach of or in material default under, and no event has occurred which with notice or lapse of time or both would reasonably be expected to become a default or event of default under any Material Contract, and (iii) neither the Company nor any of its Subsidiaries has given or received written or, to the knowledge of the Company, oral, notice of any breach of default or event described in clause (ii). Neither the Company nor its Subsidiaries is renegotiating any Material Contract to which it is a party or paying liquidated damages in lieu of performance thereunder. Neither the Company nor any of its Subsidiaries has received or delivered any written notice, other written communication or, to the knowledge of the Company, any other communication regarding any actual or possible violation or breach of, default under, or intention to terminate, cancel, fail to renew, allow to expire or modify any Material Contract. Section 3.11. Tax Matters. (a) Except as set forth in Section 3.11(a) of the Company Disclosure Schedule, all income and other material Tax Returns required to be filed by the Company and its Subsidiaries have been duly and timely filed, and all such Tax Returns are true, correct and complete in all material respects. All income and other material Taxes (whether or not shown as due on such Tax Returns) required to be paid with respect to the Company and its Subsidiaries have been duly and timely paid. All amounts required to be withheld by the Company and any of its Subsidiaries in connection with any amounts paid or owing to any supplier, independent contractor, creditor, equity holder or other third party for Taxes have been duly and timely withheld and such withheld Taxes have been duly and timely paid to the proper Taxing Authority in compliance with all applicable legal requirements. (b) (i) No agreement waiving or extending, or having the effect of waiving or extending, the statute of limitations or the period of assessment or collection of any Taxes, in each case, currently in effect, of the Company or any of its Subsidiaries, and no power of attorney with respect to any such Taxes has been filed or entered into with any Taxing Authority and remains in effect, (ii) no Tax Returns of the Company and its Subsidiaries are under audit, examination or investigation by any Taxing Authority and (iii) no Taxing Authority has asserted any deficiency, adjustment or claim with respect to Taxes against the Company or any of its Subsidiaries that has not been resolved with respect to any taxable period for which the period of assessment or collection remains open. (c) The unpaid Taxes of the Company and its Subsidiaries for periods (or portions thereof) ending on or prior to the date of the financial statements do not exceed the accruals for current Taxes set forth on the balance sheets included in the financial statements, and since the date of the financial statements, the Company and its Subsidiaries has not engaged in any transaction, or taken any other action, other than in the ordinary course of business, that would materially impact any Tax asset or Tax Liability of the Company or any of its Subsidiaries.
47 (d) None of the Company or any of its Subsidiaries has received or applied for a Tax ruling or entered into a closing agreement pursuant to Section 7121 of the Code (or any predecessor provision or any similar provision of state, local or non-U.S. Applicable Law), in either case that would be binding upon the Company and its Subsidiaries after the Closing Date. (e) None of the Company or any of its Subsidiaries (i) is, or during any taxable period for which the period of assessment or collection remains open has been, a member of any affiliated, consolidated, combined, unitary or similar group (other than any such group the common parent of which is the Company) or (ii) has any liability for Taxes of any Person other than the Company or any of its Subsidiaries under Treasury Regulations Section 1.1502-6 or any similar provision of state, local or non-U.S. Applicable Law. (f) None of the Company or any of its Subsidiaries has entered into or participated in a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4. (g) Within the last two (2) years, none of the Company or any of its Subsidiaries has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for tax-free treatment under Sections 355 or 361 of the Code. (h) None of the Company or any of its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of: (i) any change in, or use of improper, method of accounting for a taxable period ending on or prior to the Closing Date; (ii) any “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or non-U.S. Applicable Law) executed on or prior to the Closing Date; (iii) any installment sale or open transaction made on or prior to the Closing Date; (iv) any prepaid amount or advance payments received or deferred revenue received or accrued on or prior to the Closing Date and (v) any intercompany transaction or excess loss amount, in each case, described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or non-U.S. Applicable Law). (i) None of the Company or any of its Subsidiaries has or will be required to include any amount in income by reason of Section 965(a) of the Code, or has any obligation to make any payment described in Section 965(h) of the Code. (j) None of the Company or any of its Subsidiaries has nexus, or has taken any action that could result in the Company or any of its Subsidiaries having taxable presence, for any Tax purpose in any taxing jurisdiction (whether within or without the United States) other than the jurisdiction of its formation or organization. No claim has been made by Governmental Authority in a jurisdiction in which the Company or any of its Subsidiaries does not file a particular type of Tax Return (or pay a particular type of Tax) that such Company or any of its Subsidiaries is or may be required to pay such type of Tax to (or file such type of Tax Return with) that Governmental Authority.
48 (k) There are no Liens for Taxes upon any of the assets of the Company or any of its Subsidiaries. (l) Section 3.11(l) of the Company Disclosure Schedule lists the entity classification of the Company and its Subsidiaries for U.S. federal income Tax purposes, as of the date hereof and as of the Closing Date. (m) None of the Company or any of its Subsidiaries is engaged in or has ever been engaged in a trade or business through a “permanent establishment” within the meaning of an applicable income Tax treaty in any country other than the country in which the Company or any of its Subsidiaries is formed or organized. (n) None of the Company or any of its Subsidiaries is a party to or bound by any Tax Sharing Agreement. (o) None of the Company or any of its Subsidiaries own (directly or indirectly) stock or a warrant in any corporation that is (or was at any time during the course of such ownership) a passive foreign investment company, as defined in Section 1297 of the Code. (p) The Company is not nor has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. (q) None of the Company or any of its Subsidiaries has elected to be treated as a U.S. person under Section 897(i) of the Code. Section 3.12. Litigation. Except as set forth in Section 3.12 of the Company Disclosure Schedule, there is currently no Action pending or, to the knowledge of the Company, threatened (or, to the knowledge of the Company, any basis therefor) against the Company or its Subsidiaries, any present officer or director of the Company or its Subsidiaries in connection with their service to the Company or its Subsidiaries or the Company’s operations, by or before (or that would be by or before) any Governmental Authority or arbitrator that, if determined or resolved adversely to the Company or its Subsidiaries, would reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole, or that challenges or seeks to prevent, enjoin or materially delay the consummation of the Transactions, or the performance by the Company or any Seller of its respective obligations under, this Agreement or the other Transaction Documents. Section 3.13. Compliance with Laws and Court Orders. Except as set forth in Section 3.13 of the Company Disclosure Schedule, neither the Company nor any Subsidiary is in violation of, and has not since January 1, 2019 violated or, been given written (or, to the knowledge of the Company, oral) notice of any violation of, and to the knowledge of the Company, is not under investigation with respect to or been threatened to be charged with, any Applicable Law, except for violations that have not been and could not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. There is no judgment, decree, injunction, rule or order of any arbitrator or Governmental Authority outstanding against the Company or any of its Subsidiaries that has been or would reasonably be expected to be, individually or in the
49 aggregate, material to the Company and its Subsidiaries, taken as a whole, or that in any manner seeks to prevent, enjoin, alter or materially delay the consummation of the Transactions. Section 3.14. Properties. (a) Section 3.14(a) of the Company Disclosure Schedule correctly lists all real property (all such property, collectively, the “Real Property”), which the Company or any of its Subsidiaries owns in fee simple, leases, subleases, licenses or operates, specifying in the case of leases, subleases, or licenses, the name of the lessor, sublessor, or licensor, the lease, sublease or license term and basic annual rent or annual license fee. (b) Section 3.14(b) of the Company Disclosure Schedule contains a list of all agreements under which the Company or its Subsidiaries is the landlord, sublandlord, tenant, subtenant or occupant of real property (each a “Real Property Lease”). Each Real Property Lease (i) is in full force and effect and is valid and binding on the Company or its Subsidiaries, as the case may be, and, to the knowledge of the Company, the other parties thereto, enforceable in accordance with its respective terms except as may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity, and there is no material default by the Company or any of its Subsidiaries and (ii) grants to the Company or its Subsidiaries a valid leasehold interest, free and clear of any and all Liens other than Permitted Liens. Neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any other party to a Real Property Lease, is in material breach or default in any respect under the terms thereof and no event has occurred that, with notice or lapse of time or both, would constitute a material breach or default or permit termination, modification or acceleration thereunder, except as, in either case, would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. (c) Section 3.14(c) of the Company Disclosure Schedule correctly describes all personal property valued in excess of $100,000 used or held for use by the Company and its Subsidiaries, including equipment, furniture, vehicles, and other trade fixtures and fixed assets, which the Company or its Subsidiaries own, lease or sublease, and any Liens thereon, specifying in the case of leases or subleases, the name of the lessor or sublessor, the lease term and basic annual rent. (d) The Company and the Subsidiaries have good and marketable, indefeasible 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) used or held for use in the operation of the business of the Company and its Subsidiaries. None of such property or assets is subject to any Lien, except for Permitted Liens and otherwise as disclosed in Section 3.14(c) of the Company Disclosure Schedule. (e) To the knowledge of the Company, there are no developments affecting any such property or assets pending or threatened (either in writing or orally), which, individually or in the aggregate, might materially detract from the value, materially
50 interfere with any present or intended use or materially adversely affect the marketability of any such property or assets or, in the case of Real Property, the use, operation and occupancy of the Real Property, as currently used, operated and occupied. (f) The buildings, structures and equipment comprising part of or used in connection with the Real Property 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 and intended uses and, to the knowledge of the Company and in the case of plants, buildings and other structures (including the roofs thereof), are structurally sound, except as would not be reasonably expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. (g) The plants, buildings and structures owned by the Company or any of its Subsidiaries 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 for the conduct of the businesses of the Company or any of its Subsidiaries as heretofore conducted and as presently planned to be conducted. To the knowledge of the Company, 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. (h) To the knowledge of the Company, the Real Property, and its continued use, occupancy and operation as currently used, occupied and operated, does not constitute a nonlegal, nonconforming use under any applicable building, zoning, subdivision and other land use and similar Applicable Law. (i) Neither the Company nor its Subsidiaries has entered into any sublease or option granting to any Person the right to use or occupy the Real Property or any portion thereof or interest therein. (j) There are no Actions pending, nor threatened (either in writing or, to the knowledge of the Company, orally) against or affecting the owned Real Property or any portion thereof or interest therein and to the knowledge of the Company, there are no Actions pending, nor threatened (either in writing or, to the knowledge of the Company, orally) against or affecting the leased Real Property or any portion thereof or interest therein, in each instance in the nature of or in lieu of condemnation or eminent domain proceedings that would reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. (k) The property and assets owned or leased by the Company or its Subsidiaries, or which it or they otherwise have the right to use, constitutes all of the property and assets used or held for use in connection with the business of the Company and its Subsidiaries
51 and are adequate to conduct such businesses as currently conducted and currently contemplated to be conducted by the Company as of the Closing Date. Section 3.15. Products. Each of the products produced or sold by the Company or any of its Subsidiaries is, and at all times up to and including the sale thereof has been, (i) in compliance in all material respects with all Applicable Laws and (ii) fit for the ordinary purposes for which it is intended to be used and conforms in all material respects to any promises or affirmations of fact made on the container or label for such product or in connection with its sale. There is no design defect with respect to any of such products and each of such products contains adequate warnings, presented in a reasonably prominent manner, in accordance with Applicable Laws. Section 3.16. Intellectual Property. (a) Section 3.16(a) of the Company Disclosure Schedule contains a true and complete list of all (i) registrations and applications for registrations included in the Owned Intellectual Property Rights, specifying as to each such item, as applicable (A) the title of such item, (B) the owner of such item, (C) each jurisdiction in which such item is issued or registered or in which any application for issuance or registration has been filed, (D) the respective issuance, registration, or application number of such item, and (E) the date of application and issuance or registration of such item, and (ii) other material Owned Intellectual Property Rights (including all Software included in the Owned Intellectual Property Rights). The Company and its Subsidiaries have paid all registration, maintenance and renewal fees and have made all filings (including filing of applicable statements of use) required to maintain their respective ownership of, and the validity and enforceability of, all Owned Intellectual Property Rights that are the subject to a registration or application for registration. 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 Rights 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. (b) The Company and its Subsidiaries own or have a valid, enforceable and sufficient right and license, and immediately following the consummation of the transactions contemplated hereby, will continue to own or otherwise have a valid, enforceable and sufficient right and license, to use all Licensed Intellectual Property Rights and Owned Intellectual Property Rights. The Licensed Intellectual Property Rights and Owned Intellectual Property Rights together constitute all the Intellectual Property Rights necessary to, or used or held for use in, the conduct of the business of the Company and its Subsidiaries. There exist no restrictions on the disclosure, use, license or transfer of any of the Owned Intellectual Property Rights. The consummation of the transactions contemplated by this Agreement will not alter, encumber, impair or extinguish any Owned Intellectual Property Rights or any of the Company’s or its Subsidiaries’ rights under any Licensed Intellectual Property Rights.
52 (c) Except as set forth on Section 3.16(c) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has, nor any services provided, processes used, or products manufactured, used, imported, offered for sale or sold by the Company or any of its Subsidiaries has, infringed, misappropriated or otherwise violated, any Intellectual Property Right of any Person and no such infringement, misappropriation or other violation of any Intellectual Property Right of any Person is occurring. The conduct of the business of the Company or any Subsidiary as currently contemplated to be conducted will not infringe, misappropriate or otherwise violate any Intellectual Property Right of any Person. There is no claim, action, suit, investigation or proceeding pending or threatened in writing (or, to the knowledge of the Company, orally) against or affecting, the Company, any Subsidiary, any present or former officer, director, employee, representative, consultant, contractor or agent of the Company or any Subsidiary (i) based upon, or challenging or seeking to deny or restrict, the rights of the Company or any Subsidiary in any of the Owned Intellectual Property Rights or the Licensed Intellectual Property Rights, (ii) challenging the validity, enforceability or registrability of any Owned Intellectual Property Rights or Licensed Intellectual Property Rights or (iii) alleging that the use of any of the Owned Intellectual Property Rights or the Licensed Intellectual Property Rights or any services provided, processes used or products manufactured, used, imported, offered for sale or sold by the Company or any Subsidiary do or may conflict with, misappropriate, infringe or otherwise violate any Intellectual Property Right of any Person, or (iv) alleging that the Company or any Subsidiary has infringed, misappropriated or otherwise violated any Intellectual Property Right of any Person. None of the Company and any Subsidiary has received from any Person any (A) offer to license any Intellectual Property Rights along with an implication that a license is necessary or (B) indemnification request or demand with respect to any claim, action, suit or proceeding relating to any Intellectual Property Rights. (d) None of the Owned Intellectual Property Rights and Licensed Intellectual Property Rights has been adjudged invalid or unenforceable in whole or part and all such Owned Intellectual Property Rights, and to the Company’s knowledge, Licensed Intellectual Property Rights, are valid, subsisting and enforceable. Except as set forth on Section 3.16(d) of the Company Disclosure Schedule, the Company and its Subsidiaries are the sole and exclusive owners of all Owned Intellectual Property Rights and hold all right, title and interest in and to all Owned Intellectual Property Rights and all of the Company’s and its Subsidiaries’ rights under the Licensed Intellectual Property Rights, free and clear of any Lien (other than Permitted Liens). The Company and its Subsidiaries have taken commercially reasonable actions necessary to maintain, protect and enforce all of the Owned Intellectual Property Rights and their rights in the Licensed Intellectual Property Rights. (e) To Company’s knowledge, no Person has infringed, misappropriated or otherwise violated, or is infringing, misappropriating or otherwise violating, any Owned Intellectual Property Right or Licensed Intellectual Property Right. The Company and its Subsidiaries have taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of all Owned Intellectual Property Rights and Licensed Intellectual Property Rights, the value of which to the Company or any Subsidiary is contingent upon maintaining the confidentiality thereof, and other than as set forth on
53 Section 3.16(e) of the Company Disclosure Schedule, no such Intellectual Property Rights have been disclosed other than to third parties bound by written, valid and enforceable confidentiality agreements and employees, contractors, consultants, representatives and agents of the Company or any Subsidiary, all of whom are bound by written, valid and enforceable confidentiality agreements, in each case, substantially in the form previously disclosed to Buyer. There has been no default under or breach of any such confidentiality agreements or any unauthorized disclosure or use of any such Intellectual Property Rights. (f) To the extent that any Intellectual Property Right has been developed or created by a third party (including any current or former founder, employee, consultant, contractor, representative or agent of the Company or any Subsidiary) for the Company or any Subsidiary, other than as set forth on Section 3.16(f) of the Company Disclosure Schedule, the Company or a Subsidiary, as the case may be, has a written agreement with such third party with respect thereto, and the Company or a Subsidiary thereby either (i) has obtained ownership of and is the exclusive owner of, or (ii) has obtained a valid and unrestricted right to exploit, sufficient for the conduct of its business as currently conducted or proposed to be conducted, such Intellectual Property Right. (g) No government funding, facilities of a university, college, other educational institution or research center or funding from any third parties (in each case, either directly or indirectly) was used or is presently being used in the development of any Owned Intellectual Property Rights or, to the Company’s knowledge, Licensed Intellectual Property Rights. No current or former founder, employee, consultant, contractor, representative or agent of the Company or any Subsidiary, who was involved in, or who contributed to, the creation or development of any Owned Intellectual Property Rights or Licensed Intellectual Property Rights, has performed services for the government, university, college, or other educational institution or research center during a period of time during which such founder, employee, consultant, contractor, representative or agent was also involved in, or who contributing to, the creation or development of any Owned Intellectual Property Rights or, to the Company’s knowledge, Licensed Intellectual Property Rights. (h) None of the Software included in the Owned Intellectual Property Rights is (i) subject to any “open source” license in a manner that imposes any requirement that such Software be (A) disclosed or distributed in source code form, (B) freely licensed for the purpose of making modifications or derivative works, (C) licensed under terms that allow reverse engineering, reverse assembly or disassembly of any kind or (D) redistributable at no charge or (ii) subject to any agreement with any Person under which the Company or any Subsidiary has licensed, disclosed, shared, provided or otherwise deposited, or could be required to license, disclose, share, provide or otherwise deposit, to any Person or into escrow the source code of such Software and no such source code has been released to any Person, or is entitled to be released to any Person. The consummation of the transactions contemplated by this Agreement will not trigger or otherwise result in the release of any source code of any such Software. (i) Neither the Company, any Subsidiary nor any of their founders, employees or contractors is a member, contributor to or other participant of any industry standards
54 bodies or “open source” initiatives. No license or other right or immunity with respect to any Owned Intellectual Property Rights or, to the Company’s knowledge, Licensed Intellectual Property Rights has been or is required to be granted by the Company or any Subsidiary to any Person (i) by virtue of the Company’s or any Subsidiary’s membership in, contribution to, or other participation in any industry standards body or “open source” initiative, or (ii) pursuant to any license for “open source” Software used by the Company or any Subsidiary. (j) It is the practice of the Company and its Subsidiaries to scan with commercially available virus scan Software the Software used in the business of the Company and its Subsidiaries as presently conducted or that is otherwise distributed by the Company or any Subsidiary. None of the Software included in the Owned Intellectual Property Rights, the Licensed Intellectual Property Rights, or that is otherwise distributed by the Company or any Subsidiary, that is used or held for use in the conduct of the business of the Company and its Subsidiaries contains any (i) Software designed to disrupt, disable or harm in any manner the operation of any Software or hardware or (ii) virus, worm, Trojan horse, bomb, backdoor, clock, timer, or other disabling device code, design or routine which can cause Software to be erased, inoperable, or otherwise incapable of being used, either automatically or upon command by any Person. There are no defects in any of the Software included in products of the Company or any Subsidiary that would prevent such Software from performing in material accordance with its user specifications. (k) The IT Assets operate and perform in accordance with their documentation and functional specifications and otherwise in a manner that permits the Company and each of its Subsidiaries to conduct its business. Each of the Company and its Subsidiaries and their third-party vendors or service providers, have taken commercially reasonable actions, consistent with current industry standards (including implementing and monitoring compliance with adequate measures with respect to technical and physical security), to protect the confidentiality, integrity and security of the IT Assets (and all data, information and transactions stored or contained therein or transmitted thereby) against any breach, theft, loss or unauthorized use, access, interruption, modification or corruption, including the implementation of (i) data backup, (ii) disaster avoidance and recovery, (iii) business continuity and (iv) encryption and other security procedures, protocols and technologies. Other than as set forth on Section 3.16(k) of the Company Disclosure Schedule, there has been no breach, theft, loss or unauthorized use, access, interruption, modification, corruption or other compromise, of any of the IT Assets (or any data, information or transactions stored or contained therein or transmitted thereby). (l) Other than as set forth on Section 3.16(l) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has used any Generative AI Tools, whether in connection with any services or products of the Company or any of its Subsidiaries or otherwise, to generate Software or other Intellectual Property Rights or in any manner that could result in the disclosure of confidential information within the Owned Intellectual Property Rights or Licensed Intellectual Property Rights, or in any manner that infringes, misappropriates or otherwise violates any Intellectual Property Rights of any Person.
55 Section 3.17. Data Privacy and Cybersecurity. (a) Other than as set forth on Section 3.17(a) of the Company Disclosure Schedule, the Company and its Subsidiaries have at all times complied, and are currently in compliance, with all Applicable Law relating to data privacy, data protection, cybersecurity and the collection and use or other processing of Personal Information and user information gathered or accessed in the course of the operations of the Company or any Subsidiary (“Applicable Data Protection Law”). The Company and its Subsidiaries have at all times complied with all contractual obligations and rules, policies and procedures established by the Company or any Subsidiary from time to time with respect to the foregoing. No claims have been asserted or threatened in writing (or, to the knowledge of the Company, orally) against the Company or any Subsidiary, and no such claims are likely to be asserted or threatened against the Company or any Subsidiary, by any Person alleging a violation of (i) any Applicable Data Protection Law, (ii) any internal and external policies and procedures, binding industry standards, and restrictions and requirements contained in any agreement to which the Company or any Subsidiary is bound, in each case, relating to data privacy, data protection, cybersecurity and/or the processing of Personal Information (collectively with Applicable Data Protection Laws, “Applicable Data Protection Requirements”), or (iii) such Person’s privacy, personal or confidentiality rights under any Applicable Data Protection Requirements. (b) The Company and each of its Subsidiaries have at all times (i) taken steps reasonably necessary, including implementing and monitoring compliance with respect to commercially reasonable technical and organizational measures, in accordance with industry standards, to protect all Personal Information in its possession or control against a breach, or unauthorized use, access, exfiltration, destruction, alteration, disclosure, loss, theft, interruption, modification, corruption or other misuse, thereof (each, a “Data Breach”) and (ii) used commercially reasonable efforts to ensure that all service providers, data processors and other third parties that process any Personal Information on behalf of the Company or any Subsidiary are bound by valid, written and enforceable agreements including any terms required by Applicable Data Protection Laws and requiring such third parties to comply with Applicable Data Protection Laws and to maintain the privacy, security and confidentiality of such Personal Information. Except as set forth on Section 3.17(b) of the Company Disclosure Schedule, there has been no Data Breach with respect to any Personal Information in the possession or control of the Company or any Subsidiary and the Company and its Subsidiaries have not been required under any Applicable Data Protection Requirement to provide any notice to any Governmental Authority or Person in connection with any Data Breach. The consummation of the transactions contemplated by this Agreement will not breach any Applicable Data Protection Requirement. Section 3.18. Insurance Coverage. A true and complete list of all insurance policies and fidelity bonds held by the Company or its Subsidiaries or relating to the assets, business, operations, employees, officers or directors of the Company or its Subsidiaries is set forth in Section 3.18 of the Company Disclosure Schedule (the “Company Insurance Policies”) and true and complete copies thereof have been made available to Buyer prior to the date hereof. There are no claims pending under any Company Insurance Policy as to which coverage has been denied or disputed by the underwriters of such Company Insurance
56 Policies. As of the date hereof, all premiums due and payable under all Company Insurance Policies have been timely paid in full. Neither the Company nor any of its Subsidiaries is in default under any such policy or bond and, to the knowledge of the Company, no event or circumstance has occurred that, with notice or lapse of time or both, would permit termination or modification of such policy or bond. All premiums payable under all such policies and bonds have been timely paid and the Company and its Subsidiaries have 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 January 1, 2019 and remain in full force and effect. The Company does not know of any threatened termination of, premium increase with respect to, or material alteration of coverage under, any of such policies or bonds. Except as disclosed in Section 3.18 of the Company Disclosure Schedule, the Company and its Subsidiaries shall after the Closing continue to have coverage under such policies and bonds with respect to events occurring prior to the Closing. Section 3.19. Licenses and Permits. (a) The Company and its Subsidiaries hold all material licenses, franchises, permits, certificates, approvals or other similar authorizations required from and issued by a Governmental Authority under Applicable Law and affecting, or relating to, the assets or business of the Company and its Subsidiaries (the “Permits”). The Permits are valid and in full force and effect. The Company and each of its Subsidiaries is in compliance with, and since January 1, 2019 have fulfilled and performed, in all material respects, all of their obligations with respect to the Permits held by it. (b) Neither the Company nor any of its Subsidiaries is in default under, and since January 1, 2019 neither the Company nor any of its Subsidiaries has been in material default under, any Permit held by it and none of such Permits have been terminated, or to the knowledge of the Company, materially impaired or have become terminable, in whole or in part, due to the actions or inactions of the Company or its Subsidiaries (except for terminations or impairments occurring as a result of the expiration of such Permits solely due to lapse of time in accordance with the terms thereof). (c) Since January 1, 2019, and except as has been fully and finally resolved, no written notices have been received by the Company or any of its Subsidiaries alleging the failure to hold any Permit. To the knowledge of the Company, no Permit is subject to any pending Action, regulatory proceeding or judicial review before a Governmental Authority seeking to suspend, revoke, cancel or materially adversely modify such Permit. (d) The Company and its Subsidiaries have for the last five (5) years, been in compliance in all material respects with all applicable Export and Import Control Laws. Neither the Company nor any of its Subsidiaries have received any claims and, to the knowledge of the Company, there are no threatened claims, against the Company or its Subsidiaries with respect to Export and Import Control Laws. (e) None of the Company nor any of its Subsidiaries nor any of their respective directors, officers, agents or employees have (i) used any funds for unlawful contributions,
57 gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of any Anti-Corruption Laws, or (iii) made any other unlawful payment in violation of any Anti-Corruption Laws. Neither the Company nor any of its Subsidiaries has received any written claims that are pending and, to the Company’s knowledge, there are no threatened Actions against the Company nor any of its Subsidiaries with respect to any Anti-Corruption Laws. (f) Neither the Company, its Subsidiaries nor any of its respective directors, officers, or employees, or to the knowledge of the Company, any of the agents or representatives of the Company or its Subsidiaries, is owned or controlled fifty percent (50%) or more by one or more Persons that are: (i) the subject of any Sanctions administered by any Sanctions Authority, or (ii) located, organized, or resident in a Sanctioned Country. In the last five (5) years neither the Company nor its Subsidiaries have engaged in, and is not now engaged in, any dealings or transactions with any Person that at the time of the dealing or transaction, is or was the subject of Sanctions, or in Sanctioned Country, in either case in violation of Sanctions. (g) Since January 1, 2019, the Company and its Subsidiaries have been in compliance in all material respects with all Applicable Laws relating to anti-money laundering, including as to relevant financial recordkeeping and reporting requirements. Section 3.20. Top Vendors. Section 3.20 of the Company Disclosure Schedule sets forth the name of each of the top top twenty (20) vendors of the Company based on aggregate consideration paid for services rendered to or goods purchased by the Company in the twelve (12) calendar months ended June 30, 2023 (collectively, the “Top Vendors”), and the amount of consideration paid to each Top Vendor during such period. Section 3.21. Inventories. The inventories set forth in the Financial Statements were properly stated therein at the lesser of cost or fair market value determined in accordance with U.S. GAAP. Since the Balance Sheet Date, the inventories of the Company and its Subsidiaries have been maintained in the ordinary course of business consistent with past practice. All such inventories are owned free and clear of all Liens (other than Permitted Liens). All of the inventories recorded on the Financial Statements consists of, and all inventories of the Company and its Subsidiaries on the Closing Date will consist of, items of a quality usable or saleable in the normal course of business consistent with past practices and are in quantities sufficient for the normal operation of the business of the Company and its Subsidiaries in accordance with U.S. GAAP. Section 3.22. Receivables. All accounts, notes receivable and other receivables (other than receivables collected since the Balance Sheet Date) reflected on the Balance Sheet are, and all accounts and notes receivable arising from or otherwise relating to the business of the Company and its Subsidiaries as of the Closing Date are, valid and genuine, subject to normal and customary trade discounts, less any reserves for doubtful accounts recorded on the Balance Sheet. All accounts, notes receivable and other receivables arising out of or relating to such business of the Company and its Subsidiaries as of the Balance Sheet Date have been included in the Balance Sheet, and all accounts, notes receivable and other
58 receivables arising out of or relating to the business of the Company and its Subsidiaries as of the Closing Date will be included in the Closing Balance Sheet, in accordance with U.S. GAAP. Section 3.23. Finders’ Fees. Except for the financial advisor set forth in Section 3.23 of the Company Disclosure Schedule, whose fees and expenses will be paid by or on behalf of Sellers pursuant to this Agreement, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Company or any of its Affiliates who might be entitled to any fee or commission in connection with the Transactions. Section 3.24. Employees. (a) Section 3.24(a) of the Company Disclosure Schedule sets forth, as of a date within five (5) days prior to the Closing Date, for each Company Employee, such employee’s name, employer, title, hire date, location, whether full- or part-time, whether active or on leave (and, if on leave, the nature of the leave and the expected return date), whether exempt from the Fair Labor Standards Act, annual salary or wage rate, most recent annual bonus received and current annual bonus opportunity. Section 3.24(a) of the Company Disclosure Schedule separately sets forth, as of a date within five (5) days prior to the Closing Date, for each natural person engaged by the Company or any of its Subsidiaries as an independent contractor whose annual compensation exceeds $100,000, such contractor’s name, duties and rate of compensation. (b) Section 3.24(b) of the Company Disclosure Schedule sets forth, as of a date within five (5) days prior to the Closing Date, for each equity award, the holder, type of award, grant date, number of shares, vesting schedule (including any acceleration provisions) and, if applicable, exercise price and expiration date. (c) To the knowledge of the Company or Sellers, no Company Employee has indicated in writing (including via electronic communication) to any Seller, the Company, or any of their respective Subsidiaries that he or she 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 3.25. Employee Benefit Plans. (a) Section 3.25(a) of the Company Disclosure Schedule lists each Employee Plan and specifies whether such plan is (i) a U.S. Plan or an International Plan and (ii) a Seller Employee Plan or an Employee Plan of the Company. (b) For each Employee Plan, each Seller has furnished to Buyer a copy of such plan (or a description, if such plan is not written) and all amendments thereto and, as applicable: (i) all trust agreements, insurance contracts or other funding arrangements and amendments thereto; (ii) the current prospectus or summary plan description and all summaries of material modifications; (iii) the most recent favorable determination or opinion letter from the IRS; (iv) the annual returns/reports (Form 5500) and accompanying schedules and attachments thereto for the three (3) most recently completed plan years; (v)
59 the three (3) most recently prepared actuarial reports and financial statements; (vi) all documents and correspondence relating thereto received from or provided to the IRS, the Department of Labor, the PBGC or any other Governmental Authority or the plan sponsor of any Multiemployer Plan during the past three (3) years; (vii) all current administrative and other service contracts and amendments thereto with third-party services providers; (viii) all current employee handbooks, manuals and policies; and (ix) if such plan is an International Plan, documents that are substantially comparable (taking into account differences in Applicable Law and practices) to the documents required to be provided in clauses (i) through (viii). (c) Each Employee Plan has been maintained in material compliance with its terms and all Applicable Law, including ERISA and the Code. No action, suit, investigation, audit, proceeding or claim (or any basis therefor) (other than routine claims for benefits) is pending against or involves, or to the knowledge of the Company or Sellers, is threatened against or threatened to involve, any Employee Plan before any arbitrator or Governmental Authority, including the IRS, the Department of Labor or the PBGC. (d) Each Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination or opinion letter from the IRS or has applied to the IRS for such a letter within the applicable remedial amendment period or such period has not expired and, to the knowledge of the Company or Sellers, no circumstances exist that would reasonably be expected to result in any such letter being revoked or not being issued or reissued or a penalty under the IRS Closing Agreement Program if discovered during an IRS audit or investigation. Each trust created under any such Employee Plan is exempt from Tax under Section 501(a) of the Code and has been so exempt since its creation. (e) Neither the Company, nor any of its ERISA Affiliates (nor any predecessor thereof of any such entity) contributes to, or has in the past contributed to, any Multiemployer Plan. Neither the Company nor any of its ERISA Affiliates has incurred any liability on account of a “complete withdrawal” or a “partial withdrawal” (within the meaning of Sections 4203 and 4205 of ERISA, respectively) from any Multiemployer Plan and, to the knowledge of the Company or Sellers, no circumstances exist that would reasonably be expected to give rise to any such withdrawal (including as a result of the transactions contemplated by this Agreement). Neither the Company nor any of its ERISA Affiliates has received notice of any Multiemployer Plan’s (i) failure to satisfy the minimum funding requirements of Section 412 of the Code or application for or receipt of a waiver of such minimum funding requirements, (ii) “endangered status” or “critical status” (within the meaning of Section 432 of the Code) or (iii) insolvency, “reorganization” (within the meaning of Section 4241 of ERISA) or proposed or, to the knowledge of the Company or Sellers, threatened termination. All contributions, surcharges and premium payments owed by the Company and its ERISA Affiliates with respect to each Multiemployer Plan have been paid when due. (f) Neither the Company nor any of its ERISA Affiliates (nor any predecessor thereof of any such entity) sponsors, maintains, administers or contributes to (or has any obligation to contribute to), or has in the past six (6) years sponsored, maintained,
60 administered or contributed to (or had any obligation to contribute to), or has or is reasonably expected to have any direct or indirect liability with respect to, any Title IV Plan. No Title IV Plan is in “at-risk status” (within the meaning of Section 303(i)(4) of ERISA), and no condition exists that could constitute grounds for termination of any Title IV Plan by the PBGC. None of the following events has occurred in connection with any Title IV Plan: (i) a “reportable event,” within the meaning of Section 4043 of ERISA, other than any such event for which the thirty (30) day notice period has been waived by the PBGC, or (ii) any event described in Section 4062 or 4063 of ERISA. Neither the Company nor any of its ERISA Affiliates (nor any predecessor of any such entity) has (i) engaged in any transaction described in Section 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to incur, any liability under (x) Title IV of ERISA arising in connection with the termination of any plan covered or previously covered by Title IV of ERISA or (y) Section 4971 of the Code. None of the assets of the Company and its Subsidiaries are now, nor will they after the passage of time be, subject to any lien imposed under Section 303(k) of ERISA or Section 430(k) of the Code by reason of a failure of the Company or any of its ERISA Affiliates (or any predecessor of any such entity) to make timely installments or other payments required under Section 412 of the Code. No plan sponsor of any Title IV Plan has elected to apply the alternative amortization schedule described in Section 430(c)(2)(D) of the Code for any plan year beginning after December 31, 2007 or intends to make such an election for the current plan year. (g) With respect to any Employee Plan covered by Subtitle B, Part 4 of Title I of ERISA or Section 4975 of the Code, no non-exempt prohibited transaction has occurred that has caused or would reasonably be expected to cause the Company or any of its Subsidiaries to incur any material liability under ERISA or the Code. (h) Neither the Company nor any of its Subsidiaries has any current or projected liability for, and no Employee Plan provides or promises, any post-employment or post- retirement medical, dental, disability, hospitalization, life or similar benefits (whether insured or self-insured) to any current or former Service Provider (other than coverage mandated by Applicable Law, including COBRA). (i) All contributions, premiums and payments that are due have been made for each Employee Plan within the time periods prescribed by the terms of such plan and Applicable Law, and all contributions, premiums and payments for any period ending on or before the Closing Date that are not due are properly accrued to the extent required to be accrued under applicable accounting principles and have been properly reflected on the Balance Sheet or disclosed in the notes thereto. (j) There has been no amendment to, written interpretation of or announcement (whether or not written) by the Company or any of its Affiliates relating to, or change in employee participation or coverage under, any Employee Plan that would increase the expense of maintaining such plan above the level of expense incurred in respect thereof for the most recent fiscal year ended prior to the date hereof.
61 (k) Neither the Company nor any of its Subsidiaries has any obligation to gross- up, indemnify or otherwise reimburse any current or former Service Provider for any Tax incurred by such Service Provider, including under Section 409A or 4999 of the Code. (l) Except as set forth in Section 3.25(l) of the Company Disclosure Schedule, neither the execution of this Agreement nor the consummation of the transactions contemplated hereby (either alone or together with any other event) will (i) entitle any current or former Service Provider to any payment or benefit, including any bonus, retention, severance, retirement or job security payment or benefit, (ii) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, or increase the amount payable or trigger any other obligation under, any Employee Plan or (iii) limit or restrict the right of the Company or any of its Subsidiaries or, after the Closing, Buyer, to merge, amend or terminate any Employee Plan. (m) Each International Plan (i) has been maintained in material compliance with its terms and Applicable Law, (ii) if intended to qualify for special tax treatment, meets all the requirements for such treatment, and (iii) if required, to any extent, to be funded, book- reserved or secured by an insurance policy, is fully funded, book-reserved or secured by an insurance policy, as applicable, based on reasonable actuarial assumptions in accordance with applicable accounting principles. From and after the Closing Date, Buyer and its Affiliates will receive the full benefit of any funds, accruals and reserves under the International Plans. (n) No Employee Plan is a “nonqualified deferred compensation plan” within the meaning of Sections 409A or 457A of the Code. Each Employee Plan, and any award thereunder, that is or forms part of a “nonqualified deferred compensation plan” within the meaning of Sections 409A or 457A of the Code has been timely amended (if applicable) to comply and has been operated in compliance with, and the Company and its Subsidiaries have complied in practice and operation with, all applicable requirements of Sections 409A and 457A of the Code, and no amounts currently deferred or to be deferred under any such plan would be not determinable when otherwise includible in income under Section 457A of the Code. (o) Prior to the date hereof, with respect to any payments or benefits that, separately or in the aggregate, may constitute “parachute payments” (as each such term is defined in Section 280G of the Code and the applicable rulings and final regulations thereunder (“Section 280G Payments”)) to any “disqualified individual” (within the meaning of Section 280G of the Code, the Company or its applicable Affiliate has (i) obtained a waiver from each such disqualified individual of his or her right to receive any payment that could constitute a Section 280G Payment (collectively, the “Waived Payments”), (ii) submitted to the holders of shares of Company Common Stock entitled to vote for approval, meeting the requirements of Section 280G(b)(5)(B) of the Code and the applicable rulings and final regulations thereunder, (iii) provided all required disclosure to all Persons entitled to vote under Section 280G(b)(5)(B)(ii) of the Code, such that the deduction of the Waived Payments will not be limited by the application of Section 280G of the Code and the applicable rulings and final regulations thereunder and (iv) has
62 delivered Buyer certification that the shareholder vote was solicited in conformity with Section 280G(b)(5)(B) of the Code and the applicable rulings and final regulations thereunder and the requisite approval of holders of shares of Company Common Stock entitled to vote was obtained with respect to the Section 280G Payments. Section 3.26. Labor Matters. (a) The Company and its Subsidiaries are, and have been since January 1, 2019, in material compliance with all Applicable Law relating to labor and employment, including those relating to labor management relations, wages, hours, overtime, employee classification, discrimination, sexual harassment, civil rights, affirmative action, work authorization, immigration, safety and health, information privacy and security, workers compensation, continuation coverage under group health plans, wage payment and the payment and withholding of Taxes. Except as set forth in in Section 3.26(a) of the Company Disclosure Schedule, there are no, and since January 1, 2019 there have been no actions pending or, to the Company’s knowledge, threatened to be brought or filed, by or with any judicial, regulatory or administrative forum, under any private dispute resolution procedure or internally in connection with employment or labor matters, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay or any other employment related matter arising under applicable Laws. (b) Neither the Company nor any of its Subsidiaries is a party to or subject to, or is currently negotiating in connection with entering into, any Collective Bargaining Agreement, and, to the knowledge of the Company or Sellers, there has not been since January 1, 2019 any organizational campaign, petition or other unionization activity seeking recognition of a collective bargaining unit relating to any Service Provider. Neither the Company nor any of its Subsidiaries has failed to comply with the provisions of any Collective Bargaining Agreement, and there are no grievances outstanding against the Company or any of its Subsidiaries under any such agreement. There are no unfair labor practice complaints pending or, to the knowledge of the Company or Sellers, threatened against the Company or any of its Subsidiaries before the National Labor Relations Board or any other Governmental Authority or any current union representation questions involving Service Providers. There is no labor strike, slowdown, stoppage, picketing, interruption of work or lockout pending or, to the knowledge of the Company or Sellers, threatened against or affecting the Company or any of its Subsidiaries. The consent or consultation of, or the rendering of formal advice by, any labor or trade union, works council or other employee representative body is not required for the Company to enter into this Agreement or to consummate any of the transactions contemplated hereby. (c) The Company and each of its Subsidiaries is, and has been since January 1, 2019, in material compliance with WARN and has no liabilities or other obligations thereunder. Neither the Company nor any of its Subsidiaries has taken any action that would reasonably be expected to cause Buyer or any of its Affiliates to have any liability or other obligation following the Closing Date under WARN. Section 3.27. Environmental Matters.
63 (a) Except as disclosed in Section 3.27 of the Company Disclosure Schedule: No notice, notification, demand, request for information, citation, summons or order has been received, no complaint has been filed, no penalty has been assessed and no investigation, action, claim, suit, proceeding or review is pending, or to Seller’s knowledge, threatened by any Governmental Authority or other Person with respect to any matters relating to the Company or any Subsidiary and relating to or arising out of any Environmental Law that would reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole. (i) There are no material Liabilities of or relating to the Company or any Subsidiary arising under or relating to any Environmental Law. (ii) Except as would not reasonably be expected to result in material Liability to the Company or any Subsidiary, no polychlorinated biphenyls, radioactive material, lead, asbestos-containing material, incinerator, sump, surface impoundment, lagoon, landfill, septic, wastewater treatment or other disposal system or underground storage tank (active or inactive) is or has been present at, on or under any property now or previously owned, leased or operated by the Company or any Subsidiary. (iii) Except as would not reasonably be expected to result in material Liability to the Company or any Subsidiary, there has been no Release of any Hazardous Substance at, on, under, to, in or from (A) any location by or arising from the operations of, (B) any property or facility now or previously owned, leased or operated by, or (C) any property or facility to which any Hazardous Substance has been transported for disposal, recycling or treatment by or on behalf of, in each case, any Company or any Subsidiary (or any of their respective predecessors). (iv) The Company and its Subsidiaries are in material compliance with all Environmental Laws and have obtained and are in material compliance with all Environmental Permits; such Environmental Permits are valid and in full force and effect and will not be terminated or impaired or become terminable, in whole or in part, as a result of the transactions contemplated hereby. (b) There has been no material environmental investigation, study, audit, review or other report conducted of which any Seller has knowledge, that is in Seller’s possession, and that relates to the current or prior business of the Company or any Subsidiary or any property or facility now or previously owned, leased or operated by the Company or any Subsidiary which has not been made available to Buyer at least ten (10) days prior to the date hereof. (c) The consummation of the Transactions requires no filings or notifications to be made or actions to be taken pursuant to the New Jersey Industrial Site Recovery Act or the Connecticut Property Transfer Law. (d) For purposes of clauses (a)(ii) and (a)(iii) of this Section 3.27, “Liabilities” shall not include routine obligations to comply with Environmental Laws provided such
64 obligations do not arise from (x) actual or alleged non-compliance with or remedial or other corrective obligations under Environmental Laws, or (y) any requirement to investigate, remediate or perform any other response action with respect to any Release of Hazardous Substances. Section 3.28. Related Party Transactions. (a) Except as set forth in Section 3.28(a) of the Company Disclosure Schedule and for the Transaction Documents, no Seller nor Related Party (other than the Company or its Subsidiaries) thereof, as of the date hereof and since January 1, 2019, (i) provides any services to, or is owed any money by or owes any money to, the Company or its Subsidiaries, (ii) directly or indirectly owns, or otherwise has any right, title or interest in, to or under, any property, asset or right (whether tangible or intangible) that is used by the Company or its Subsidiaries, (iii) is party to any Contract or other arrangement or transaction with the Company or its Subsidiaries or (iv) has any claim or right against the Company or its Subsidiaries. (b) Since January 1, 2019, there has not been any material accrual of liability by the Company to any Seller or Related Party thereof (other than the Company or its Subsidiaries), except with respect to the period prior to the date of this Agreement, in the ordinary course of business. (c) On or prior to the date hereof, all Contracts and accounts between the Company, on the one hand, and any Seller, Related Party or Subsidiary of the Company, on the other hand, including the Contracts listed on Section 3.10(a)(xxi) of the Company Disclosure Schedule, have been terminated, released, canceled, paid or otherwise settled prior to or simultaneously with the Closing, without any Liability of the Company or any Subsidiary of the Company thereunder, excluding (i) any of the Transaction Documents and (ii) the Contracts set forth on Section 3.28(c) of the Company Disclosure Schedule. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLERS Except as set forth in the Company Disclosure Schedule, each Seller, severally but not jointly, represents and warrants to Buyer, with respect to such Seller, as of the date hereof that: Section 4.01. Corporate Existence and Power. If such Seller is a natural person, such Seller is a resident of the jurisdiction set forth on Section 4.01 of the Company Disclosure Schedule. Such Seller, if an entity, is duly formed, validly existing and in good standing under the laws of its jurisdiction of formation and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except as would not materially impair or delay such Seller’s ability to perform its obligations under this Agreement or any other Transaction Document to which it is a party or to consummate the Transactions.
65 Section 4.02. Authorization. Such Seller has full power and authority and, if such Seller is a natural person, legal capacity, to execute and deliver this Agreement and each of the other Transaction Documents to which he, she or it is a party and to perform his, her or its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by such Seller of this Agreement and each of the other Transaction Documents to which he, she or it is a party, and the consummation by such Seller of the transactions contemplated hereby or thereby, have been duly authorized by all necessary actions on the part of such Seller. This Agreement and each of the other Transaction Documents to which such Seller is a party has been duly executed and delivered by such Seller and constitute the legal, valid and binding agreement of such Seller enforceable against such Seller in accordance with its and their terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Applicable Laws affecting creditors’ rights generally and general principles of equity). Section 4.03. Governmental Authorization. No consent, waiver, approval, Order, license, or declaration, registration or filing with, or notification to, any Person or Governmental Authority is required on the part of such Seller in connection with the execution, delivery and performance of this Agreement or the other Transaction Documents to which he, she or it is a party or the compliance by such Seller with any of the provisions hereof or thereof, or the consummation of the Transactions, except for such consents, waivers, approvals, Orders, licenses or authorizations the failure of which to obtain would not, individually or in the aggregate, (a) be material to the Company and its Subsidiaries, taken as a whole, or (b) materially impair or delay such Seller’s ability to perform its obligations under this Agreement or any other Transaction Document to which it is a party or to consummate the Transactions. Section 4.04. Noncontravention. The execution, delivery and performance by such Seller of this Agreement and the consummation of the transactions contemplated hereby do not and will not (a) violate the Governing Documents of such Seller, (b) violate any Applicable Law, (c) 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, would constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of such Seller or the Company or any Subsidiary of the Company or to a loss of any benefit to which such Seller or the Company or any Subsidiary of the Company is entitled under any provision of any agreement or other instrument binding upon such Seller or the Company or any Subsidiary of the Company, except in the case of this clause (c), for such consents the failure of which to obtain, and such defaults, that would not, individually or in the aggregate, (x) be material to the Company and its Subsidiaries, taken as a whole, or (y) materially impair or delay such Seller’s ability to perform its obligations under this Agreement or any of the other Transaction Documents to which it is a party or to consummate the Transactions, or (d) result in the creation or imposition of any Lien (other than a Permitted Lien) on any asset of the Company or any Subsidiary of the Company. Section 4.05. Ownership of Shares. As of immediately prior to the Closing, such Seller is the legal and beneficial owner of the shares of Company Common Stock (and each other
66 Company Security, as applicable) listed opposite such Seller’s name on Section 4.05 of the Company Disclosure Schedule, free and clear of any Lien except Permitted Equity Liens. Such interests represent the only equity interests in the Company held by such Seller as of immediately prior to the Closing, and such Seller will transfer and deliver to Buyer at the Closing valid legal and beneficial title to such equity interests free and clear of any Lien (other than Permitted Liens). Section 4.06. Finders’ Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of any Seller or any of their respective Affiliates who might be entitled to any fee or commission in connection with the Transactions. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to the Sellers as of the date hereof that: Section 5.01. Corporate Existence and Power. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers required to carry on its business as now conducted. Buyer 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 those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Buyer and its Subsidiaries, taken as a whole. Section 5.02. Authorization. (a) Buyer has full power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Buyer of this Agreement and each of the other Transaction Documents to which it is a party, and the consummation by Buyer of the transactions contemplated hereby and thereby, have been duly authorized by all necessary actions on the part of Buyer. This Agreement and each of the other Transaction Documents to which Buyer is a party has been duly executed and delivered by Buyer and constitute the legal, valid and binding agreement of Buyer enforceable against Buyer in accordance with its and their terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Applicable Laws affecting creditors’ rights generally and general principles of equity). (b) There are no votes, approvals, consents or other proceedings of the holders of Buyer’s capital stock necessary in connection with the execution and delivery of, or the performance by Buyer of its obligations under, this Agreement and the other Transaction Documents to which it is a party, or the consummation of the transactions contemplated hereby or thereby.
67 Section 5.03. Governmental Authorization. No consent, waiver, approval, Order, license, or declaration, registration or filing with, or notification to, any Person or Governmental Authority is required on the part Buyer in connection with the execution, delivery and performance of this Agreement or the other Transaction Documents to which it is a party or the compliance by Buyer with any of the provisions hereof or thereof, or the consummation of the Transactions, except for such consents, waivers, approvals, Orders, licenses or authorizations the failure of which to obtain would not, individually or in the aggregate, (a) be material to Buyer and its Subsidiaries, taken as a whole, or (b) materially impair or delay Buyer’s ability to perform its obligations under this Agreement or any other Transaction Document to which it is a party or to consummate the Transactions. Section 5.04. Noncontravention. The execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby do not and will not (a) violate the Governing Documents of Buyer, (b) violate any Applicable Law, (c) 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, would constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of Buyer or to a loss of any benefit to which Buyer is entitled under any provision of any agreement or other instrument binding upon Buyer or (d) result in the creation or imposition of any Lien on any asset of Buyer. Section 5.05. Financing. Buyer has sufficient cash, available lines of credit or other sources of immediately available funds to enable it to make the payment of the Purchase Price and any other amounts to be paid by it hereunder. Section 5.06. Litigation. As of the date hereof, there is no action, suit, investigation or proceeding pending against, or to the knowledge of Buyer threatened against or affecting, Buyer before any arbitrator or any Governmental Authority which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the Transactions. Section 5.07. R&W Insurance Policy. Buyer has obtained a conditional binder to the R&W Insurance Policy, and confirms that a true and correct copy of the conditional binder agreement has been provided to the Holder Representative prior to the date hereof. Buyer has paid or shall pay, or cause to be paid, all costs and expenses related to the R&W Insurance Policy, including the total premium, underwriting costs, brokerage commission, and other fees and expenses of such policy. The R&W Insurance Policy shall expressly waive any claims of subrogation against any Seller and their respective Affiliates and Related Parties (except in the case of Fraud) and such subrogation provisions benefitting Sellers and their respective Affiliates shall not be amended or modified in any manner which is adverse to Sellers, including after the Closing, without the prior written consent of the Holder Representative. Section 5.08. Finders’ Fees. Except for Needham & Company, LLC, whose fees and expenses will be paid by Buyer, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer or any of their Affiliates who might be entitled to any fee or commission in connection with the Transactions.
68 Section 5.09. Purchase for Investment. Buyer (a) is an informed, sophisticated entity with sufficient knowledge and experience in investment and financial matters so as to be capable of evaluating the risks and merits of its purchase of the Company Common Stock, (b) has determined that the Transactions are consistent with its general investment objectives, (c) understands that the Transactions involve certain business and other risks, (d) is financially able to bear the risks of purchasing the Company Common Stock, (e) has had an opportunity to discuss the business, management and financial affairs of the Company with the Holder Representative and the Company and, in entering into this Agreement, is relying on its informed conclusions of its own investigations of such businesses, (f) is acquiring the Company Common Stock for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, (g) was not organized for the specific purpose of acquiring the Company Common Stock, (h) understands that the Company Common Stock has not been registered under the Securities Act of 1933, as amended, or the applicable securities or blue sky laws of any state and, accordingly, must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act of 1933, as amended, or is exempt from such registration, (i) is an “accredited investor” as defined in Rule 501(a) under the Securities Act and (j) understands that the exemptions from registration under the Securities Act relied upon by the Stockholders are based in part on the fact that Buyer is an “accredited investor” as defined in Rule 501(a) under the Securities Act. ARTICLE 6 COVENANTS OF BUYER AND SELLERS Buyer and the Sellers agree that: Section 6.01. Further Assurances. Buyer and each of the Sellers shall use its reasonable best efforts to promptly take, or cause to be taken, all actions, and to do promptly, or cause to be done promptly, all things necessary, proper or advisable to consummate and effectuate the transactions contemplated by this Agreement and the Transaction Documents. After the Closing, Sellers and Buyer shall, from time to time, at the request of the other Party, execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable, as such Party may reasonably request, in order to more effectively consummate the transactions contemplated by this Agreement and the other Transaction Documents (it being understood and agreed that in respect to any UCC-1 financing statements in the public record reflecting liens or other security interests with respect to the assets of the Company relating to Indebtedness incurred by the Company prior to the Closing (including any Indebtedness for which no outstanding agreement, document or other instrument exists or can be located or is identified to Buyer prior to the Closing), Sellers shall, at its sole cost and expense, promptly following Closing request that either Sellers or the applicable secured party file UCC termination statements in accordance with any applicable terms related to the agreements and payoff letters with respect to such Indebtedness). Section 6.02. Public Announcements. The Parties agree not to issue any press release or make any public statement with respect to this Agreement or the Transactions without the prior written consent of, in the case of an announcement by Buyer, the Holder
69 Representative or, in the case of an announcement by any Seller or any of their respective Affiliates, Buyer, such consent not to be unreasonably withheld, conditioned or delayed, except that Buyer may issue press releases and make public filings to the extent required by Applicable Law, regulation or any listing agreement with Nasdaq or any national securities exchange. Buyer and the Holder Representative will consult with each other before issuing, and provide each other, to the extent practicable, reasonable opportunity to review and comment upon any press release or public statement with respect to the Transaction Documents and the Transactions. Section 6.03. Confidentiality. (a) After the Closing, each Seller and its Affiliates will hold, and will use their best efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the Company and the Subsidiaries, except to the extent that such information was or is (i) previously known on a nonconfidential basis by such Seller, (ii) in the public domain through no fault of such Seller or its Affiliates or (iii) later lawfully acquired by such Seller from sources other than those related to its prior ownership of Company Common Stock. The obligation of each Seller and its Affiliates to hold any such information in confidence shall be satisfied if they exercise the same care with respect to such information as they would take to preserve the confidentiality of their own similar information. (b) Notwithstanding the foregoing, (i) Sellers and their Affiliates may disclose such portion of information (and only such portion) as necessary to enforce this Agreement or any Transaction Document or perform any obligation under this Agreement or any Transaction Document, and (ii) Sellers and their Affiliates may furnish such portion (and only such portion) of such information as is necessary in connection with the filing of Tax Returns or claims for refund or in defending, prosecuting of otherwise conducting any examination, audit or administrative or judicial proceeding regarding any Tax Return or Taxes. Section 6.04. D&O Tail Policy. Effective at or before the Closing, in consultation with Buyer, the Holder Representative shall cause the Company to obtain a prepaid directors’ and officers’ liability insurance policy or policies (i.e., “tail coverage”) (the “D&O Tail”), which policy or policies cover(s) those persons who are currently covered by the Company’s directors’ and officers’ liability insurance policy, on terms with respect to coverage and amount no less favorable than those of such policy, for an aggregate period of not less than six (6) years from the Closing Date with respect to claims arising from facts or events that occurred at or before the Closing, including with respect to the transactions contemplated by this Agreement. The costs of such D&O Tail shall be split 50/50 by the Sellers and Buyer. Section 6.05. R&W Insurance Policy. Buyer shall cause the R&W Insurance Policy to (a) name the Buyer as the insured, (b) expressly provide that the insurer(s) issuing such policy shall waive or otherwise not pursue any subrogation rights against either Seller or
70 any of its Affiliates and/or any of their respective Representatives, except in the case of Fraud by a Seller (with the insurer(s) agreeing that the Fraud of any one Seller shall not be imputed to any other Seller), (c) provide that each Seller, its Affiliates and their respective Representatives are express third-party beneficiaries of such waiver of subrogation provision, and (d) not be amended, modified, or otherwise changed in a manner adverse to any Seller without the prior written consent of the Holder Representative. From and after the Closing, Buyer shall not (and shall cause its Affiliates to not) grant any right of subrogation or otherwise amend, modify, terminate, or waive any term or condition of the R&W Insurance Policy in a manner inconsistent with the immediately preceding sentence without the prior written consent of the Holder Representative. From and after issuance of the R&W Insurance Policy, Buyer shall not amend, modify, or otherwise change, terminate, or waive any provision of the R&W Insurance Policy in a manner adverse to any Seller, any of its Affiliates or any of their respective Representatives, including any rights of the insurer to subrogate or seek recovery from any Seller or any Affiliates or Representatives of a Seller, without the prior written consent of the Holder Representative. Buyer shall bear all costs and expenses related to the R&W Insurance Policy, including the total premium, underwriting costs, brokerage commission, and other fees and expenses of such policy. Section 6.06. Preservation of Books and Records; Access to Information. (a) Holder Representative and each Seller and its Affiliates, who shall be third- party beneficiaries under this Section 6.06, shall have the right to retain, at their sole cost and expense, copies of all books and records and all Tax Returns and other information and documents (i) relating to Tax matters of the Company applicable to such Seller, in each case, relating to periods ending on or prior to the Closing Date, and (ii) relating to any information such Seller is required to disclose in compliance with Applicable Law. (b) Subject to any retention requirements relating to the preservation of Tax records, for a period of six (6) years from the Closing Date or such longer time as may be required by Applicable Law, the Parties shall not, and shall cause their Affiliates not to, dispose of or destroy any of the books and records of the Company and its Subsidiaries relating to periods on and prior to the Closing, and each shall make such records reasonably available during regular business hours on reasonable notice to the other as may be reasonably requested in writing by each Party, at each Party’s expense; provided that any such access shall be done in such a manner so as not to unreasonably interfere with the normal conduct of the applicable Party’s business. For the avoidance of doubt, this shall include requests reasonably deemed necessary to determine any matter relating to a Party’s rights and obligations hereunder or otherwise in connection with tax, regulatory, litigation, contractual or other legitimate matters. Section 6.07. Reimbursements for Tenant Improvements. Buyer shall provide the Holder Representative with reasonably prompt notice of the receipt by Buyer or any of its Affiliates, including the Company following Closing, of any reimbursements received after the Closing with respect to tenant improvements paid for by the Company prior to the Closing Date pursuant to the Lease, dated April 17, 2023, by and between 55 West Property, LLC and the Company. Buyer shall pay, or cause to be paid, in accordance with the same
71 procedures set forth in Section 2.03(c), any such amounts to the Company Equityholders in accordance with their respective CBA Share and Pro Rata Share, as applicable. Notwithstanding anything to the contrary herein, Buyer shall not be required to make any payment pursuant to this Section 6.07 until the Holder Representative delivers to Buyer updated Payment Instructions reflecting the allocation of such amounts to the Company Equityholders. ARTICLE 7 TAX MATTERS Section 7.01. Pre-Closing Filing and Payment. (a) Holder Representative shall prepare and timely file, or shall cause to be prepared and timely filed, at its sole cost and expense, any Tax Return that is required to be filed by or with respect to the Company and its Subsidiaries for a Pre-Closing Tax Period, but excluding any Straddle Tax Period (a “Pre- Closing Tax Return”), and the Company shall timely pay (or cause to be paid) all Taxes shown as due on such Tax Returns. All Pre-Closing Tax Returns will be prepared in a manner consistent with the Company’s and its Subsidiaries’ past practices and this Agreement, except as otherwise required by Applicable Law. Holder Representative shall deliver, or cause to be delivered, to Buyer for its review and comment a draft of each Pre- Closing Tax Return that is an income Tax Return at least thirty (30) days prior to the due date for filing such Tax Return (taking into account applicable extensions), and the Holder Representative shall consider in good faith all changes reasonably requested by Buyer not later than five (5) days before the due date thereof (taking into account applicable extensions). (b) Except for any Tax Return required to be prepared by the Holder Representative pursuant to Section 7.01(a), Buyer shall prepare or cause to be prepared all other Tax Returns with respect to the Company and its Subsidiaries that are required to be filed after the Closing Date, including any Straddle Tax Period. Buyer shall deliver, or cause to be delivered, to the Holder Representative for its review and comment a draft of each such Tax Return that reflects Taxes that relate solely to the Company and its Subsidiaries in a Pre-Closing Tax Period at least thirty (30) days prior to the due date for filing such Tax Return (taking into account applicable extensions), and Buyer shall consider in good faith all changes requested by the Holder Representative with respect to such Tax Returns not later than five (5) days before the due date thereof (taking into account applicable extensions). The Company shall timely pay (or cause to be paid) all Taxes shown as due on such Tax Returns. Section 7.02. Straddle Tax Period Allocation. For purposes of this Agreement, in the case of a Straddle Tax Period, (x) property Taxes and any other periodic Taxes imposed on or with respect to the Company and its Subsidiaries (that are not based on income, receipts, services or transactions, including sales, use, withholding, payroll or other employment Taxes) allocable to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Tax Period and (y) the amount of all other Taxes (other than Transfer Taxes) of the Company and its Subsidiaries for a Straddle Tax
72 Period allocable to the Pre-Closing Tax Period shall be computed as if such Tax Period ended as of the close of business on the Closing Date. For this purpose, the taxable year of a Company or any of its Subsidiaries (or any former Subsidiary of any Company or any of its Subsidiaries) that is a “controlled foreign corporation” (as defined in Section 957 of the Code) shall be deemed to have closed on the Closing Date, including for purposes of computing any inclusion under Sections 951 or 951A of the Code. Section 7.03. Cooperation. (a) Buyer and each of the Sellers shall, and shall cause their respective Affiliates to, cooperate fully as and to the extent reasonably requested by the other Party, in connection with any Tax matter or Tax claim and the filing of any Tax Returns of or relating to the Company and its Subsidiaries. (b) No provision of this Agreement shall be construed to require Buyer to provide to any Person any right to access or to review any Tax Return or Tax work papers of Buyer or any Affiliate of Buyer (including any consolidated, combined, affiliated or unitary Tax Return that includes Buyer or any Affiliate of Buyer, and any pro forma Tax Return used to create any such consolidated, combined, affiliated or unitary Tax Return), except, in each case, to the extent of any stand-alone Tax Returns of the Company or any of its Subsidiaries and supporting Tax data and records relating solely and exclusively thereto. Section 7.04. Termination of Tax Sharing Agreements. Notwithstanding any other provision in this Agreement to the contrary, all Tax Sharing Agreements between the Company and its Subsidiaries, on the one hand, and any Person (other than the Company and its Subsidiaries), on the other hand, shall be terminated prior to the Closing Date and, after the Closing, none of the Company or any of its Subsidiaries will be bound thereby or have any liability thereunder. Section 7.05. Tax Contests. Holder Representative shall be entitled to control the conduct, through counsel of its own choosing at its own expense, of any audit or administrative or judicial proceeding involving any asserted Tax Liability or claim for Tax Refund with respect to the Company or its Subsidiaries (any such audit or proceeding relating to an asserted Tax Liability referred to herein as a “Contest”) relating solely to a Pre-Closing Tax Period and for which Sellers are economically responsible pursuant to this Agreement, but Buyer shall have the right to participate in such Contest at its own expense; provided, however, that Holder Representative shall control any Contest pursuant to this Section only if (A) it acknowledges to Buyer that Sellers will be responsible (including via an indemnity payment to Buyer) for Taxes that are the subject of the Contest in the event such Taxes are or become due and (B) it demonstrates to Buyer’s reasonable satisfaction that Sellers will have the wherewithal to satisfy their obligations to Buyer in respect of such Taxes. Holder Representative shall not settle, compromise or concede such Contest without the prior written consent of Buyer, not to be unreasonably withheld, conditioned or delayed. In the case of a Contest that relates to Straddle Tax Periods of the Company or its Subsidiaries, Buyer shall control the conduct of such Contest at its own expense, but Holder Representative shall have the right to participate in such Contest at its own expense.
73 Section 7.06. Tax Refunds. Any Tax refunds that are received after the Closing by the Company and/or its Subsidiaries, any amounts credited against Taxes in lieu of a refund and any reductions or offsets actually used to reduce cash Taxes otherwise payable to which the Company and/or its Subsidiaries becomes entitled, that in either case are attributable to the Pre-Closing Tax Period, including any overpayment of Taxes (estimated or otherwise) made on or before the Closing Date, including any interest thereon (collectively, “Tax Refunds”), and relate to Taxes for which Sellers are economically responsible under this Agreement, other than amounts arising from losses, deductions, credits, expenses or other Tax items attributable to the operations of Buyer or any of its Affiliates after the Closing and other than amounts that were taken into account in the determination of Closing Net Working Capital, shall be for the accounts of Sellers. Buyer and its Affiliates shall pay over to Sellers the amount of any such Tax Refund within ten (10) days after receipt thereof or entitlement thereto, less any amount included in the determination of Closing Net Working Capital. At the reasonable request of Holder Representative, to the extent supported by Applicable Law, Buyer and its Affiliates shall apply for any Tax Refund available to the Company and its Subsidiaries for the Pre-Closing Tax Period or a Straddle Tax Period; provided, however, that Buyer and its Affiliates shall have no obligation to seek, or cooperate in seeking, any Tax Refund if it can reasonably be expected to materially increase the Taxes of Buyer or any of its Affiliates (including the Company and its Subsidiaries) for any taxable period (or portion thereof) beginning after the Closing Date unless the Sellers agree to indemnify such parties for such increased Taxes; and further provided, that, as a condition to the pursuit of any such Tax Refund, Sellers shall be required to fund the payment of any reasonable third-party expenses associated with such application for a Tax Refund under payment arrangements reasonably acceptable to Buyer. If the amount of any such Tax Refund is subsequently determined by any Governmental Authority to be less than the amount paid by the Buyer or its Affiliates pursuant to this Section 7.06, the Holder Representative shall promptly pay to the Buyer the amount of any such disallowed Tax Refund (including any interest and penalties in respect of such disallowed amount owed to any Governmental Authority). Section 7.07. Tax Deductions. Notwithstanding anything in this Agreement to the contrary and to the extent expenses or Taxes, as appropriate, described below are economically borne by Sellers, Buyer and Sellers agree as follows: (a) To the extent permitted under applicable Law at a “more likely than not” or higher level of comfort, to treat (i) any Transaction Expenses paid or accrued on or before the Closing Date, and (ii) any amounts paid to Optionholders and CBA Holder pursuant to Section 2.04 as deductible in a Pre-Closing Tax Period and that no Party shall apply the “next day rule” under Treasury Regulations Section 1.1502-76(b)(1)(ii)(B) to such deductions. (b) To properly make an election under Revenue Procedure 2011-29, 2011-18 IRB 746 to deduct seventy percent (70%) of any Transaction Expenses that are success- based fees as defined in Treasury Regulations Section 1.263(a)-5(f). (c) To treat any gains, income, deductions, losses or other items realized by the Company and its Subsidiaries for income Tax purposes with respect to any transaction not
74 permitted or required by this Agreement that is outside the ordinary course of business occurring after the Closing on the Closing Date as occurring on the day immediately following the Closing Date and to utilize the “next day rule” in Treasury Regulation Section 1.1502-76(b)(1)(ii)(B) (or any similar provision of state, local, or non-U.S. Law) for purposes of reporting such items on applicable Tax Returns. (d) That no election shall be made by any Party (or the Company or its Subsidiaries) to waive the carry back of any net operating loss or other Tax attribute or Tax credit incurred or realized in a Pre-Closing Tax Period by the Company or its Subsidiaries. (e) That no election shall be made by any Party (or the Company or its Subsidiaries) under Treasury Regulation Section 1.1502-76(b)(2) (or any similar provision of state, local, or non-U.S. Law) to ratably allocate items incurred by the Company. Section 7.08. Post-Closing Actions. Unless otherwise required by Applicable Law, neither Buyer nor the Company or its Subsidiary shall, to the extent such action would give rise to additional liability to Sellers under Section 9.02(a)(v) (i) file any amended Tax Return with respect to a Pre-Closing Tax Period, (ii) take any action that would extend the applicable statute of limitations for any Taxes or Tax Return of the Company or its Subsidiaries for any Pre-Closing Tax Period, (iii) file, amend or revoke any Tax election of the Company or its Subsidiaries for a Pre-Closing Tax Period, (iv) surrender any right to claim a refund of Taxes relating to the Company or its Subsidiaries relating to any Pre- Closing Tax Period, (v) make any election under Sections 338 or 336(e) of the Code with respect to the transactions contemplated by this Agreement, in each case without the written consent of Sellers, (vi) make any voluntary disclosure or enter into any voluntary disclosure program or agreement with respect to a Pre-Closing Tax Period, or (vii) take any action on the Closing Date after the Closing outside the ordinary course of business. Section 7.09. Transfer Taxes. All Transfer Taxes incurred in connection with this Agreement (notwithstanding the Party upon which such Transfer Taxes are otherwise imposed as a matter of Law) shall be borne 50% by Sellers and 50% by Buyer and all necessary Tax Returns and other documentation with respect to such Transfer Taxes shall be prepared and filed by the Party required to file such Tax Returns under applicable Law. Each Party agrees to use its commercially reasonable efforts to mitigate, reduce or eliminate any Transfer Taxes. Section 7.10. Survival. Notwithstanding anything in this Agreement to the contrary, the provisions of this Article 7 shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof). ARTICLE 8 EMPLOYEE BENEFITS Section 8.01. Employee Matters. For a period of at least twelve (12) months following the Closing (or such shorter period as the Continuing Employee (as defined below) remains employed by the Company or one of its Subsidiaries), Buyer shall, or shall cause the Company and its Subsidiaries to, provide those employees who are employed by the
75 Company and its Subsidiaries on the Closing Date (the “Continuing Employees”) with base salary or wage, target cash incentive opportunities, and severance compensation that are substantially comparable in the aggregate to those provided to such Continuing Employee immediately prior to the date hereof, and employee benefits (excluding defined benefit pension benefits, equity or equity-based awards and post-employment welfare benefits) that are substantially comparable in the aggregate to those being provided to such Continuing Employee immediately prior to the date hereof. Buyer agrees that, from and after the Closing Date, Buyer will grant (or cause to be granted) to each Continuing Employee credit for any service with the Company and its Subsidiaries earned prior to the Closing Date (a) for eligibility and vesting purposes and (b) for purposes of determining the level of vacation or severance benefits under any benefit plan, program or arrangement established or maintained by Buyer or one of its Affiliates (the “New Plans”) unless duplication of benefits would result. In addition, Buyer hereby agrees that Buyer (x) shall waive or cause to be waived all pre-existing condition exclusion and actively-at-work requirements and similar limitations, eligibility waiting periods and evidence of insurability requirements under any New Plans that are Employee Welfare Benefit Plans and (y) shall cause any covered expenses incurred on or before the Closing Date by any Continuing Employee (or dependent or beneficiary thereof) to be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Closing Date under any New Plan that is an Employee Welfare Benefit Plan as if such amounts had been paid with respect to any New Plan that is an Employee Welfare Benefit Plan. Nothing contained in this Section 8.01 (whether express or implied) shall (i) be considered or deemed to establish, amend or modify any Employee Plan or any other benefit or compensation plan, program, policy, agreement, arrangement or contract, (ii) confer any rights or benefits (including any third-party beneficiary rights) on any Person other than the parties to this Agreement or (iii) create any obligation on the part of Buyer or any of its Subsidiaries to employ or engage any employee (including any Continuing Employee) or independent contractor for any period following the Closing. ARTICLE 9 SURVIVAL; INDEMNIFICATION; R&W INSURANCE Section 9.01. Survival. The representations and warranties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith shall survive the Closing for a period of twelve (12) months following the Closing Date (the “Survival Termination Date”); provided that the Fundamental Representations shall survive for a period of six (6) years following the Closing Date. The covenants and agreements of the Parties hereto contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith shall survive the Closing; indefinitely or for the shorter period explicitly specified therein, except that for such covenants and agreements that survive for such shorter period, breaches thereof shall survive indefinitely or until the latest date permitted by law. Notwithstanding the preceding sentences, any breach of a representation, warranty, covenant or agreement in respect of which indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate pursuant to the preceding sentences, if valid notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been
76 given in accordance with Section 9.03 to the Party against whom such indemnity may be sought prior to such time. Section 9.02. Indemnification. (a) Subject to the limitations set forth in this Article 9, from and after the Closing, each Seller shall severally and not jointly, based on such, and not in excess of, Seller’s respective Pro Rata Indemnity Share, indemnify, defend and hold harmless Buyer and its Affiliates and their respective officers, directors and other Representatives (collectively, the “Buyer Indemnified Parties”) from and against all losses, claims, Liabilities, costs and expenses (including reasonable outside attorneys’ fees and disbursements, court costs and other out-of-pocket expenses but not including punitive or exemplary damages, except in the case of Fraud or to the extent such damages form a part of a Third-Party Claim), judgments, fines, penalties and amounts paid in settlement (subject to the conditions for settlements set forth in this Article 9) (collectively, “Losses”) incurred by or imposed on any of the Buyer Indemnified Parties to the extent resulting from, without duplication: (i) the failure of any representation or warranty made by the Company in Article 3 (in each case without giving effect to any limitation or qualification as to “materiality” (including the word “material”) or “Material Adverse Effect” set forth therein, other than (A) the phrase “Material Adverse Effect” in Section 3.08(a), (B) the use of the word “material” in Section 3.10 and (C) the defined term “Material Contract”) to be true and correct as of the date hereof; (ii) the breach of covenant or agreement made or to be performed by the Holder Representative pursuant to this Agreement after the Closing; (iii) any Transaction Expenses (including, for the avoidance of doubt, any Advisor Expenses that become due and payable following the Closing) or Indebtedness not taken into account in connection with the calculation of the Closing Purchase Price and/or any amount by which the Adjustment Holdback Amount is insufficient to satisfy any Overpayment Amount in full; (iv) any Action by or on behalf of any current or former Company Equityholder (or any of his, her or its respective Affiliates, successors or assignees or Representatives) with respect to any claims (A) of inaccuracies in the Payment Instructions or (B) that such Person is entitled to receive any amounts in excess of the amounts indicated in the Payment Instructions or as otherwise provided in this Agreement; (v) any Indemnified Taxes; and (vi) those matters set forth on Section 9.02(a)(vi) of the Company Disclosure Schedule. (b) Subject to the limitations set forth in this Article 9, from and after the Closing, each Seller, solely with respect to any breach by such Seller, shall severally with
77 respect to itself only and not jointly and severally, indemnify, defend and hold harmless the Buyer Indemnified Parties from and against all Losses incurred by or imposed on any of the Buyer Indemnified Parties to the extent resulting from, without duplication: (i) the failure of any representation or warranty made by such Seller in Article 4 (in each case without giving effect to any limitation or qualification as to “materiality” (including the word “material” or “Material Adverse Effect” set forth therein) to be true and correct as of the date hereof; and (ii) the breach of covenant or agreement made or to be performed by such Seller pursuant to this Agreement after the Closing. (c) With respect to claims by Buyer Indemnified Parties for indemnification for Losses pursuant to Section 9.02(a)(i) or Section 9.02(b)(i), other than in respect of Fundamental Representations or in the case of Fraud (each, a “Seller Warranty Breach”): (i) the Sellers shall not be liable for any claim or series of related claims arising out of the same or similar set of facts or circumstances where the Losses related thereto are less than $25,000 (each, a “De Minimis Loss”); (ii) the Sellers shall not be liable for any Losses unless and until the aggregate amount of Losses with respect to such Seller Warranty Breaches that are subject to indemnification after giving effect to Section 9.02(c)(i) exceeds $150,000 (the “Deductible”), and then only to the extent of such excess; (iii) the maximum aggregate liability of the Sellers shall be limited to the Indemnity Holdback Amount then remaining in the Holdback Fund (to the extent thereof and not including any portion of the Adjustment Holdback Amount) (the “Warranty Cap”); (iv) the Buyer Indemnified Parties shall (A) first, be required to satisfy all claims for Losses with respect to claims for Seller Warranty Breaches from the Indemnity Holdback Amount then remaining in the Holdback Fund and (B) to the extent that any amount of such Losses exceeds the Indemnity Holdback Amount, (1) the sole and exclusive recourse of the Buyer Indemnified Parties for any breach of a representation or warranty of the Sellers in this Agreement shall be to seek payment under the R&W Insurance Policy in accordance with its terms, and (2) notwithstanding anything contained herein to the contrary, the Buyer Indemnified Parties shall have no right to seek payment directly from any of the Sellers under any circumstances for such breaches. (d) With respect to claims by the Buyer Indemnified Parties for indemnification for Losses pursuant to Section 9.02(a)(ii) through Section 9.02(a)(vi) and Section 9.02(b)(ii), or pursuant to Section 9.02(a)(i) in the case of Company Fundamental Representations or Section 9.02(b)(i) in the case of Seller Fundamental Representations or in the case of Fraud (a “Specified Breach”):
78 (i) the Buyer Indemnified Parties shall (A) first, be required to satisfy all claims for Losses with respect to claims under such sections from amounts remaining of the Indemnity Holdback Amount, (B) next, to the extent that any amount of such Losses exceeds the Indemnity Holdback Amount, be required to seek payment under the R&W Insurance Policy in accordance with its terms and (C) only to the extent that any amount of such Losses either (i) in the case of Section 9.02(a)(ii) through Section 9.02(a)(vi), cannot be recovered from the R&W Insurance Policy, or (ii) in the case of a Specified Breach pursuant to Section 9.02(a)(i) or Section 9.02(b)(i) cannot be recovered from the R&W Insurance Policy as a result of the applicable policy limit being reached, shall the Buyer Indemnified Parties be entitled to seek indemnification directly from the applicable Seller(s) for such Losses; and (ii) each Seller’s maximum aggregate liability for a Specified Breach (other than claims based on Fraud) shall be limited to such Seller’s Pro Rata Indemnity Share of the Closing Purchase Price actually received by the Sellers, and for the avoidance of doubt,(x) the Sellers’ maximum aggregate liability shall be limited to the Purchase Price actually received by the Sellers and (y) in no event shall any Seller’s liability for any Specified Breach pursuant to Section 9.02(a) exceed such Seller’s Pro Rata Indemnity Share of such Specified Breach. (e) Subject to the limitations set forth in this Article 9, from and after the Closing, Buyer shall indemnify, defend and hold harmless the Sellers and their respective Affiliates and its and their respective officers and directors (in the case of Company Equityholders that are entities) and Representatives (collectively, the “Seller Indemnified Parties”) from and against all Losses incurred by or imposed on any of the Seller Indemnified Parties to the extent resulting from (i) the failure of any representation or warranty of Buyer contained in Article 5 to be true and correct as of date hereof or (ii) any breach of any covenant or agreement of Buyer contained in this Agreement that is required to be performed or complied with after the Closing. With respect to indemnification by Buyer for all matters hereunder, except in the case of Fraud, Buyer’s maximum aggregate liability shall be limited to the Purchase Price. Section 9.03. Independent Investigation; Waiver of Other Representations. (a) BUYER HEREBY ACKNOWLEDGES THAT (I) IT HAS MADE ITS OWN INDEPENDENT EXAMINATION, INVESTIGATION, ANALYSIS AND EVALUATION OF THE BUSINESS, OPERATIONS, ASSETS AND PROPERTIES, LIABILITIES, RESULTS OF OPERATIONS, FINANCIAL CONDITION, TECHNOLOGY AND PROSPECTS OF THE COMPANY, (II) IT HAS BEEN PROVIDED ACCESS TO PERSONNEL, PROPERTIES, PREMISES AND RECORDS OF THE COMPANY (INCLUDING THE BOOKS AND RECORDS OF THE COMPANY AND ITS SUBSIDIARIES) FOR SUCH PURPOSE AND HAS RECEIVED AND REVIEWED SUCH INFORMATION AND HAS HAD A REASONABLE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS RELATING TO SUCH MATTERS AS IT DEEMED NECESSARY OR APPROPRIATE TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREIN, (III) IT HAS
79 SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT IT IS CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE COMPANY AND ITS SUBSIDIARIES AND AN INVESTMENT IN THE COMPANY AND (IV) THE HOLDER REPRESENTATIVE AND THE COMPANY HAVE DELIVERED OR MADE AVAILABLE TO BUYER OR ITS ADVISORS ALL INFORMATION WHICH BUYER OR SUCH ADVISORS HAVE REQUESTED FOR THE PURPOSE OF DECIDING WHETHER OR NOT TO ENTER INTO THIS AGREEMENT AND THE TRANSACTION DOCUMENTS. (b) IN ENTERING INTO THIS AGREEMENT, BUYER HAS RELIED UPON, AMONG OTHER THINGS, ITS OWN DUE DILIGENCE INVESTIGATION AND ANALYSIS OF THE COMPANY AND THE ASSETS AND PROPERTIES OF THE COMPANY AND ITS SUBSIDIARIES. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER: (i) ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ARTICLE 3 OR ARTICLE 4, (A) THE COMPANY, HOLDER REPRESENTATIVE AND THE SELLERS, ON BEHALF OF THEMSELVES AND THEIR AFFILIATES, EXPRESSLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO (1) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM RELATING TO THE BUSINESS, THE COMPANY COMMON STOCK OR THE ASSETS AND PROPERTIES OF THE COMPANY AND ITS SUBSIDIARIES, (2) ANY ESTIMATES OF THE VALUE OF THE BUSINESS, THE COMPANY COMMON STOCK OR THE ASSETS AND PROPERTIES OF THE COMPANY AND ITS SUBSIDIARIES, OR FUTURE REVENUES GENERATED THEREBY, OR (3) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN, MARKETABILITY, PROSPECTS (FINANCIAL OR OTHERWISE) OR RISKS AND OTHER INCIDENTS OF THE BUSINESS, THE COMPANY COMMON STOCK OR THE ASSETS AND PROPERTIES OF THE COMPANY AND ITS SUBSIDIARIES AND FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES; AND (ii) ACKNOWLEDGES AND AGREES THAT NEITHER THE COMPANY AND ITS SUBSIDIARIES NOR ANY OF THE SELLERS OR HOLDER REPRESENTATIVE NOR ANY OF THEIR RESPECTIVE AFFILIATES NOR ANY OF THEIR RESPECTIVE DIRECTORS, MANAGERS, OFFICERS, EQUITY HOLDERS, EMPLOYEES, CONTROLLING PERSONS, AGENTS, ADVISORS OR REPRESENTATIVES MAKES OR HAS MADE ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF ANY OF THE INFORMATION PROVIDED OR MADE AVAILABLE TO BUYER OR ITS AFFILIATES OR ITS OR THEIR RESPECTIVE DIRECTORS, MANAGERS,
80 OFFICERS, EQUITY HOLDERS, EMPLOYEES, CONTROLLING PERSONS, AGENTS, ADVISORS OR REPRESENTATIVES, INCLUDING ANY INFORMATION, DOCUMENT, OR MATERIAL PROVIDED OR MADE AVAILABLE, OR STATEMENTS MADE, TO BUYER OR ITS AFFILIATES OR ITS OR THEIR RESPECTIVE DIRECTORS, MANAGERS, OFFICERS, EQUITY HOLDERS, EMPLOYEES, CONTROLLING PERSONS, AGENTS, ADVISORS OR REPRESENTATIVES DURING SITE OR OFFICE VISITS, IN ANY “DATA ROOMS” (INCLUDING INTERNET-BASED DATA ROOMS), MANAGEMENT PRESENTATIONS OR SUPPLEMENTAL DUE DILIGENCE INFORMATION PROVIDED TO BUYER OR ITS AFFILIATES OR ITS OR THEIR RESPECTIVE DIRECTORS, MANAGERS, OFFICERS, EQUITY HOLDERS, EMPLOYEES, CONTROLLING PERSONS, AGENTS, ADVISORS OR REPRESENTATIVES IN CONNECTION WITH DISCUSSIONS OR ACCESS TO MANAGEMENT OF THE COMPANY OR IN ANY OTHER FORM IN EXPECTATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, EXCEPT IN EACH CASE TO THE EXTENT EXPRESSLY SET FORTH IN THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 3 OR ARTICLE 4 HEREIN. (iii) ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE SET FORTH IN ARTICLE 3 OR ARTICLE 4 (EACH AS MODIFIED BY THE COMPANY DISCLOSURE SCHEDULE) OR THE OTHER TRANSACTION DOCUMENTS, IN ACQUIRING THE COMPANY COMMON STOCK, BUYER IS ACQUIRING THE ASSETS ON AN “AS IS, WHERE IS, WITH ALL FAULTS” BASIS. (c) THE STATEMENTS AND DISCLAIMERS MADE UNDER THIS Section 9.03 EXPRESSLY SURVIVE THE CLOSING DATE. Section 9.04. Third Party Claim Procedures. (a) The Party seeking indemnification under Section 9.02 (the “Indemnified Party”) agrees to give prompt notice in writing to the Party against whom indemnity is to be sought (the “Indemnifying Party”) of the assertion of any claim or the commencement of any Action by any third party (a “Third-Party Claim”) in respect of which indemnity may be sought under such Section. Such notice shall set forth in reasonable detail the facts and circumstances of such Third-Party Claim, the amount thereof (to the extent known) and the basis for indemnification in respect thereof, including the specific Section or Sections hereof that the Indemnified Party claims to have been breached (taking into account the information then available to the Indemnified Party). Subject to the survival limitation set forth in Section 9.01, the failure of the Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have actually prejudiced the Indemnifying Party. (b) The Indemnifying Party shall be entitled to participate in the defense of any Third-Party Claim and, subject to the limitations set forth in this Section 9.04, shall be entitled to control and appoint lead counsel of its choice for such defense (so long as such
81 counsel is reasonably acceptable to the Indemnified Party), in each case at its own expense, if it gives notice of its intention to do so to the Indemnified Party within thirty (30) days after receipt of such notice in accordance with Section 9.04(a) from the Indemnified Party; provided that, if such Third-Party Claim relates to or arises out of any criminal enforcement action against the Indemnified Party or seeks as a remedy equitable or injunctive relief against the Indemnified Party, which, if granted, would reasonably be expected to have a material and adverse effect on the Indemnified Party, then the Indemnified Party shall be entitled to control the defense of the Third-Party Claim and appoint lead counsel of its choice for such defense (so long as such counsel is reasonably acceptable to the Indemnifying Party), in each case at the Indemnifying Party’s expense subject to the other limitations in this Article 9, if it gives notice of its intention to do so to the Indemnifying Party within thirty (30) days after the Indemnifying Party’s notice to the Indemnified Party that either of the above circumstances exists with respect to the Third-Party Claim. (c) If the Indemnifying Party shall assume the control of the defense of any Third-Party Claim in accordance with the provisions of this Section 9.04, (i) the Indemnifying Party shall obtain the prior written consent of the Indemnified Party (which shall not be unreasonably withheld, delayed or conditioned) before entering into any compromise or settlement of such Third-Party Claim, if the settlement (A) does not release the Indemnified Party and its Affiliates from all liabilities and obligations with respect to such Third-Party Claim, or (B) imposes injunctive or other equitable relief on the Indemnified Party or any of its Affiliates that in any way limits the operation of the business of such Persons, (C) if such compromise or settlement would reasonably be likely to cause any Buyer Indemnified Person to lose coverage under the R&W Insurance Policy, and (ii) the Indemnified Party shall be entitled to participate in the defense of any Third-Party Claim and to employ separate counsel of its choice and at its own expense. The Indemnified Party shall not settle any Third-Party Claim without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld, delayed or conditioned) to the extent the Indemnifying Party would be liable for indemnification for such claim hereunder. (d) Each Party shall reasonably cooperate, and cause its Affiliates to reasonably cooperate, in the defense or prosecution of any Third-Party Claim, and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested in connection therewith. Section 9.05. Direct Claim Procedures. If an Indemnified Party has a claim for indemnity under Section 9.02 against an Indemnifying Party that does not involve a Third-Party Claim (a “Direct Claim”), the Indemnified Party agrees to give prompt notice thereof in writing to the Indemnifying Party. Such notice shall set forth in reasonable detail the facts and circumstances of such Direct Claim, the amount thereof (to the extent known) and the basis for indemnification in respect thereof, including the specific Section or Sections hereof that the Indemnified Party claims to have been breached (taking into account the information then available to the Indemnified Party). Subject to the survival limitations set forth in Section 9.01, the failure of the Indemnified Party to so notify the Indemnifying Party shall
82 not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have actually prejudiced the Indemnifying Party. Section 9.06. R&W Insurance Policy Process. Notwithstanding anything herein to the contrary, all claims by any Buyer Indemnified Party shall be asserted and resolved in compliance with the procedures set forth in the R&W Insurance Policy. Any objections by the provider under the R&W Insurance Policy for any indemnification claim brought by a Buyer Indemnified Party, as well as the resolution of any disputes related thereto, shall also proceed in accordance with the procedures set forth in the R&W Insurance Policy. The Buyer Indemnified Party will provide to the Holder Representative, concurrently with delivery to the requisite parties under the R&W Insurance Policy, copies of any indemnification claim submitted by a Buyer Indemnified Party. Section 9.07. Purchase Price Adjustment. Buyer and the Holder Representative agree to treat any indemnification payment pursuant to Section 9.02 as an adjustment to the Purchase Price for all Tax purposes unless otherwise required by Applicable Law. Section 9.08. Certain Limitations. (a) Except for claims based upon Fraud (and without limitation to Section 11.12), the indemnification provisions set forth in this Article 9 shall be the sole and exclusive remedy of the Buyer Indemnified Parties against the Company Equityholders and their respective Affiliates and the Seller Indemnified Parties against Buyer and its Affiliates, as applicable, for Losses under this Agreement. (b) Any Indemnified Party shall take commercially reasonable steps to mitigate any Loss after such Indemnified Party becomes aware of any event which does, or could reasonably be expected to, give rise to any such Loss. The amount of Losses for which indemnification is available under this Article 9 shall be calculated net of any amounts actually recovered by an Indemnified Party under insurance policies or otherwise from third parties with respect to such Losses (subject to compliance by the Indemnified Party with this Article 9 and to the other limitations of this Article 9); provided that the Indemnified Party shall be under no obligation to seek recovery under insurance policies (other than pursuant to the R&W Insurance Policy) or from third parties (pursuant to indemnification agreements or otherwise). In the event that any Indemnifying Party required to provide indemnification under this Article 9 makes any payment hereunder in respect of any Losses, such Indemnifying Party shall (to the extent permitted by Applicable Law or contractual right) be subrogated, to the extent of such payment, to the rights of such Indemnified Party against any insurer (but, for the avoidance of doubt, not against any other commercial or business counterpart) with respect to such Losses and solely to the extent of the Losses to which the satisfaction of such Losses relates (and the Indemnified Parties shall not take any actions to adversely affect such subrogation rights without the consent of the Indemnifying Parties). (c) The amount of any Losses for which indemnification is available under this Article 9 will be reduced to the extent of any net Tax benefit actually realized in cash or as a reduction in cash tax payable (determined on a with-and-without basis and taking into
83 account the effects of any associated indemnification payment) by the indemnified Party or its Affiliates in the taxable year in which such Loss is incurred or in the immediately succeeding tax year and arising in connection with the accrual, incurrence or payment of any such Loss. If any Indemnified Party or its Affiliates realizes a net Tax benefit in such taxable years but after an indemnification payment is made to it, such Indemnified Party or its applicable Affiliate shall promptly pay to the Indemnifying Party the amount of such net Tax benefit at such time or times as and to the extent that such net Tax benefit is realized by such Indemnified Party. (d) With respect to “Losses” payable directly from the Sellers, “Losses” do not include special damages, exemplary damages, consequential damages, indirect or incidental damages, or punitive damages (including any damages on account of diminution in value, lost profits or opportunities, or lost or delayed business based on valuation methodologies ascribing a decrease in value to the company member, on the basis of a multiple of a reduction in a multiple based or yield-based measure of financial performance), whether based on contract, tort, strict liability, other law or otherwise and whether or not arising from the other party’s or any of its Affiliates’ or representatives’ sole, joint or concurrent negligence, strict liability or other fault, except in the case of Fraud or to the extent they form a part of a Third-Party Claim. ARTICLE 10 HOLDER REPRESENTATIVE Section 10.01. Designation of Holder Representative. Effective upon and by virtue of the approval and adoption by the Sellers of this Agreement and the transactions contemplated hereby, and without any further act of any of the Sellers, and the Holder Representative will be hereby irrevocably appointed as the exclusive representative of the Company Equityholders and as the exclusive attorney-in-fact and agent for and on behalf of each such Company Equityholder for purposes of this Agreement and the other Transaction Documents and will be empowered to take such actions contemplated to be taken by the Holder Representative under this Agreement and the other Transaction Documents and such other actions on behalf of such Company Equityholders as it may deem necessary or appropriate in connection with or to consummate the Transactions, including (i) taking all actions, and making all filings on behalf of such Company Equityholders with any Governmental Authority or other Person, necessary to effect the consummation of the Transactions, (ii) making or receiving notices and other communications pursuant to this Agreement and the other Transaction Documents and service of process in any action arising out of this Agreement or the other Transaction Documents, (iii) agreeing to, negotiating, entering into settlements and compromises of, complying with orders of courts with respect to, and otherwise administering and handling any claims under this Agreement or the other Transaction Documents on behalf of such Company Equityholders, (iv) negotiating and executing any waivers, consents or amendments of this Agreement or the other Transaction Documents and (v) taking all other actions that are either necessary or appropriate in its judgment for the accomplishment of the foregoing or contemplated by the terms of this Agreement or the Transaction Documents, including providing updated Payment Instructions pursuant to this Agreement; provided that for the avoidance of doubt, for Payment Instructions delivered after Closing, the Holder Representative shall be
84 entitled to rely upon the payment delivery instructions provided by each Company Equityholder with respect to the Estimated CBA Consideration or Estimated Per Share Closing Consideration, as applicable, unless such Company Equityholder subsequently provides updated instructions in writing to the Holder Representative that are acknowledged in writing by the Holder Representative. The Holder Representative hereby accepts such appointment. Section 10.02. Decisions Binding. A decision, act, consent or instruction of the Holder Representative hereunder will constitute a decision, act, consent or instruction of all Company Equityholders and will be final, binding and conclusive upon each of such Company Equityholders and Buyer may rely upon any such decision, act, consent or instruction of the Holder Representative as being the decision, act, consent or instruction of each and every Company Equityholder. Buyer will be relieved from any Liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction of the Holder Representative. Section 10.03. Liability of the Holder Representative. The Holder Representative will incur no Liability with respect to any action taken or suffered by any Party in reliance upon any notice, direction, instruction, consent, statement or other document believed in good faith by such Holder Representative to be genuine and to have been signed by the proper person (and the Holder Representative will have no responsibility to determine the authenticity thereof), nor for any other action or inaction, except his, her or its own gross negligence, bad faith or willful misconduct. In all questions arising under this Agreement, the Holder Representative may rely on the advice of outside counsel, and the Holder Representative will not be liable to any Company Equityholder for anything done, omitted or suffered in good faith by the Holder Representative based on such advice. Section 10.04. Indemnification of the Holder Representative. The Company Equityholders will severally (each based on and limited to the portion of the Purchase Price actually received by such Company Equityholder) but not jointly indemnify the Holder Representative and hold the Holder Representative harmless against any Losses or Liabilities incurred without bad faith or willful misconduct, on the part of the Holder Representative and arising out of or in connection with the acceptance or administration of the Holder Representative’s duties hereunder, including the reasonable fees and expenses of any legal counsel or other agents retained by the Holder Representative. Section 10.05. Replacement of Holder Representative. (a) At any time, a majority in interest of the Company Equityholders according to each Company Equityholder’s Pro Rata Share (the “Majority Company Equityholders”) may, by written consent, appoint a new representative as the Holder Representative, who shall be reasonably acceptable to Buyer. Notice together with a copy of the written consent appointing such new representative and bearing the signatures of Company Equityholders constituting the Majority Company Equityholders must be delivered to Buyer prior to such appointment. Such appointment will be effective upon the later of the date indicated in the consent or the date such consent is received by Buyer.
85 (b) In the event that the Holder Representative becomes unable or unwilling to continue in its capacity as Holder Representative, or if the Holder Representative resigns as a Holder Representative, the Majority Company Equityholders shall, by written consent, appoint a new representative as the Holder Representative, who shall be reasonably acceptable to Buyer. Notice and a copy of the written consent appointing such new representative and bearing the signature(s) of the Majority Company Equityholders (based on their pro rata share of Company Common Stock). Such appointment will be effective upon the later of the date indicated in the consent or the date such consent is received by Buyer. Section 10.06. Holder Representative Fund. (a) Notwithstanding anything to the contrary contained in this Agreement, there shall be established a fund in the amount of $100,000 (the “Holder Representative Fund”) to be included in the Transaction Expenses. At the Closing, Buyer shall deliver the Holder Representative Fund to a bank account designated by Holder Representative. The Holder Representative Fund may be used by the Holder Representative to (i) make any payment required to be made by the Holder Representative on behalf of Sellers pursuant to this Agreement and (ii) pay all costs and expenses incurred by or on behalf of Holder Representative in its capacity as such, including all costs and expenses incurred in connection with any pending or threatened dispute or claim with respect to this Agreement, any agreement, document or instrument entered into pursuant to this Agreement, or the transactions contemplated hereby or thereby. ARTICLE 11 MISCELLANEOUS Section 11.01. Notices. All notices, requests and other communications to any Party hereunder shall be in writing (including electronic mail (“e-mail”) transmission, so long as a receipt of such e-mail is received) and shall be given, if to Buyer, to: Ultra Clean Holdings, Inc. 26462 Corporate Avenue Hayward, California 94545 Attention: Paul Cho, General Counsel E-mail: PCho@uct.com with a copy to: Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, California 94025 Attention: Alan Denenberg E-mail: alan.denenberg@davispolk.com
86 if to any Company Equityholder or the Holder Representative, to: c/o Sapient Law 425 NW 10th Ave. Suite 200 Attention: Jason Frank E-mail: Jason@lvl3.com with a copy to: Locke Lord LLP 600 Travis, Suite 2800 Houston, Texas 77002 E-mail: gheath@lockelord.com Attention: Greg Heath and Sapient Law 425 NW 10th Avenue, Suite 200 Portland, Oregon 97209 E-mail: Ben@sapientlaw.com Attention: Ben Stoller 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. Pacific Time 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. Amendments and Waivers. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by Buyer, on the one hand, and by the Holder Representative, on the other hand, or in the case of a waiver, by the Party against whom the waiver is to be effective (provided that the Holder Representative may waive any provision on behalf of all or any Company Equityholder). (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 11.03. Expenses. Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement by Buyer shall be paid by Buyer; all costs and expenses incurred in connection with this Agreement by the Company or its Subsidiaries
87 shall be paid by the Company; all costs and expenses incurred in connection with this Agreement by the Sellers or Holder Representative shall be paid by the Sellers. Section 11.04. Disclosure Schedule References. The Parties hereto agree that the Company Disclosure Schedule is arranged in sections corresponding to those contained in this Agreement merely for convenience, and any reference in a particular Section of the Company Disclosure Schedule as an exception to (or, as applicable, a disclosure for purposes of) any particular covenant, representation or warranty shall be deemed adequately disclosed as an exception with respect to all other covenants, representations or warranties, notwithstanding the presence or absence of an appropriate section or subsection of such schedules with respect to such other covenants, representations or warranties or an appropriate cross-reference thereto, in each case, only to the extent the relevance of that reference as an exception to (or a disclosure for purposes of) such representations and warranties is reasonably apparent on the face of such disclosure. By listing matters on the Company Disclosure Schedule, the Company shall not be deemed, solely as a result of such listing, to have established any materiality standard, admitted any liability or that such item actually constitutes noncompliance with, or a violation of, any Applicable Law, Governmental Authority or Contract or other topic to which such disclosure is applicable or that such item is outside the ordinary course of business, admitted or acknowledged that such information is required to be listed in such Section of the Company Disclosure Schedule or that such item (or any non-disclosed item or information of comparable or greater significance) represents a material exception or fact, event or circumstance, that such item has had, or is expected to result in, a Material Adverse Effect, or expanded in any way the scope or effect of the representations and warranties of Company contained in this Agreement. The specification of any dollar amount in the representations and warranties contained in this Agreement or the inclusion of any specific item in the Company Disclosure Schedule is not intended to imply that such amounts (or higher or lower amounts) are or are not material, and no Party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in the Company Disclosure Schedules in any dispute or controversy between the parties as to whether any obligation, item, or matter not described herein or included in a Section of the Company Disclosure Schedule is or is not material for purposes of this Agreement. Capitalized terms used in the Company Disclosure Schedules, unless otherwise defined therein, shall have the meanings assigned to them in this Agreement. Section 11.05. 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; except that Buyer may transfer or assign its rights and obligations under this Agreement, in whole or from time to time in part, to (i) one or more of its Affiliates at any time and (ii) after the Closing Date, to any Person; provided that no such transfer or assignment shall relieve Buyer of its obligations hereunder or enlarge, alter or change any obligation of any other Party hereto or due to Buyer.
88 Section 11.06. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, without regard to the conflicts of law rules of such state. Section 11.07. Jurisdiction. The Parties hereto 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 (whether brought by any Party or any of its Affiliates or against any Party or any of its Affiliates) shall be brought in the Delaware Chancery Court or, if such court shall not have jurisdiction, any federal court located in the State of Delaware or other Delaware state court, 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 brought in any such court has been brought in an inconvenient forum. 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 11.08. 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 11.09. Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts (including by electronic means), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Counterparts may be delivered via electronic mail (including .pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000 (e.g., www.docusign.com)) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective as delivery of a manually executed counterpart of this Agreement. Each of the Parties hereto represents that it has undertaken commercially reasonable steps to verify the identity of each individual person executing any such counterparts via electronic signature on behalf of such Party and has and will maintain sufficient records of the same. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by all of the other Parties hereto. Until and unless each Party has received a counterpart hereof signed by each other Party hereto, this Agreement shall have no effect and no Party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). Section 11.10. Entire Agreement. This Agreement and the other Transaction Documents constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement and the other Transaction Documents.
89 Section 11.11. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental 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 in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. Section 11.12. 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 the courts set forth in Section 11.07, in addition to any other remedy to which they are entitled at law or in equity. Section 11.13. Conflict Waiver; Attorney-Client Privilege. Each of the Parties hereto acknowledges and agrees, on its own behalf and on behalf of its directors, members, shareholders, partners, officers, employees and Affiliates, that: (a) Each of Locke Lord LLP and Sapient Law has acted as counsel to the Holder Representative and the Company in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. Buyer agrees, and shall cause the Company to agree, that, following consummation of the transactions contemplated hereby, such representation and any prior representation of the Company by Locke Lord LLP and/or Sapient Law (or any successor) (either, a “Sellers Group Law Firm”) shall not preclude either Sellers Group Law Firm from serving as counsel to any Seller (including the Holder Representative) or any director, member, shareholder, partner, officer or employee of any Seller, in connection with any litigation, claim or obligation arising out of or relating to this Agreement or the transactions contemplated hereby. (b) Buyer shall not, and shall cause the Company not to, seek or have either Sellers Group Law Firm disqualified from any such representation based upon the prior representation of the Company by either Sellers Group Law Firm. Each of the Parties hereto hereby consents thereto and waives any conflict of interest arising from such prior representation, and each of such Parties shall cause any of its Affiliates to consent to waive any conflict of interest arising from such representation. Each of the Parties acknowledges that such consent and waiver is voluntary, that it has been carefully considered, and that the Parties have consulted with counsel or have been advised they should do so in connection herewith. The covenants, consent and waiver contained in this Section 11.13 shall not be deemed exclusive of any other rights to which either Sellers Group Law Firm is entitled whether pursuant to law, contract or otherwise.
90 (c) All communications between the Sellers, Holder Representative or the Company, on the one hand, and either or both Sellers Group Law Firms, on the other hand, relating to the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (the “Privileged Communications”) shall be deemed to be attorney-client privileged and the expectation of client confidence relating thereto shall belong solely to the Sellers or Holder Representative and shall not pass to or be claimed by Buyer or the Company post-Closing. Accordingly, Buyer and the Company shall not have access to any Privileged Communications or to the files of either Sellers Group Law Firm relating to such engagement from and after Closing. Without limiting the generality of the foregoing, from and after the Closing, (i) the Sellers (and not Buyer or the Company) shall be the sole holders of the attorney-client privilege with respect to such engagement, and none of Buyer or the Company shall be a holder thereof, (ii) to the extent that files of either Sellers Group Law Firm in respect of such engagement constitute property of the client, only the Sellers or Holder Representative (and neither Buyer nor the Company) shall hold such property rights and (iii) neither Sellers Group Law Firm shall have any duty whatsoever to reveal or disclose any such attorney-client communications or files to Buyer or the Company by reason of any attorney-client relationship between either Sellers Group Law Firm and the Company or otherwise. Notwithstanding the foregoing, in the event that a dispute arises between Buyer or its Affiliates (including the Company), on the one hand, and a third party other than any of the Sellers or Holder Representative, on the other hand, Buyer and its Affiliates (including the Company) may assert the attorney-client privilege to prevent disclosure of confidential communications to such third party; provided, however, that neither Buyer nor any of its Affiliates (including the Company) may waive such privilege without the prior written consent of the Holder Representative, which consent shall not be unreasonably withheld, conditioned or delayed. In the event that Buyer or any of its Affiliates (including the Company) is legally required by an order or otherwise legally required to access or obtain a copy of all or a portion of the Privileged Communications, to the extent permitted by Applicable Law, then Buyer shall promptly (and, in any event, within five (5) Business Days) notify the Holder Representative in writing so that the Holder Representative can seek a protective order. (d) This Section 11.13 is intended for the benefit of, and shall be enforceable by, each Sellers Group Law Firm. This Section 11.13 shall be irrevocable, and no term of this Section 11.13 may be amended, waived or modified, without the prior written consent of each Sellers Group Law Firm, which consent shall not be unreasonably withheld, conditioned or delayed. Section 11.14. Affiliate Liability. Each of the following is herein referred to as a “Non- Recourse Party”: (a) any direct or indirect holder of equity interests or securities in any Seller (whether limited or general partners, members, stockholders or otherwise), any investment fund organized by or managed by any of the foregoing Persons or any Affiliate of any of the foregoing Persons, (b) any director, officer, employee, representative or agent of any Seller or any Person who controls any such Seller, all as prior to the date of this Agreement, or (c) any portfolio company of any Person described in clauses (a) or (b). No Non-Recourse Party shall have any liability or obligation to Buyer of any nature whatsoever in connection with or under this Agreement, or the transactions contemplated
91 herein or therein, and Buyer hereby waives and releases all claims of any such liability and obligation. Each Non-Recourse Party is expressly intended as a third-party beneficiary of this Section 11.14. Section 11.15. No Third Party Beneficiaries. Except for the provisions of Section 6.06, Section 11.13 and Section 11.14 which are intended to be enforceable by the Persons respectively referred to therein, nothing in this Agreement shall confer any rights upon any Person that is not a Party or a successor or permitted assignee of a Party to this Agreement. Section 11.16. Release of Claims. (a) Effective as of the Closing, Sellers, on behalf of themselves and their Affiliates and their respective successors and assigns (collectively, the “Seller Releasing Parties”), hereby irrevocably waive, acquit, remise, discharge and forever release Buyer, the Company and their respective predecessors, successors and Subsidiaries and, both individually and in their capacities as such, the directors, officers, employees, consultants, attorneys, agents and assigns of the foregoing (collectively, the “Buyer Released Parties”), from any Action or liability to the Seller Releasing Parties of any kind or nature whatsoever, in each case whether absolute or contingent, liquidated or unliquidated, known or unknown, matured or unmatured or determined or determinable, and whether arising under any Applicable Law, Contract, agreement, arrangement, commitment, undertaking or understanding, whether written or oral, or otherwise at law or in equity, to the extent arising out of or relating to (x) the Company or any of its Subsidiaries or the operation of the Company’s or its any of its Subsidiaries’ businesses, in each case in respect of any cause, matter or thing occurring or arising on or prior to the Closing Date or (y) this Agreement, the other Transaction Documents or any of the transactions contemplated hereby or thereby (including, for the avoidance of doubt, dissenters’, appraisal or similar rights with respect to the transactions contemplated by this Agreement or any of the other Transaction Documents under Applicable Law) (collectively, the “Seller Released Matters”); provided that nothing contained herein shall operate to release, waive or discharge any obligation of the Buyer Released Parties or any other Person, or otherwise restrict or limit any rights of the Seller Releasing Parties or any other Person (1) subject to Section 2.02(e), expressly arising under this Agreement or any documents or instruments delivered in connection herewith (including the Transaction Documents), (2) arising under, or in connection with, any Seller’s employment relationship, if any, with the Company after the Closing Date, if any, (3) subject to the limitations set forth in Section 6.04, in connection with any claim or right to indemnification that a Seller may have against the Company in accordance with the terms of the Company Organizational Documents with respect to acts or omissions occurring prior to the Closing in the Seller’s capacity as an officer, director or manager of the Company, including claims pursuant to the D&O Tail obtained pursuant to Section 6.04, or (4) in the case of Fraud. Sellers, on behalf of themselves and the other Seller Releasing Parties, hereby agree that they shall not seek to recover any amounts in connection with the Seller Released Matters from any of the Buyer Released Parties, except (a) as expressly provided for in this Agreement or any of the other Transaction Documents, including Sellers’ rights or remedies pursuant to Section 2.06, (b) for rights to earned but unpaid wages or compensation, unpaid vacation and unreimbursed business expenses, (c) for any right to advancement or indemnification or similar right pursuant to the Company
92 Organizational Documents or the Governing Documents of any of the Company’s Subsidiaries or (d) in the case of Fraud. (b) Sellers expressly waives all rights afforded by any Applicable Law which limits the effect of a release with respect to unknown claims and, without limiting the generality of the foregoing, waives all rights under, and acknowledges and agrees that it has read and understands and has been fully advised by its attorneys as to the contents of, Section 1542 of the Civil Code of the State of California, which provides: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” (c) Each Seller understands the significance of this release of unknown claims and waiver of statutory protection against a release of unknown claims and acknowledges and agrees that this waiver is an essential and material term of this Agreement and an inducement for Buyer to enter into the Transaction Documents and consummate the transactions contemplated thereby. Each Seller hereby acknowledges and agrees that if such Party should hereafter make any claim or demand or commence or threaten to commence any action against any other Party with respect to any claims released by this Section 11.16, this Section 11.16 may be raised as a complete bar to any such action, and the applicable party may recover from such Party all damages incurred in connection with such action. (d) The rights and claims waived and released by the Seller Releasing Parties hereunder include claims for damages, indemnification, contribution and other rights of recovery arising out of or relating to any breach of contract, misrepresentation or breach of warranty, negligent misrepresentation, all other claims for breach of duty and all other claims arising under Applicable Law. No Seller Releasing Party shall bring any Action against Buyer or any of their respective Affiliates, whether at law or in equity, with respect to any of the rights or claims waived and released by such Seller Releasing Party hereunder. [Signature Page Follows]
[Signature Page to Stock Purchase Agreement] and year first above ULTRA CLEAN HOLDINGS, INC. By: Name: Title: BUYER:
COMPANY: HOFFMAN INSTRUMENTATION SUPPLY, INC. By: Name: Jason Frank Title: Chief Executive Officer HOLDER REPRESENTATIVE: LVL3 INSTRUMENTATION LLC By: Name: Jason Frank Title: Manager [Signature Page to Stock Purchase Agreement]
COMPANY: HOFFMAN INSTRUMENTATION SUPPLY, INC. By: Name: Jason Frank Title: Chief Executive Officer HOLDER REPRESENTATIVE: LVL3 INSTRUMENTATION LLC By: -- � Name: Jason Frank Title: Manager [Signature Page to Stock Purchase Agreement]
SELLERS: LVL3 INSTRUMENTATION LLC By: � CS£ � Name: Jason Frank Title: Manager LVL3,LLC By: Name: Jason Frank Title: Manager L VL3 HOLDINGS, LLC By: '>,.<Pf-� Name: Jason Frank Title: Manager BULLDOG PARTNERS, LLC By: Name: Title: SCHWAB INVESTMENTS, LLC By: Name: Title: [Signature Page to Stock Purchase Agreement]
[Signature Page to Stock Purchase Agreement] SELLERS: LVL3 INSTRUMENTATION LLC By: Name: Title: LVL3, LLC By: Name: Title: LVL3 HOLDINGS, LLC By: Name: Title: BULLDOG PARTNERS, LLC By: Name: Title: SCHWAB INVESTMENTS, LLC By: Name: Title: Manager Omar Marquez
DocuSign Envelope ID: F740DB76-53F0-4CE5-BB9A-FBA8BAFD2EA9 SELLERS: LVL3 INSTRUMENTATION LLC By: Name: Title: LVL3,LLC By: Name: Title: LVL3 HOLDINGS, LLC By: Name: Title: BULLDOG PARTNERS, LLC By: Name: Title: SCHWAB INVESTMENTS, LLC By: Name: Inna Schwab Title: Manager [Signature Page to Stock Purchase Agreement]
DocuSign Envelope ID: F740DB76-53F0-4CE5-BB9A-FBA8BAFD2EA9 SCHWAB FAMILY HOLDINGS, LLC By: Name: Inna Schwab Title: Manager ROMEO INVESTMENT GROUP, LLC By: Name: Title: ROMEO FAMILY INVESTMENTS, LLC By: Name: Title: BJORN SKJORTA, LLC By: Name: Title: MARK K. ROMEO COREY HOFFMAN NEIL TUNMORE [Signature Page to Stock Purchase Agreement]
DocuSign Envelope ID: 41DAD90F-AD82-49B4-9307-7621616322AE SCHWAB FAMILY HOLDINGS, LLC By: Name: Title: ROMEO INVESTMENT GROUP, LLC By: [�,·�:,, EDEDM839916191 ... Name: Mark Romeo Title: Member ROMEO FAMILY INVESTMENTS, LLC By: Name: Mark Romeo Title: Member BJORN SKJORTA, LLC By: Name: Title: MARK K. ROMEO COREY HOFFMAN NEIL TUNMORE [Signature Page to Stock Purchase Agreement]
[Signature Page to Stock Purchase Agreement] SCHWAB FAMILY HOLDINGS, LLC By: Name: Title: ROMEO INVESTMENT GROUP, LLC By: Name: Title: ROMEO FAMILY INVESTMENTS, LLC By: Name: Title: BJORN SKJORTA, LLC By: Name: Title: MARK K. ROMEO COREY HOFFMAN NEIL TURNMORE NMORE Nicholas J. Slinde Manager
SCHWAB FAMILY HOLDINGS, LLC By: Name: Title: ROMEO INVESTMENT GROUP, LLC By: Name: Title: ROMEO FAMILY INVESTMENTS, LLC By: Name: Title: BJORN SKJORTA, LLC By: Name: Title: MARK K. ROMEO COREY HOFFMAN NEIL TUNMORE [Signature Page to Stock Purchase Agreement]
[Signature Page to Stock Purchase Agreement] SCHWAB FAMILY HOLDINGS, LLC By: Name: Title: ROMEO INVESTMENT GROUP, LLC By: Name: Title: ROMEO FAMILY INVESTMENTS, LLC By: Name: Title: BJORN SKJORTA, LLC By: Name: Title: MARK K. ROMEO COREY HOFFMAN NEIL TURNMORE NMORE
) [Signature Page to Stock Purchase Agreement]
Exhibit A Form of Optionholder Letter
Final Form OPTION TERMINATION AGREEMENT This Option Termination Agreement (this “Agreement”), dated effective as of the 25th day of October, 2023 (the “Effective Date”), is entered into by and between Hoffman Instrumentation Supply, Inc., an Oregon corporation (the “Company”), and Mark Romeo (the “Optionee”). Capitalized terms not defined in this Agreement shall have the meanings given to them in the Purchase Agreement (as defined below). Recitals WHEREAS, the Company previously granted to the Optionee options to purchase 807 shares of common stock of the Company (the “Options”), subject to the terms of the Hoffman Instrumentation Supply, Inc. 2019 Omnibus Equity Incentive Plan (the “Plan”), and the Stock Option Award Agreement, dated October 18, 2023, by and between the Company and Optionee (the “Option Agreement”); WHEREAS, that certain Stock Purchase Agreement, dated as of October 25, 2023 (the “Purchase Agreement”), by and among Ultra Clean Holdings, Inc., a Delaware corporation (“Buyer”), the Company, the stockholders of the Company listed on Schedule I thereto (collectively, the “Sellers”), and LVL3 Instrumentation LLC, an Oregon limited liability company, solely in its capacity as representative of the Company Equityholders (as defined therein) (the “Holder Representative”), has been negotiated by the Sellers and Holder Representative on the one hand, and Buyer, on the other hand; WHEREAS, the terms of the Purchase Agreement provide that the Holder Representative will deliver to Buyer on or before the Closing Date executed agreements of holders of Options providing for the cancellation of such Options; WHEREAS, the Board of Directors of the Company has elected, contingent on the Closing of the transactions contemplated by the Purchase Agreement (the “Transaction”), to enter into this Agreement with the Optionee to cancel the Options; WHEREAS, the Transaction constitutes a Change of Control (as defined under the Plan) and the Committee (as defined under the Plan) has determined, in accordance with Section 14.1(c) of the Plan, that each Option outstanding immediately prior to the Change of Control and not previously exercised or settled shall be cancelled in exchange for a payment with respect to each Option in accordance with the Plan and this Agreement; and WHEREAS, the Company and the Optionee have agreed that, contingent on the Closing of the Transaction, the Options will be cancelled pursuant to the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the Company and the Optionee hereby agree as follows: 1. Cancellation of Options. The Optionee’s right, title and interest in and to the Options (and all portions thereof, and all rights from being a holder thereof) are hereby cancelled 1
and terminated, are rendered null and void and have no further force and effect as of the Closing Date. The Optionee acknowledges and agrees that the Optionee and his estate, heirs, legatees, predecessors, successors, representatives, agents and assigns shall have no right whatsoever to acquire any shares of common stock under the Option Agreement and further acknowledges on behalf of all such parties that the consideration provided in this Agreement shall be in full satisfaction of any and all rights the Optionee may have with respect to the Options and the Option Agreement. 2. Payment. In exchange for the surrender, relinquishment and cancellation of Optionee’s right, title and interest in and to the Options (and all portions thereof and all rights arising from being a holder thereof), the Company shall pay or cause to be paid in accordance with the applicable Payment Instructions as set forth in the remainder of this Section 2, subject in all respects to any conditions to earn the payments and payment mechanics, in each case, as described in the Purchase Agreement: (a) the Estimated Option Consideration as set forth in Section 2.03(c)(ii) and Section 2.04 of the Purchase Agreement; (b) a portion of the Underpayment Amount, if any, in accordance with the Optionee’s Pro Rata Share with respect to the Options, pursuant to Section 2.06(a)(ii) of the Purchase Agreement; (c) a portion of the Adjustment Holdback Amount, if any, in accordance with the Optionee’s Pro Rata Share with respect to the Options, pursuant to Section 2.07 of the Purchase Agreement; (d) a portion of the Indemnity Holdback Amount, if any, in accordance with the Optionee’s Pro Rata Share with respect to the Options, pursuant to Section 2.07 of the Purchase Agreement; (e) a portion of the Contingent Installment Payment, if any, in accordance with the Optionee’s Pro Rata Share with respect to the Options, pursuant to Section 2.08(a) and Section 2.08(e) of the Purchase Agreement; (f) a portion of the Earnout Payments, if any, in accordance with the Optionee’s Pro Rata Share with respect to the Options, pursuant to Section 2.08(b) and Section 2.08(e) of the Purchase Agreement; (g) a portion of the reimbursement amount for tenant improvements, if any, in accordance with the Optionee’s Pro Rata Share with respect to the Options, pursuant to Section 6.07 of the Purchase Agreement; and (h) a portion of the Holder Representative Fund, if any, in accordance with Optionee’s Pro Rata Share with respect to the Options, that may be distributed to the Company Equityholders in the discretion of the Holder Representative. 2
With respect to each payment under this Section 2, the Company shall pay to the Optionee the payment required, or portion thereof, in the form of a lump sum cash payment via the Company’s payroll system at the time described in the applicable provisions of the Purchase Agreement (including with respect to any applicable withholdings). Nothing in this Agreement shall cause the Optionee to release the right to such payment. 3. Acknowledgement. The Optionee hereby acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Buyer, the Sellers, the Company or the Holder Representative other than those contained in writing herein, and has entered into this Agreement freely based on his own judgment. By executing this Agreement, the Optionee expressly represents that he has read this Agreement, understands its terms and has had an opportunity to seek legal counsel regarding this Agreement. The Optionee further acknowledges that he has received a copy of the Purchase Agreement. 4. Withholding. The Optionee acknowledges that the payments made to the Optionee pursuant to the Purchase Agreement and this Agreement will be subject to all applicable required withholding taxes and any other deductions consented to in writing by the Optionee. 5. Representation. The Optionee hereby represents that (i) the Optionee has ownership and good title to the Options and has not transferred or attempted to transfer such Options to any other party, (ii) the Options include all options granted by the Company to the Optionee to acquire common stock of the Company, (iii) the Optionee has full power and authority to enter into and deliver this Agreement, (iv) the Optionee has not assigned any rights under the Option Agreement or the Plan, and (v) this Agreement is enforceable against the Optionee in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Applicable Laws affecting creditors’ rights generally and general principles of equity. 6. Release of Claims. The Optionee, on behalf of himself and, as applicable, his estate, executors, administrators, legal representatives, successors, heirs, legatees and assigns, hereby forever fully and irrevocably releases and discharges each of the Company, Buyer, Sellers, Holder Representative and each of their respective predecessors, successors and past and present members, directors, managers, officers, employees, agents, and other representatives (collectively, the “Released Parties”) from any and all actions, suits, claims, demands, debts, promises, judgments, liabilities or obligations of any kind whatsoever in law or equity and causes of action of every kind and nature, or otherwise (including claims for damages, costs, expense, and attorneys’, brokers’ and accountants’ fees and expenses) in each case related to the Optionee’s ownership of the Options, the Plan, any ownership and/or operation of the Company or Buyer, or the assets, business, operations conduct, services, products and/or employees (including former employees) of the Company (and any predecessor), Holder Representative, Sellers or Buyer, related to any period of time before the Closing Date, which Optionee can, shall or may have against the Released Parties, whether known or unknown, and that now exist or may hereinafter accrue based on matters now known or unknown (collectively, the “Released 3
Claims”), and hereby irrevocably agrees to refrain from directly or indirectly asserting any claim or demand or commencing (or causing to be commenced) any proceeding of any kind before any Governmental Authority, against any Released Party based upon any Released Claim; provided, that the Released Claims shall not include Optionee’s rights under this Agreement or, solely with respect to any payments relating to the cancellation of the Options pursuant to this Agreement, the Purchase Agreement. 7. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 8. Governing Law. This Agreement shall be governed, construed and interpreted in accordance with the internal substantive laws of the State of Oregon, without giving effect to the principles of conflicts of law. 9. Further Assurances. The Optionee, upon request, will execute and deliver any additional documents deemed by the Company or Buyer, in its sole discretion, to be reasonably necessary or desirable to fulfill the intent of this Agreement and complete the transactions contemplated hereby. 10. Binding Effect. This Agreement shall be binding on and inure to the benefit of the Company and the Optionee and, in the case of the Optionee, shall also be binding upon the Optionee’s successors and assigns and is not intended to confer upon any other Person any rights or remedies hereunder. 11. Third-Party Beneficiaries. Each Released Party that is not a signatory hereto shall be a third-party beneficiary of Optionee’s covenants, warranties, representations, and release of claims set forth in this Agreement and entitled to enforce such provisions as if it was a party hereto. 12. Other Agreements. This Agreement represents the final agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, including but not limited to the Option Agreement, and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten agreements between the parties as to the subject matter hereof. 13. Option Agreement. The Option Agreement shall be automatically cancelled, terminated and extinguished as of the Closing Date with no further obligations of the Company thereunder. The Optionee hereby waives all requirements under the Option Agreement in respect of any action otherwise required thereunder by the Company and, by execution of this Agreement, hereby waives and relinquishes any and all rights to receive consideration for the Options other than as provided in this Agreement, in each case contingent on the completion of the acquisition of the Company by Buyer pursuant to the Purchase Agreement. 4
5 14. Modification. This Agreement may be modified only by a written agreement signed by both parties. 15. Multiple Counterparts. This Agreement may be executed in two counterparts, each of which for all purposes is to be deemed an original, but all of which shall constitute, collectively, one agreement. 16. Holder Representative. The Parties agree that the Holder Representative and Buyer are each an express third party beneficiary of this Agreement and can enforce this Agreement in accordance with its terms. Optionee hereby acknowledges and consents to the appointment of LVL3 Instrumentation LLC, an Oregon limited liability company as the Holder Representative pursuant to Article 10 of the Purchase Agreement, including the Holder Representative Fund. 17. Incorporation by Reference. Optionee hereby acknowledges and agrees that the provisions of Section 6.02 (Public Announcements) and Section 6.03 (Confidentiality) of the Purchase Agreement are incorporated by reference herein and shall be binding on Optionee as if he was a party to the Purchase Agreement, mutatis mutandis. [Signature Page Follows]
6 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date written above. HOFFMAN INSTRUMENTATION SUPPLY, INC. By: Name: Title: OPTIONEE MARK ROMEO
Exhibit B Form of Warrant Termination Agreement
Final Form 1 WARRANT TERMINATION AGREEMENT This Warrant Termination Agreement (this “Agreement”), dated effective as of the 25th day of October, 2023 (the “Effective Date”), is entered into by and between Hoffman Instrumentation Supply, Inc., an Oregon corporation (the “Company”), and Bulldog Partners, LLC (the “Warrantholder”). Capitalized terms not defined in this Agreement shall have the meanings given to them in the Purchase Agreement (as defined below). Recitals WHEREAS, the Company previously granted to the Warrantholder the option to purchase 234 shares of common stock of the Company (the “Warrant Shares”), subject to the terms of the Warrant No. W-1, dated September 22, 2023, issued by the Company to the Warrantholder (the “Warrant”); WHEREAS, that certain Stock Purchase Agreement, dated as of October 25, 2023 (the “Purchase Agreement”), by and among Ultra Clean Holdings, Inc., a Delaware corporation (“Buyer”), the Company, the stockholders of the Company listed on Schedule I thereto (collectively, the “Sellers”), and LVL3 Instrumentation LLC, an Oregon limited liability company, solely in its capacity as representative of the Company Equityholders (as defined therein) (the “Holder Representative”), has been negotiated by the Sellers and Holder Representative, on the one hand, and Buyer, on the other hand; WHEREAS, the terms of the Purchase Agreement provide that the Holder Representative will deliver to Buyer on or before the Closing Date executed agreements of holders of Warrants providing for the cancellation of such Warrants; WHEREAS, the Board of Directors of the Company has elected, contingent on the Closing of the transactions contemplated by the Purchase Agreement (the “Transaction”), to enter into this Agreement with the Warrantholder to cancel the Warrant; WHEREAS, the Transaction constitutes a Liquidity Event (as defined under the Warrant), and in lieu of the Warrant being exercised in accordance with Section 2 of the Warrant, the Warrant shall be cancelled in exchange for a payment with respect to each Warrant Share in accordance with the Warrant, this Agreement and the Purchase Agreement; and WHEREAS, the Company and the Warrantholder have agreed that, contingent on the Closing of the Transaction, the Warrant will be cancelled pursuant to the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the Company and the Warrantholder hereby agree as follows: 1. Cancellation of the Warrant. The Warrantholder’s right, title and interest in and to the Warrant Shares (and all portions thereof, and all rights from being a holder thereof) are hereby cancelled and terminated, are rendered null and void and have no further force and effect
2 as of the Closing Date. The Warrantholder acknowledges and agrees that the Warrantholder and its predecessors, successors, representatives, agents and assigns shall have no right whatsoever to acquire any shares of common stock under the Warrant and further acknowledges on behalf of all such parties that the consideration provided in this Agreement shall be in full satisfaction of any and all rights the Warrantholder may have with respect to the Warrant Shares and the Warrant. 2. Payment. In exchange for the surrender, relinquishment and cancellation of Warrantholder’s right, title and interest in and to the Warrant and Warrant Shares (and all portions thereof and all rights arising from being a holder thereof), the Company shall pay or cause to be paid in accordance with the applicable Payment Instructions as set forth in the remainder of this Section 2, subject in all respects to any conditions to earn the payments and payment mechanics, in each case, as described in the Purchase Agreement: (a) the Estimated Warrant Consideration as set forth in Section 2.03(c)(iv) of the Purchase Agreement (which amount, for the avoidance of doubt, is $0); (b) a portion of the Underpayment Amount, if any, in accordance with the Warrantholder’s Pro Rata Share (if any) with respect to the Warrant Shares, pursuant to Section 2.06(a)(ii) of the Purchase Agreement; (c) a portion of the Adjustment Holdback Amount, if any, in accordance with the Warrantholder’s Pro Rata Share (if any) with respect to the Warrant Shares, pursuant to Section 2.07 of the Purchase Agreement; (d) a portion of the Indemnity Holdback Amount, if any, in accordance with the Warrantholder’s Pro Rata Share (if any) with respect to the Warrant Shares, pursuant to Section 2.07 of the Purchase Agreement; (e) a portion of the Contingent Installment Payment, if any, in accordance with the Warrantholder’s Pro Rata Share (if any) with respect to the Warrant Shares, pursuant to Section 2.08(a) and Section 2.08(e) of the Purchase Agreement; (f) a portion of the Earnout Payments, if any, in accordance with the Warrantholder’s Pro Rata Share (if any) with respect to the Warrant Shares, pursuant to Section 2.08(b) and Section 2.08(e) of the Purchase Agreement; (g) a portion of the reimbursement amount for tenant improvements, if any, in accordance with the Warrantholder’s Pro Rata Share (if any) with respect to the Warrant Shares, pursuant to Section 6.07 of the Purchase Agreement; and (h) a portion of the Holder Representative Fund, if any, in accordance with the Warrantholder’s Pro Rata Share (if any) with respect to the Warrant Shares, that may be distributed to the Company Equityholders in the discretion of the Holder Representative.
3 With respect to each payment under this Section 2, Buyer or the Company shall pay to the Warrantholder the payment required, or portion thereof, in the form of a lump sum cash payment at the time described in the applicable provisions of the Purchase Agreement (including with respect to any applicable withholdings). Nothing in this Agreement shall cause the Warrantholder to release the right to such payment. 3. Acknowledgement. The Warrantholder hereby acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Buyer, the Sellers, the Company or the Holder Representative other than those contained in writing herein, and has entered into this Agreement freely based on its own judgment. By executing this Agreement, the Warrantholder expressly represents that he has read this Agreement, understands its terms and has had an opportunity to seek legal counsel regarding this Agreement. The Warrantholder further acknowledges that he has received a copy of the Purchase Agreement. 4. Withholding. The Warrantholder acknowledges that the payments made to the Warrantholder pursuant to the Purchase Agreement and this Agreement will be subject to all applicable required withholding taxes and any other deductions consented to in writing by the Warrantholder. 5. Representation. The Warrantholder hereby represents that (i) the Warrantholder has ownership and good title to the Warrant and has not transferred or attempted to transfer such Warrant to any other party, (ii) the Warrant includes all options granted by the Company to the Warrantholder to acquire common stock of the Company, (iii) the Warrantholder has full power and authority to enter into and deliver this Agreement, (iv) the Warrantholder has not assigned any rights under the Warrant, and (v) this Agreement is enforceable against the Warrantholder in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Applicable Laws affecting creditors’ rights generally and general principles of equity. 6. Release of Claims. The Warrantholder, on behalf of itself and, as applicable, its administrators, legal representatives, successors and assigns, hereby forever fully and irrevocably releases and discharges each of the Company, Buyer, Sellers, Holder Representative and each of their respective predecessors, successors and past and present members, directors, managers, officers, employees, agents, and other representatives (collectively, the “Released Parties”) from any and all actions, suits, claims, demands, debts, promises, judgments, liabilities or obligations of any kind whatsoever in law or equity and causes of action of every kind and nature, or otherwise (including claims for damages, costs, expense, and attorneys’, brokers’ and accountants’ fees and expenses) in each case related to the Warrantholder’s ownership of the Warrant, any ownership and/or operation of the Company or Buyer, or the assets, business, operations conduct, services, products and/or employees (including former employees) of the Company (and any predecessor), Holder Representative, Sellers or Buyer, related to any period of time before the Closing Date, which Warrantholder can, shall or may have against the Released Parties, whether known or unknown, and that now exist or may hereinafter accrue based on matters now known or unknown (collectively, the “Released Claims”), and hereby irrevocably agrees to refrain from directly or indirectly asserting any claim or demand or
4 commencing (or causing to be commenced) any proceeding of any kind before any Governmental Authority, against any Released Party based upon any Released Claim; provided, that the Released Claims shall not include Warrantholder’s rights under this Agreement or, solely with respect to any payments relating to the cancellation of the Warrant pursuant to this Agreement, the Purchase Agreement. 7. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 8. Governing Law. This Agreement shall be governed, construed and interpreted in accordance with the internal substantive laws of the State of Oregon, without giving effect to the principles of conflicts of law. 9. Further Assurances. The Warrantholder, upon request, will execute and deliver any additional documents deemed by the Company or Buyer, in its sole discretion, to be reasonably necessary or desirable to fulfill the intent of this Agreement and complete the transactions contemplated hereby. 10. Binding Effect. This Agreement shall be binding on and inure to the benefit of the Company and the Warrantholder and, in the case of the Warrantholder, shall also be binding upon the Warrantholder’s successors and assigns and is not intended to confer upon any other Person any rights or remedies hereunder. 11. Third-Party Beneficiaries. Each Released Party that is not a signatory hereto shall be a third-party beneficiary of Warrantholder’s covenants, warranties, representations, and release of claims set forth in this Agreement and entitled to enforce such provisions as if it was a party hereto. 12. Other Agreements. This Agreement represents the final agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, including but not limited to the Warrant, and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten agreements between the parties as to the subject matter hereof. 13. Warrant. The Warrant shall be automatically cancelled, terminated and extinguished as of the Closing Date with no further obligations of the Company thereunder. The Warrantholder hereby waives all requirements under the Warrant in respect of any action otherwise required thereunder by the Company and, by execution of this Agreement, hereby waives and relinquishes any and all rights to receive consideration for the Warrant and the Warrant Shares other than as provided in this Agreement, in each case contingent on the completion of the acquisition of the Company by Buyer pursuant to the Purchase Agreement.
5 14. Modification. This Agreement may be modified only by a written agreement signed by both parties. 15. Multiple Counterparts. This Agreement may be executed in two counterparts, each of which for all purposes is to be deemed an original, but all of which shall constitute, collectively, one agreement. 16. Holder Representative. The Parties agree that the Holder Representative and Buyer are each an express third party beneficiary of this Agreement and can enforce this Agreement in accordance with its terms. Warranholder hereby acknowledges and consents to the appointment of LVL3 Instrumentation LLC, an Oregon limited liability company, as the Holder Representative pursuant to Article 10 of the Purchase Agreement, including the Holder Representative Fund. 17. Incorporation by Reference. Warranholder hereby acknowledges and agrees that the provisions of Section 6.02 (Public Announcements) and Section 6.03 (Confidentiality) of the Purchase Agreement are incorporated by reference herein and shall be binding on Warrantholder as if he was a party to the Purchase Agreement, mutatis mutandis. [Signature Page Follows]
6 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date written above. HOFFMAN INSTRUMENTATION SUPPLY, INC. By: Name: Title: BULLDOG PARTNERS, LLC By: Name: Title:
Exhibit C Form of CBA Holder Letter
Final Form CASH-BASED AWARD TERMINATION AGREEMENT This Cash-Based Award Termination Agreement (this “Agreement”), dated effective as of the 25th day of October, 2023 (the “Effective Date”), is entered into by and between Hoffman Instrumentation Supply, Inc., an Oregon corporation (the “Company”), and John Saefke (the “Grantee”). Capitalized terms not defined in this Agreement shall have the meanings given to them in the Purchase Agreement (as defined below). Recitals WHEREAS, the Company previously granted to the Grantee a right to receive a cash- based award upon the occurrence of a Triggering Event (as defined in the Plan) (the “Award”), subject to the terms of the Hoffman Instrumentation Supply, Inc. 2019 Omnibus Equity Incentive Plan (the “Plan”) and the Cash Based Award Agreement, dated September 22, 2023, by and between the Company and Grantee (the “Grant Agreement”); WHEREAS, that certain Stock Purchase Agreement, dated as of October 25, 2023 (the “Purchase Agreement”), by and among Ultra Clean Holdings, Inc., a Delaware corporation (“Buyer”), the Company, the stockholders of the Company listed on Schedule I thereto (collectively, the “Sellers”), and LVL3 Instrumentation LLC, an Oregon limited liability company, solely in its capacity as representative of the Company Equityholders (as defined therein) (the “Holder Representative”), has been negotiated by the Sellers and Holder Representative, on the one hand, and Buyer, on the other hand; WHEREAS, the terms of the Purchase Agreement provide that the Holder Representative will deliver to Buyer on or before the Closing Date executed agreements of holders of Awards providing for the cancellation of such Awards; WHEREAS, the Board of Directors of the Company has elected, contingent on the Closing of the transactions contemplated by the Purchase Agreement (the “Transaction”), to enter into this Agreement with the Grantee to cancel the Award; WHEREAS, the Transaction constitutes a Triggering Event (as defined in the Grant Agreement) and, in accordance with Section 2.3 of the Grant Agreement, the Award will fully vest and be deemed to have been fully earned by the Grantee immediately prior to the Transaction; and WHEREAS, the Company and the Grantee have agreed that, contingent on the Closing of the Transaction, the Award will be cancelled pursuant to the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the Company and the Grantee hereby agree as follows: 1. Cancellation of Award. The Grantee’s right, title and interest in and to the Award (and all portions thereof, and all rights from being a holder thereof) are hereby cancelled and 1
2 terminated, are rendered null and void and have no further force and effect as of the Closing Date. The Grantee acknowledges and agrees that the Grantee and his estate, heirs, legatees, predecessors, successors, representatives, agents and assigns shall have no right whatsoever to a payment under the Grant Agreement and further acknowledges on behalf of all such parties that the consideration provided in this Agreement shall be in full satisfaction of any and all rights the Grantee may have with respect to the Award and the Grant Agreement. 2. Payment. In exchange for the surrender, relinquishment and cancellation of Grantee’s right, title and interest in and to the Award (and all portions thereof and all rights arising from being a holder thereof), the Company shall pay or cause to be paid in accordance with the applicable Payment Instructions as set forth in the remainder of this Section 2, subject in all respects to any conditions to earn the payments and payment mechanics, in each case, as described in the Purchase Agreement: (a) the Estimated CBA Consideration as set forth in Section 2.03(c)(iii) and Section 2.04 of the Purchase Agreement (which such amount, for the avoidance of doubt, is $0); (b) to the extent the CBA Threshold has been achieved at the time of such payment, a portion of the Underpayment Amount, if any, in accordance with the Grantee’s CBA Share, pursuant to Section 2.06(a)(ii) of the Purchase Agreement; (c) to the extent the CBA Threshold has been achieved at the time of such payment, a portion of the Adjustment Holdback Amount, if any, in accordance with the Grantee’s CBA Share, pursuant to Section 2.07 of the Purchase Agreement; (d) to the extent the CBA Threshold has been achieved at the time of such payment, a portion of the Indemnity Holdback Amount, if any, in accordance with the Grantee’s CBA Share, pursuant to Section 2.07 of the Purchase Agreement; (e) to the extent the CBA Threshold has been achieved at the time of such payment, a portion of the Contingent Installment Payment, if any, in accordance with the Grantee’s CBA Share, pursuant to Section 2.08(a) and Section 2.08(e) of the Purchase Agreement; (f) to the extent the CBA Threshold has been achieved at the time of such payment, a portion of the Earnout Payments, if any, in accordance with the Grantee’s CBA Share, pursuant to Section 2.08(b) and Section 2.08(e) of the Purchase Agreement; (g) to the extent the CBA Threshold has been achieved at the time of such payment, a portion of the reimbursement amount for tenant improvements, if any, in accordance with the Grantee’s CBA Share, pursuant to Section 6.07 of the Purchase Agreement; and (h) to the extent the CBA Threshold has been achieved at the time of such payment, a portion of the Holder Representative Fund, if any, in accordance with Grantee’s CBA Share, that may be distributed to the Company Equityholders in the discretion of the Holder Representative.
3 With respect to each payment under this Section 2, the Company shall pay to the Grantee the payment required, or portion thereof, in the form of a lump sum cash payment via the Company’s payroll system at the time described in the applicable provisions of the Purchase Agreement (including with respect to any applicable withholdings). Nothing in this Agreement shall cause the Grantee to release the right to such payment. 3. Acknowledgement. The Grantee hereby acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Buyer, the Sellers, the Company or the Holder Representative other than those contained in writing herein, and has entered into this Agreement freely based on his own judgment. By executing this Agreement, the Grantee expressly represents that he has read this Agreement, understands its terms and has had an opportunity to seek legal counsel regarding this Agreement. The Grantee further acknowledges that he has received a copy of the Purchase Agreement. 4. Withholding. The Grantee acknowledges that the payments made to the Grantee pursuant to the Purchase Agreement and this Agreement will be subject to all applicable required withholding taxes and any other deductions consented to in writing by the Grantee. 5. Representation. The Grantee hereby represents that (i) the Grantee has ownership and good title to the Award and has not transferred or attempted to transfer such Award to any other party, (ii) the Award include all awards granted by the Company to the Grantee entitling the Grantee to receive a cash-based award, (iii) the Grantee has full power and authority to enter into and deliver this Agreement, (iv) the Grantee has not assigned any rights under the Grant Agreement or the Plan, and (v) this Agreement is enforceable against the Grantee in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Applicable Laws affecting creditors’ rights generally and general principles of equity. 6. Release of Claims. The Grantee, on behalf of himself and, as applicable, his estate, executors, administrators, legal representatives, successors, heirs, legatees and assigns, hereby forever fully and irrevocably releases and discharges each of the Company, Buyer, Sellers, Holder Representative and each of their respective predecessors, successors and past and present members, directors, managers, officers, employees, agents, and other representatives (collectively, the “Released Parties”) from any and all actions, suits, claims, demands, debts, promises, judgments, liabilities or obligations of any kind whatsoever in law or equity and causes of action of every kind and nature, or otherwise (including claims for damages, costs, expense, and attorneys’, brokers’ and accountants’ fees and expenses) in each case related to the Grantee’s ownership of the Award, the Plan, any ownership and/or operation of the Company or Buyer, or the assets, business, operations conduct, services, products and/or employees (including former employees) of the Company (and any predecessor), Holder Representative, Sellers or Buyer, related to any period of time before the Closing Date, which Grantee can, shall or may have against the Released Parties, whether known or unknown, and that now exist or may hereinafter accrue based on matters now known or unknown (collectively, the “Released Claims”), and hereby irrevocably agrees to refrain from directly or indirectly asserting any claim or demand or commencing (or causing to be commenced) any proceeding of any kind before any
4 Governmental Authority, against any Released Party based upon any Released Claim; provided, that the Released Claims shall not include Grantee’s rights under this Agreement or, solely with respect to any payments relating to the cancellation of the Options pursuant to this Agreement, the Purchase Agreement. 7. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 8. Governing Law. This Agreement shall be governed, construed and interpreted in accordance with the internal substantive laws of the State of Oregon, without giving effect to the principles of conflicts of law. 9. Further Assurances. The Grantee, upon request, will execute and deliver any additional documents deemed by the Company or Buyer, in its sole discretion, to be reasonably necessary or desirable to fulfill the intent of this Agreement and complete the transactions contemplated hereby. 10. Binding Effect. This Agreement shall be binding on and inure to the benefit of the Company and the Grantee and, in the case of the Grantee, shall also be binding upon the Grantee’s successors and assigns and is not intended to confer upon any other Person any rights or remedies hereunder. 11. Third-Party Beneficiaries. Each Released Party that is not a signatory hereto shall be a third-party beneficiary of Grantee’s covenants, warranties, representations, and release of claims set forth in this Agreement and entitled to enforce such provisions as if it was a party hereto. 12. Other Agreements. This Agreement represents the final agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, including but not limited to the Grant Agreement, and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten agreements between the parties as to the subject matter hereof. 13. Award Agreements. The Grant Agreement shall be automatically cancelled, terminated and extinguished as of the Closing Date with no further obligations of the Company thereunder. The Grantee hereby waives all requirements under the Grant Agreement and the Plan in respect of any action otherwise required thereunder by the Company and, by execution of this Agreement, hereby waives and relinquishes any and all rights to receive consideration for the Award other than as provided in this Agreement, in each case contingent on the completion of the acquisition of the Company by Buyer pursuant to the Purchase Agreement. 14. Modification. This Agreement may be modified only by a written agreement signed by both parties.
5 15. Multiple Counterparts. This Agreement may be executed in two counterparts, each of which for all purposes is to be deemed an original, but all of which shall constitute, collectively, one agreement. 16. Holder Representative. The Parties agree that the Holder Representative and Buyer are each an express third party beneficiary of this Agreement and can enforce this Agreement in accordance with its terms. Grantee hereby acknowledges and consents to the appointment of LVL3 Instrumentation LLC, an Oregon limited liability company as the Holder Representative pursuant to Article 10 of the Purchase Agreement, including the Holder Representative Fund. 17. Incorporation by Reference. Grantee hereby acknowledges and agrees that the provisions of Section 6.02 (Public Announcements) and Section 6.03 (Confidentiality) of the Purchase Agreement are incorporated by reference herein and shall be binding on Grantee as if he was a party to the Purchase Agreement, mutatis mutandis. [Signature Page Follows]
6 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date written above. HOFFMAN INSTRUMENTATION SUPPLY, INC. By: Name: Title: GRANTEE JOHN SAEFKE
Schedule I Stockholders • LVL3 Instrumentation LLC • LVL3 Holdings, LLC • LVL3, LLC • Bulldog Partners, LLC • Neil Tunmore • Corey Hoffman • Romeo Investment Group, LLC • Mark K. Romeo • Romeo Family Investments, LLC • Schwab Investments, LLC • Schwab Family Holdings, LLC • John Gianotti • Bjorn Skorta, LLC
Schedule II Estimated Closing Statement See attached.
$7,972,556.71 $1,005,625.00 $19,154,070.66 $2,383,773.04 $27,484,516.09 $26,834,516.09 $26,801,034.31 $33,481.78 $0.00 $0.00 $294.17 $41.49 $0.00 (USD) - CALENDAR YEAR BASIS 10/25/2023 ASSETS Current Assets Cash 1,005,625 Accounts Receivable, net 6,051,000 Inventory - Raw Materials 9,740,000 Inventory - Work in Progress 1,205,000 Inventory - Finished Goods 555,000 Inventory Reserve (1,393,443) Prepaid Expenses & Other Current Assets 615,000 Total Current Assets 17,778,182 Long-Term Assets Property, Plant, & Equipment, net 6,437,804 Intangible Assets, net 4,035,249 Right of Use Asset 14,503,268 Total Long-Term Assets 24,976,321 TOTAL ASSETS 42,754,503 LIABILITIES Current Liabilities Accounts Payable 7,600,000 Line of Credit 8,829,330 Current Portion of Long Term Debt 459,933 CPLT Debt Seller Notes 4,340,469 Other Current Liabilities 1,200,000 Total Current Liabilities 22,429,732 Long-Term Liabilities Senior Debt 1,684,432 Lease Liabilities 14,788,642 Subordinated Debt - Contingent Liabilities 1,489,059 Total Long-Term Liabilities 17,962,133 TOTAL LIABILITIES 40,391,864 EQUITY Common Stock - Additional Paid in Capital 10,103,432 Distributions (9,415) Retained Earnings (9,389,547) Net Income/(Loss) 1,658,169 TOTAL EQUITY 2,362,639 TOTAL LIABILITIES & EQUITY 42,754,503 Net Working Capital 7,972,557 Net Working Capital Peg 9,955,822 Purchase Price Adjustment (1,983,265) Seller Notes $4,359,793 Alterna Capital Solutions $8,829,330 Intech Funding Corp. Equipment Financing $149,106 Intech Funding Equipment Financing $388,814 Trinity PR Equipment Financing $216,528 Old National Bank Equipment Financing $79,809 Verdant Capital Equipment Financing $361,413 First-Citizens Bank & Trust Co. Equipment Financing $21,887 Manufacturer's Capital Equipment Financing $1,037,313 Credit for Equiment Finance Prepayment Fees -$82,697 Ford Motor Credit Equipment Financing $0 Corey Hoffman Earnout Payment $1,787,484 LVL3 Payment $516,000 Edwards Settlement Payment $1,489,291 Mark Romeo Settlement Payment $0 Indebtedness $19,154,071 John Saefke Transaction Bonus $250,000 Brian Keegan Transaction Bonus $250,000 Jeff Schwab Stay Bonus $25,000 Matt Howard Stay Bonus $25,000 Payroll Tax on Transaction Bonuses $17,625 50% of D&O Tail $27,000 Menalto Financial Advisory Fees $1,181,756 Locke Lord Legal Fees $375,000 Sapient Legal Fees $197,192 Moss Adams Fees $35,200 Transaction Expenses $2,383,773 Base Cash Consideration $50,000,000 Closing Cash $1,005,625 Difference between Working Capital and Target Working Capital ($1,983,265) Indebtedness ($19,154,071) Transaction Expenses ($2,383,773) Purchase Price $27,484,516 Purchase Price $27,484,516 Company Common Stock 91,106 Adjustment Holdback Amount ($500,000) Company Stock Options 807 Indemnity Holdback Amount ($150,000) Company Warrants 234 Closing Consideration $26,834,516 and (c) 92,147 Fully Diluted Number Closing Consideration $26,834,516 Company Common Stock 91,106 Aggregate exercise price in respect of all Company Stock Options $203,916.80 Company Stock Options 807 Aggregate exercise price in respect of all Company Warrants $0.00 Company Warrants 0 Fully Diluted Number 91,913 Fully Diluted Number 91,913 Per Share Closing Consideration $294.17 Share Closing Consideration $26,801,034.31 Estimated Per Share Closing Consideration $294 Option Exercise Price $252.69 Per Option Share Closing Consideration $41.49 Option Share Closing Consideration $33,481.78 Estimated Per Share Closing Consideration $294 Exercise Price $396.74 Per Warrant Share Closing Consideration $0.00 Warrant Share Closing Consideration $0.00 CBA Share Consideration $0.0000 Calculation of CBA Share Consideration Calculation of Closing Consideration Calculation of Per Share Closing Consideration Calculation of Per Option Share Closing Consideration Calculation of Per Warrant Share Closing Consideration Calculation of Estimated Purchase Price Estimated Closing Consideration Estimated Share Consideration Estimated Option Consideration Estimated CBA Consideration Estimated Warrant Consideration Estimated Per Share Closing Consideration Per Option Share Closing Consideration Per Warrant Share Closing Consideration Calculation of Estimated Working Capital Calculation of Estimated Indebtedness Calculation of Estimated Transaction Expenses Estimated Purchase Price ESTIMATED CLOSING STATEMENT Estimated Working Capital Estimated Cash Estimated Indebtedness Estimated Transaction Expenses
Schedule III Payment Instructions See attached.
Sources / Uses & Flow of Funds x Sources / Uses Sources Closing Purchase Price - Buyer Cash 49,132,056.95$ NWC Holdback Amount (500,000.00)$ R&W Holdback Amount (150,000.00)$ Edwards Settlement Indebtedness Reduction (1,489,291.37)$ Jeff Schwab Retention Bonus Reduction (25,000.00)$ Matt Howard Retention Bonus Reduction (25,000.00)$ Payroll Tax Deduction on Transaction Bonuses (17,625.00)$ Total Sources 46,925,140.58$ Uses Indebtedness: Alterna Line of Credit (8,829,329.96)$ Indebtedness: Seller Notes & Earn-Out Payments (6,147,276.95)$ Indebtedness: Intech Funding Corp. (149,105.76)$ Indebtedness: Intech Funding (388,813.77)$ Indebtedness: Trinity PR (216,528.38)$ Indebtedness: Intech Funding (79,808.77)$ Indebtedness: Verdant Commercial Capital, LLC (361,412.82)$ Indebtedness: First-Citizens Bank & Trust Co (21,887.17)$ Indebtedness: Manufacturer's Capital (1,037,312.87)$ Indebtedness: Ford Motor Credit -$ Indebtedness: LVL3 Payment (516,000.00)$ Indebtedness: Mark Romeo Settlement Payment -$ Transaction Expense: John Saefke Transaction Bonus (250,000.00)$ Transaction Expense: Brian Keegan Transaction Bonus (250,000.00)$ Transaction Expense: Menalto Advisors (1,181,756.04)$ Transaction Expense: Locke Lord (375,000.00)$ Transaction Expense: Sapient (197,192.00)$ Transaction Expense: Moss Adams (35,200.00)$ Transaction Expense: D&O Policy (54,000.00)$ Transaction Expense: Other -$ CBA Payment: John Saefke -$ Payments to Shareholders & Optionholders (26,734,516.09)$ Shareholder Representative Fund (100,000.00)$ Total Uses (46,925,140.58)$ - Payment Instructions / Flow of Funds Account Holder's Name Invoice # Bank Bank Address Account Number Routing Number Contact Person Phone Number E-mail Other Flow of Funds: Indebtedness Payments Flow of Funds: Indebtedness Payments Alterna 8,829,329.96$ Alterna Capital Solutions LLC Wells Fargo Bank, N.A. 420 Montgomery Street San Francisco CA 94104 4533379988 121000248 Erik Recinos (407) 267-6003 Erecinos@alternaCS.com Corey Hoffman 6,147,276.95$ Corey Hoffman US Bank, N.A 800 Nicollett Mall Minneapolis MN 55402 153150280771 124302150 Corey Hoffman (503) 804-8719 coreymhoffman@gmail.com Intech Funding Corp. 149,105.76$ Intech Funding Corp. 001-0017581-700; 001-0017581-701; 001-0017581-702; 001-0017581-703; 001-0017581-704; 001-0017581-705 Wells Fargo Bank, N.A. 420 Montgomery Street San Francisco CA 94104 4175553957 121000248 Kayla Moyer (855) 249-9681 efcustomercare2@financialservicing.net Intech Funding 388,813.77$ INTECH FUNDING 552-0015122-000; 552-0018220-000 US Bank, N.A 800 Nicollett Mall Minneapolis MN 55402 153600018292 123000220 Naomi Williams (800) 828-8246 ext. 1533316 naomi.williams@onlinecomment.com Trinity PR 216,528.38$ Trinity PR Settlement Account 375-2575048-002; 375-2575048-003; 375-2575048-004; 375-2575048-005; 375-2575048-006 BMO HARRIS BANK, N.A. 320 South Canal Street Chicago IL 60606 1091446 71000288 Anne Rodriguez (415) 760-6314 anne.rodriguez@bmo.com Old National Bank 79,808.77$ Old National Bank 79838-001 Old National Bank 300 North Hunt Club Road Gurnee IL 60031 8100187676 086300012 Joleen Williams (224) 570-6796 Joleen.williams@oldnational.com Verdant Commercial Capital, LLC 361,412.82$ Verdant Commercial Capital, LLC 902-8144121-000; 884-8144121-502; 969-8144121-003; 884-8144121-004; 884-8144121-005; 878-8142831-110; 902-8144121-001; 969-8142831-008 Wells Fargo Bank, N.A. 420 Montgomery Street San Francisco CA 94104 4170605778 121000248 Kim Nunnemaker (513) 538-1096 clientcare@mycontractcenter.com First-Citizens Bank & Trust Co 21,887.17$ First-Citizens Bank & Trust Co 097-0115664-000 Wells Fargo Bank, N.A. 420 Montgomery Street San Francisco CA 94104 4122366719 121000248 William Willette (800) 253-0157 service@firstcitizens.com Manufactuer's Capital 1,037,312.87$ Commerical Credit Group, Inc. 7M01282002; 7M02262102; 7M06172002; 7M12171905 Wells Fargo Bank, N.A. 420 Montgomery Street San Francisco CA 94104 2000026298881 121000248 Summer Willis (704) 731-0031 swillis@commercialcreditgroup.com 59786.35 -$ LVL3, LLC 516,000.00$ LVL3 LLC (FKA Inflection Point Advisors) Bank of America, N.A. 222 Broadway New York, New York 10038 485016661498 026009593 Jason Frank (503) 828-6096 jasonfrank@hisoregon.com Mark Romeo -$ Total Indebtedness Payments 17,747,476.45$ Account Holder's Name Invoice # Bank Bank Address Account Number Routing Number Contact Person Phone Number E-mail Other Flow of Funds: Transaction Expenses Flow of Funds: Transaction Expenses HIS Payroll for John Saefke and Brian Keegan Payroll Expense 500,000.00$ Hoffman Instrumentation Supply, Inc. N/A Key Bank 4735 SW Hall Boulevard, Beaverton, OR 97005 379681110209 123002011 John Saefke (503) 407-6780 JohnSaefke@hisoregon.com Menalto Advisors 1,181,756.04$ Menalto Advisors, LLC 1311 US Bank, N.A 800 Nicollett Mall Minneapolis MN 55402 158215113800 122235821 Kendra Borrego (650) 714-9115 kborrego@menaltoadvisors.com Locke Lord 375,000.00$ Locke Lord LLP 0031114.00001 JPMorgan Chase Bank NA 712 Main Street, Houston, TX 77002 101203546 021000021 Greg Heath (713) 226-1531 gheath@lockelord.com Sapient 197,192.00$ Slinde & Nelson LLC Banner Bank 101 SW Main St., Suite 154 Portland OR 97204 7606037524 323371076 Ben Stoller (971) 266-8030 ben@sapientlaw.com Moss Adams 35,200.00$ Moss Adams LLP 102504675 JPMorgan Chase Bank NA 270 Park Avenue, New York, NY 10017 791533875 021000021 Melissa Spain (503) 784-8337 melissa.spain@mossadams.com Wesco Insurance Company 54,000.00$ Kibble & Prentice Holding Company AKA USI Northwest Regional Trust Bank of America, NA 222 Broadway New York, New York 10038 8188440786 026009593 Jake McCauley (309) 825-9239 jake.mccauley@usi.com Other -$ Total Indebtedness Payments 2,343,148.04$ Account Holder's Name Invoice # Bank Bank Address Account Number Routing Number Contact Person Phone Number E-mail Other Flow of Funds: Shareholder, Optionholder, CBA Payments, and Shareholder Representativ Flow of Funds: Shareholder, Optionholder, CBA Payments, and Shareholder Representative Fund LVL3i, LLC 21,801,109.83$ LVL3 Instumentation LLC Umpqua Bank 8822181858 123205054 Jason Frank (503) 828-6096 jasonfrank@hisoregon.com LVL3i, LLC - Shareholder Representative Fund 100,000.00$ LVL3 Instumentation LLC Umpqua Bank 8822181858 123205054 Jason Frank (503) 828-6096 jasonfrank@hisoregon.com LVL3 Holdings, LLC 412,580.14$ LVL3 Holdings LLC (FKA LVL3 LLC) Umpqua Bank 4863416709 123205054 Jason Frank (503) 828-6096 jasonfrank@hisoregon.com LVL3, LLC 123,363.81$ LVL3 LLC (FKA Inflection Point Advisors) Bank of America, N.A. 222 Broadway New York, New York 10038 485016661498 026009593 Jason Frank (503) 828-6096 jasonfrank@hisoregon.com Bulldog Partners, LLC 1,075,990.26$ Bulldog Partners LLC First Citizens Bank 009660107314 053100300 Neil Tunmore (503) 317-3766 neiltunmore@gmail.com Neil Tunmore 232,076.33$ Neil and Claire Tunmore First Tech Federal Credit Union 9341374800 321180379 Neil Tunmore (503) 317-3766 neiltunmore@gmail.com Corey Hoffman 1,159,795.60$ Corey Hoffman US Bank, N.A 800 Nicollett Mall Minneapolis MN 55402 153150280771 124302150 Corey Hoffman (503) 804-8719 coreymhoffman@gmail.com Romeo Investment Group, LLC 972,259.17$ Romeo Investment Group, LLC JPMorgan Chase Bank NA 270 Park Avenue, New York, NY 10017 583038671 021000021 Mark Romeo (503) 849-9365 mark.k.romeo@gmail.com Mark K. Romeo 195,181.18$ Mark K Romeo JPMorgan Chase Bank NA 270 Park Avenue, New York, NY 10017 3773909792 021000021 Mark Romeo (503) 849-9365 mark.k.romeo@gmail.com Romeo Family Investments, LLC 60,656.31$ Romeo Family Investments, LLC JPMorgan Chase Bank NA 270 Park Avenue, New York, NY 10017 697267372 021000021 Mark Romeo (503) 849-9365 mark.k.romeo@gmail.com Schwab Investments, LLC 259,327.72$ Schwab Investments, LLC JPMorgan Chase Bank NA 270 Park Avenue, New York, NY 10017 588769577 021000021 Jeff Schwab (503) 969-9194 jeffanddinna@gmail.com Schwab Family Holdings, LLC 125,121.96$ Schwab Family Holdings, LLC JPMorgan Chase Bank NA 270 Park Avenue, New York, NY 10017 697316120 021000021 Jeff Schwab (503) 969-9194 jeffanddinna@gmail.com John Gianotti 251,416.02$ John P Gianotti OnPoint Credit Union 11186566 323075880 John Gianotti (503) 997-1985 gianotti4@gmail.com Bjorn Skjorta, LLC 65,637.75$ Bjorn Skjorta LLC Pacific West Bank 23004740 123206943 Nick Slinde (503) 863-1505 nick@sapientlaw.com John Saefke -$ Total Payment 26,834,516.09$ Check -
Schedule IV Key Employees • Jason Frank • Brian Keegan • John Saefke • John Gianotti • Jeff Schwab • Matt Howard
Schedule V Accounting Principles See attached.
Accounting Principles (i) Section 1 – Accounting Hierarchy The Estimated Closing Statement and Closing Statement (together “the Statements”) shall be calculated and prepared in accordance with the following: (a) the Specific Accounting Principles set forth below; (b) U.S. GAAP as in effect as of Closing Date. (c) the same accounting principles, practices, procedures, policies and methods, with consistent classifications, judgments, inclusions, exclusions and methodologies, estimation and valuation techniques (including with respect to the calculation of reserves and accruals), as used in the preparation of the reviewed Annual Financial Statements (“Management’s Practices”). For the avoidance of doubt, paragraph (a) shall take precedence over the paragraphs (b) and (c), and paragraph (b) shall take precedence over paragraph (c) to the extent paragraph (c) is inconsistent with paragraph (b). All capitalized terms used herein and not otherwise defined herein shall have the meaning set forth in the Agreement. (ii) Section 2 – Specific Accounting Principles The “Specific Accounting Principles” means the specific principles, practices, procedures, policies and methods, with consistent classifications, judgments, inclusions, exclusions and methodologies, estimation and valuation techniques (including with respect to the calculation of reserves and accruals) set forth below: General preparation policies 1. The Statements shall be calculated on the basis that the Company is a going concern. 2. All of the provisions of this Section and the calculation of Net Working Capital and Indebtedness shall be interpreted so as to avoid double counting (whether positive or negative) of any item. 3. The classifications of assets and liabilities as current or noncurrent shall be consistent with historical application on the June 30, 2023, Financial Statements. 4. The Statements shall not include (i) any changes in assets or liabilities as a result of any purchase accounting or other adjustment arising out of the consummation of the Agreement or (ii) the effects of any post-Closing reorganizations undertaken by Buyer. 5. No adjustment to the Statement will be made for any matter arising out of the operation of the Company after the Closing and such matters will be ignored for the purposes of preparing the Statements or any item therein, except to the extent they
occur prior to the date the Buyer delivers the Closing Statement to Seller, as in accordance with this Agreement, and Buyer provides evidence about conditions that existed at the Closing, including the estimates inherent in the process of preparing such calculations. For the avoidance of doubt, evidence received after Closing related to assets or liabilities in existence at Closing shall be included in the Statements. 6. The Statements shall be prepared in USD. Assets and liabilities to be included in the Statements that are denominated in a currency other than USD shall be converted into USD at the exchange rate, on any particular date, equal to the rate at which Dollars may be exchanged into any other currency as set forth at on such date on the applicable [Bloomberg Currency Page]. 7. Intercompany payables & receivables shall be settled prior to Closing. Specific asset/liability policies 1. Notwithstanding the application of U.S. GAAP or Management’s Practices, the reserve for aged inventory will be $1,393,443.29 and recorded as part of Net Working Capital, including for purposes of both the Estimated Working Capital and Closing Net Working Capital. The reserve shall be allocated to aged inventory, oldest to newest, until satisfied. 2. Accruals, including bonuses, income taxes, legal settlements, and any other accruals typically only booked at year-end, shall be recorded to reflect unpaid costs incurred, consistent with the application of U.S. GAAP. 3. Unpaid obligations related to employment legal matters shall be accrued. 4. Bonus accruals shall be recorded at an amount equal to the pro rata share of the expected full payout for the annual period. 5. Royalty accruals shall be excluded from Net Working Capital and included in Indebtedness. 6. Operating lease assets and liabilities accounted for in accordance with ASC 842 shall be excluded from both Net Working Capital and Indebtedness.
Illustrative Example Introduction The Illustrative Example attached hereto is an illustrative calculation of Closing Net Working Capital as of the close of Company on June 30, 2023. For the avoidance of doubt, the Accounting Principles included within this Exhibit shall take precedence over the illustrative calculation. Net Working Capital US$000 Jun-23 Cash 1,108 Accounts receivable 6,071 Inventory 10,442 Prepaid expenses & other current assets 579 Current assets 18,200 Accounts payable (5,744) Line of credit (8,072) Current portion of long term debt (6,109) Other current liabilities (1,853) Current liabilities (21,777) Net working capital, reported (per trial balance) (3,577) Definitional adjustments Closing Cash (1,108) Line of credit 8,072 Current portion of long term debt 6,109 Accrued Interest 111 Income Taxes payable (receivable) (6) Intercompany payables (receivables) (102) Royalty accrual 91 Deferred tax assets - Deferred tax l iabil ities - Accrued Company Transaction Expenses - Founder payment due to HIS (146) LVL3 Accounts payable 516 Reserve for aged inventory (1,393) Net Working Capital, definitional 8,566
Schedule VI Adjusted EBITDA Calculation See attached.
Adjusted EBITDA US$000 LTM Jun-23 Net income 2,695 Interest, net 1,646 Depreciation and amortization 1,536 Income tax 217 Reported EBITDA 6,094 Management adjustments Litigation expenses 1,062 Royalties expense 364 Reorganization expenses 322 LVL3 mgmt fees, board fees & earnout 200 Miscellaneous income (109) Bad debt expense 67 Other (income)/expense 11 PPP funding - MetFab Costs (Jul & Aug 2023) - Total management adjustments 1,917 Management adjusted EBITDA 8,012 Additional adjustments Reverse Management fees addback (120) Reverse bad debt expense addback (67) Reverse MetFab Costs addback - Bonus normalization (342) Former president compensation costs 90 Non-recurring professional services (Q4-22 Israel startup costs) 88 Stock compensation 86 Intercompany elimination (24) Additional adjustments (289) Adjusted EBITDA 7,723
Schedule VII Operating Profit Calculation See attached.
Actual Operating Profit US$000 LTM Jun-23 Net income 2,695 Interest, net 1,646 Depreciation and amortization 1,536 Income tax 217 Reported EBITDA 6,094 Management adjustments Litigation expenses 1,062 Royalties expense 364 Reorganization expenses 322 LVL3 mgmt fees, board fees & earnout 200 Miscellaneous income (109) Bad debt expense 67 Other (income)/expense 11 PPP funding - MetFab Costs (Jul & Aug 2023) - Total management adjustments 1,917 Management adjusted EBITDA 8,012 Additional adjustments Reverse Management fees addback (120) Reverse bad debt expense addback (67) Reverse MetFab Costs addback - Bonus normalization (342) Former president compensation costs 90 Non-recurring professional services (Israel startup costs) 88 Stock compensation 86 Intercompany elimination (24) Additional adjustments (289) Adjusted EBITDA 7,723 Include: depreciation (785) Actual Operating Profit 6,938
Document
EXHIBIT 19.1
ULTRA CLEAN HOLDINGS, INC.
a Delaware corporation (the “Company”)
Corporate Policy and Procedure on Insider Trading
Last reviewed on February 12, 2025
1.Purpose
The United States securities laws regulate the purchase and sale of securities in the interest of protecting the investing public. These laws are based upon the belief that all persons trading in a company’s securities should have equal access to all “material” information about that company. In general, it is a violation of the United States securities laws for any person to buy or sell securities if he or she is in possession of material non- public information. In addition, it is illegal for any person in possession of material non- public information to provide that information to another person. (This is called “tipping”.) Under these laws, Ultra Clean Holdings, Inc. (“Ultra Clean” or the “Company”) and its directors, officers and employees (and outsiders with a business relationship with the Company who agree to be subject to this policy (“Outsiders”) have the responsibility to ensure that information about the Company is not used unlawfully in the purchase and sale of securities.
Due to the seriousness of the issues surrounding insider trading, the Company has determined that its directors, officers and employees (and Outsiders) should be subject to certain restrictions on their ability to trade in Ultra Clean securities. This Corporate Policy and Procedure on Insider Trading (the “Policy”) has been developed to assist the Company and its directors, officers and employees (and Outsiders) in avoiding the risk of violating securities laws in connection with the handling of corporate information and to prevent inadvertent violations of restrictions on insider trading.
2.Scope of Application
This Policy covers
aall directors, officers, and employees (both domestic and international) of the Company and its subsidiaries, as well as their family members or other persons living in the same household;
bany other person or entity, including a trust, corporation, partnership or other association which effects a transaction in Ultra Clean securities, which securities are in fact beneficially owned by any of the persons named in clause above; and
cany Outsiders that have access to material non- public information concerning the Company.
This Policy applies to any and all transactions in shares of common stock of Ultra Clean, options to purchase shares of common stock of Ultra Clean and any other types of securities that the Company may issue, such as preferred stock, convertible debentures and exchange-traded options or other derivative securities.
A copy of this Policy will be delivered to all new directors, officers, employees and Outsiders at the start of their employment or relationship with the Company. Upon first receiving a copy of this Policy, all directors, officers and employees must sign an acknowledgment that he or she has read and understands, and agrees to comply with, the terms of this Policy, as it may be amended from time to time. A form of acknowledgment is attached hereto as Appendix I.
In addition, this policy will be distributed to all existing directors, officers, and employees on at least an annual basis. This Policy is also accessible on the Company’s internal employee website and on the Governance section of the Company’s external investor relations website located at https://www.uct.com/investors.
3.Key Designations of Certain Persons
Certain individuals within the scope of this Policy may fall under special considerations that would subject them to additional rules or regulations.
A.Section 16 individuals – Directors and executive officers of the Company are subject to the reporting and liability provisions of Section 16 (“Section 16”) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated there under (“Section 16 Individuals”). The Company will provide information to these persons as to their obligations under Section 16 upon their notification of such status.
B.Other Key Persons – The Company will from time to time identify other persons who together with the Section 16 Individuals will be subject to the pre-clearance requirement described in Section 5. These persons, either through the normal course of their duties or with respect to a particular matter, are likely to have regular or special access to material non-public information.
C.Notification of individuals subject to pre-clearance – All individuals subject to pre-clearance will be promptly notified of such status. The Vice President of Investor Relations will maintain a list of all individuals subject to pre-clearance, including Section 16 individuals and Other Key Persons (the “Pre-Clearance List”). The Pre-Clearance List will include the name of each person subject to pre-clearance and the date notification of the pre-clearance requirement was sent to the individual.
a.The Pre-Clearance List will be reviewed regularly by the Chief Compliance Officer (as defined below), Chief Financial Officer and Chief Executive Officer and the Section 16 individuals will be confirmed by the Compensation Committee of the Board of Directors on an annual basis.
b.Prior to any individual beginning a project or obtaining responsibilities that are likely to involve regular or special access to material non-public information:
(i)the Chief Compliance Officer, Chief Financial Officer or Chief Executive Officer will direct the Senior Vice President of Investor Relations to add such individual to the Pre-Clearance List; and
(ii)the Corporate Controller will provide notification to such individual that they are subject to the pre-clearance requirements of this Policy.
c.Only the Chief Compliance Officer, Chief Financial Officer and/or Chief Executive Officer can authorize the removal of an Other Key Person from the Pre-Clearance List. Such removal shall not occur until such individual no longer is in possession of, and no longer has regular or special access to, material non-public information. Notification of removal will be sent by the Vice President of Investor Relations and the date of removal will be documented.
D.Chief Compliance Officer – The General Counsel has been designated as the Chief Compliance Officer for the Company (the “Chief Compliance Officer”). The duties of the Chief Compliance Officer include, but are not limited to:
a.Pre-clearing all transactions involving the Company’s securities by those individuals identified as Section 16 Individuals or Other Key Persons.
b.Coordinating with Company Outside Counsel regarding compliance of proposed trades with Rule 144 requirements, Section 16 requirements and insider trading laws.
4.Restrictions on Trading Ultra Clean Securities during Certain Periods
The restrictions described in this section apply to all transactions by Company directors, officers and employees in Ultra Clean securities.
“Blackout” Periods: Purchases and sales of Ultra Clean securities may only be undertaken during a period that is not a “blackout” period (which is also sometimes referred to as a “quiet” period). Blackout periods are keyed to the preparation and announcement of the Company’s quarterly earnings results.
Blackouts occur four times annually, and the period commences at the close of trading on The Nasdaq Global Market on the Friday of the third week preceding the last day of each quarter. The period extends through the close of trading on the second trading day after the Company’s quarterly or fiscal year-end earnings results for that quarter or year, as the case may be, are made public.
“Trading Freeze” Periods: In addition to “blackout” periods relating to earnings announcements, the Company may from time to time impose a “trading freeze” on all directors, officers and employees (or Outsiders) due to significant unannounced corporate developments or may impose trading freezes on those specific directors, officers and employees (or Outsiders) with whom knowledge of such corporate development has been shared. These trading freezes can vary in length and will be communicated either directly or via e-mail or voice mail.
Each person must ensure that any trade he or she is contemplating will not take place during a blackout or trading freeze period.
5.Pre-Clearance of Trades
The Company has determined that all Section 16 Individuals and Other Key Persons identified by the Company and who have been notified that they have been so identified, must comply with a pre-clearance of any trade by the Chief Compliance Officer and the
Chief Financial Officer, even during an open trading window (and including any purchases or sales of ESPP shares). These pre-clearance procedures require that:
A.Each Section 16 Individual and each Other Key Person must contact the Chief Compliance Officer and the Chief Financial Officer prior to commencing any trade (purchase or sale) in the Company’s securities, unless such trade is pursuant to a 10b5-1 Plan (as defined below) that is pre-cleared pursuant to 2 below.
B.Each Section 16 Individual and Other Key Person that desires to enter into a 10b5-1 Plan with respect to the Company’s securities (or any amendment to a pre-existing 10b5-1 Plan) shall, not less than five business days prior to entering into (or amending) such 10b5-1 Plan, contact the Chief Compliance Officer and the Chief Financial Officer and otherwise comply with the provisions of Section 8 of this Policy.
C.The Chief Compliance Officer will consult as necessary with senior management or Company Outside Counsel before clearing any proposed trade or 10b5-1 Plan adoption or amendment.
D.The Chief Compliance Officer and/or the Chief Financial Officer will notify the Section 16 Individual or Other Key Person as promptly as practicable following a pre-clearance request as to whether or not the proposed trade or proposed 10b5-1 Plan or amendment has been cleared. The Chief Compliance Officer and the Chief Financial Officer have the authority to deny clearance of any trade or the adoption of any 10b5-1 Plan or amendment if in their discretion or the discretion of the Board such trade or adoption would or may violate this Policy, any other policy of the Company or applicable law (including Section 16 or any insider trading law).
E.No Section 16 Individual or Other Key Person is permitted to execute any trade in the Company’s securities (purchase or sale), or enter into or amend any 10b5- 1 Plan, prior to receiving clearance from the Chief Compliance Officer and the Chief Financial Officer in accordance with these pre-clearance procedures.
F.Clearance of a trade or the entry into a 10b5-1 Plan or amendment is valid only for a 48-hour period from the time clearance is obtained. If the trade order is not placed, or the 10b5-1 Plan or amendment is not entered into, within that 48-hour period, clearance for the trade/plan must be re-requested.
6.Other Company Policies and Restrictions on Trading Ultra Clean Securities
The additional restrictions described in this section apply to all transactions by Company directors, officers and employees in Ultra Clean securities.
A.The purchase of Ultra Clean securities must be for the purpose of investment, not short-term speculation (such as day trading) or hedging.
B.There may be no short-selling of Ultra Clean securities and Ultra Clean securities shall not be made subject to hedge transactions.
C.Purchases and sales of options (such as “puts” or “calls”) and other derivatives involving Ultra Clean securities are prohibited.
D.Trading in securities of significant licensees or partners of the Company, or other corporations doing business with the Company, while holding material non- public
information about such other party is prohibited (e.g., trading during a period when you know the Company is negotiating with the other party on a transaction that is significant to them).
E.Exercises of stock options paid in cash with the intent to purchase and hold the underlying shares will not be subject to “blackout” period restrictions and can be affected at any time. In other words, an optionholder can exercise stock options in a “blackout” period if the options are purchased with cash out of pocket and the optionholder does not sell any of the shares received upon exercise during any “blackout” period. However, gifts, limit orders and margin calls will generally be subject to the “blackout” period restrictions.
F.No Section 16 Individual shall enter into a transaction to pledge Ultra Clean securities or other transactions resulting in Ultra Clean securities being used in margin accounts or otherwise as collateral.
G.All Section 16 Individuals are subject to Section 16(b) (and Section 16(c)) ofthe Exchange Act and the rules and regulations of the Securities and Exchange Commission (the “SEC”) promulgated thereunder, which is often referred to as the “Short Swing Profit Rule”. Under the Short Swing Profit Rule, “short-swing” trades (i.e., a purchase and sale, or sale and purchase, of the Company’s equity securities within a period of less than six months) by Section 16 Individuals are prohibited, and Section 16 Individuals must disgorge to the Company any “profit” resulting from a “short-swing” trade, unless the trade is exempt under the Short Swing Profit Rule. Because the Short Swing Profit Rule is complex, it is imperative that Section 16 Individuals comply with the pre-clearance requirements of Section 5 of this Policy, so that the Chief Compliance Officer can review proposed trades for compliance with the Short Swing Profit Rule before granting clearance. Section 16 Individuals are personally liable for violations of the Short Swing Profit Rule, and the Company cannot indemnify Section 16 Individuals for their violations of such rule.
7.Insider Trading Unlawful
Directors, officers and employees (and Outsiders) of the Company will often receive information about the Company’s plans, prospects or operations and operating results in the normal course of their duties. This information is an asset of the Company and must not be used or disclosed to others except through regular Company channels that assure fair access to all persons interested in the prospects of the Company and its securities.
If any director, officer or employee (or Outsider) possesses material non-public information, he or she must not, until after the information is no longer material or non- public (as defined below):
A.purchase and/or sell the securities of any company (including Ultra Clean securities) as to which the information he or she knows is material (other than sales pursuant to a Rule 10b5-1 Plan that has been entered into in accordance with this Policy). This would include planned sales for tuition payments or routine sales of ESPP stock upon receipt.; nor
B.advise, “tip” or otherwise assist third parties trading Ultra Clean securities or the securities of any other company affected by the information. In particular, but without limiting the scope of this restriction, non-public information must not be provided to broker-dealers, analysts, investment advisors, hedge funds or other securities professionals or to security holders of the Company who could be expected to trade on the basis of the information, except for disclosures made by the Company’s representatives who are authorized to communicate with investors, securities professionals and the press (and who so communicate in accordance with the Company’s disclosure policies) and disclosures made to actual or potential business partners under appropriate confidentiality agreements.
This prohibition is in addition to the specific trading restriction identified in Sections 4, 5 and 6 above. Any question as to whether information is material or non-public must be discussed with the Chief Compliance Officer and the Chief Financial Officer prior to any trade. The penalties for violation of the securities laws and regulations are severe both for the person concerned and for the Company. These penalties are described in Section 9 below.
“Material Information” generally means:
◦information that is likely to affect the market price of Ultra Clean securities or the securities of any othercompany;
◦information that an investor could consider significant in making a decision to buy, sell or hold Ultra Clean securities or the securities of any other company; or
◦information that, when publicly disclosed, would be expected to significantly alter the total mix of information in the marketplace about the Company.
It is important to note that, in the event of a dispute about whether information is material, the courts will determine what is material after the fact, with the benefit of hindsight.
Information remains “non-public” until it has been released to the public through appropriate channels and investors have had enough time to absorb and evaluate the information. All material information concerning the Company shall be disclosed only through regular Company channels so that all those interested in the Company and its securities will have, as nearly as possible, fair and equal access to that information. A person having knowledge of material information may not attempt to “beat the market” by trading simultaneously with or shortly after the official release of such information. Once public release has occurred, information may normally be regarded as absorbed and evaluated within two trading days after the information is broadly released.
All information of significance will normally be announced through management approved press releases and public statements. The Company has established procedures for assuring appropriate distribution to the financial wire services and press as well as to trade publications and other interested persons. Until this procedure has been followed, information has not been “released to the public”. The fact that information may appear in a trade publication, or in an announcement made by a
licensee, manufacturing partner, competitor or governmental agency, is not enough. Insider trading is not made permissible because material information is reflected in rumors or other unofficial statements in the press or marketplace. When employees become aware of rumors or other unofficial statements concerning the Company, the Chief Compliance Officer should be notified immediately. Employees may receive notification by email of Company press releases and such releases are also available on the internet.
In addition to information regarding the Company that has not been publicly disclosed, non-public information that can be considered material could include confidential analyses, financial information, business data and plans and other information received from a licensee or other third party with the expectation that it will be kept confidential and used solely for business purposes.
8.Trading Plans Under Rule 10b5-1
The provisions of Sections 4, 5, 6 and 7 above shall not prohibit transfers of the Company’s securities pursuant to a written contract, letter of instruction or plan that complies with the provisions of subsection (c) of Rule 10b5-1 (“Rule 10b5-1”) adopted by the SEC under Section 10 of the Exchange Act, provided that not less than five business days prior to entering into such contract, letter of instruction or plan (a “10b5-1 Plan”) the person intending to rely upon this section has provided to the Chief Compliance Officer and the Chief Financial Officer a copy and a written summary of such 10b5-1 Plan and, if requested by the Chief Compliance Officer or the Chief Financial Officer, a letter from securities counsel acceptable to the Chief Compliance Officer opining that such contract, letter of instruction or plan is in compliance with subsection (c) of Rule 10b5-1. Nothing in this section shall limit the Company’s ability to place limitations on trades executed pursuant to such contract, letter of instruction or plan, including the ability to impose waiting periods before trades can be made. Any material amendment to any such written contract, letter of instruction or plan that has previously been provided to the Chief Compliance Officer and the Chief Financial Officer shall be regarded as the adoption of a new contract, letter or plan, as the case may be, and must similarly be provided to the Chief Compliance Officer and the Chief Financial Officer as set forth above.
9.Civil and Criminal Penalties
The Commission, the stock exchanges and plaintiffs’ lawyers focus on uncovering insider trading. A breach of the insider trading laws could expose the insider to criminal fines up to three times the profits earned and imprisonment up to ten years, in addition to civil penalties (up to three times of the profits earned), and injunctive actions. In addition, punitive damages may be imposed under applicable state laws. Securities laws also subject controlling persons to civil penalties for illegal insider trading by employees, including employees located outside the United States. Controlling persons include directors, officers, and supervisors. These persons may be subject to fines up to the greater of $1,000,000 or three times profit (or loss avoided) by the insider trader.
Any director, officer, employee or Outsider who violates the prohibitions against insider trading or who thinks there may have been such a violation by any other persons, must report the violation immediately to the Chief Compliance Officer. Upon learning of any such violation, the Chief Compliance Officer will determine whether the Company
should publicly release any material non-public information, or whether the Company should report the violation to the appropriate governmental authority. Any suspected violation by the Chief Compliance Officer should be reported directly to the Chairman of the Audit Committee of the Board of Directors at auditcommitteechair@uct.com.
10.Company Discipline
Violations of this policy or federal or state insider trading or tipping laws by any director, officer, employee or Outsider, or their respective family members, may subject such person to disciplinary action by the Company, including but not limited to dismissal proceedings in the case of a director and termination of employment in the case of an officer or employee. In the case of Outsiders, violation of this policy or federal or state insider trading or tipping laws may result in the Company terminating its contract with the Outsider and/or seeking other remedies against such Outsider in accordance with its contractual rights.
11.Individual Responsibility
Every officer, director, employee or Outsider has the individual responsibility to comply with this Policy. An insider may, from time to time, have to forego a proposed transaction in the Company’s securities even if he or she planned to make the transaction before learning of the material non-public information and even though the insider believes he or she may suffer an economic loss or forego anticipated profit by waiting.
12.Inquiries
If you have any question as to any of the matters discussed in this Policy, do not hesitate to ask for advice and do not act until you are confident that you are not trading improperly. Requests for advice should be directed to the Chief Compliance Officer.
APPENDIX I
ACKNOWLEDGMENT
The undersigned hereby certifies to Ultra Clean Holdings, Inc. that he/she has read and understands the Company’s Corporate Policy and Procedure on Insider Trading (the “Policy”), a copy of which has been received and retained by the undersigned, and agrees to comply with the terms of the Policy, as it may be amended from time to time. The undersigned hereby certifies to Ultra Clean Holdings, Inc. that he or she will regularly consult the Company’s internal website for any amendments to the Policy.
By:
(Signature)
Name:
(Please print)
Date:
Please return a signed copy of this form to the Chief Compliance Officer
Document
EXHIBIT 21.1
Ultra Clean Holdings, Inc.
List of Subsidiaries
Ultra Clean Technology Systems and Service, Inc. (a California corporation)
Ultra Clean International Holding Company (a Cayman Islands corporation)
Ultra Clean Micro-Electronics Equipment (Shanghai) Co., Ltd. (a Chinese company)
Ultra Clean Pacific Holdings PTE., Ltd. (a Singapore company)
Ultra Clean Technology (Malaysia) SDN. BHD. (a Malaysia company)
Far East International Holdings Ltd (a Hong Kong company)
Ultra Clean Asia Pacific, Pte Ltd (a Singapore company)
American Integration Technologies LLC (a Delaware limited liability company)
Integrated Flow Systems, LLC (a California limited liability company)
UCT Thermal Solutions, Inc. (a Delaware corporation)
Dash Acquisition Subsidiary, LLC (a Delaware limited liability company)
UCT Fluid Delivery Solutions s.r.o (a Czech Republic company)
Quantum Global Technologies, LLC (a Delaware limited liability company)
QuantumClean Technologies (S) Pte. Ltd. (a Singapore company)
QuantumClean Global – Israel Ltd. (an Israel company)
QuantumClean Global Technologies Ireland Limited (an Ireland company)
Quantum Global Technologies Holding Company, LLC (a Delaware limited liability company)
Quantum Global Technologies Korea Co., Ltd. (a South Korea company)
Cinos Co., Ltd. (a South Korea company)
Cinos Xian Clean Technology, Ltd. (a Chinese company)
Cinos Engineering Solutions Co., Ltd. (a South Korea company)
Tainan Quantum Technologies Co. Ltd. (a Taiwan company)
UCT Israel Ltd. (an Israel company)
Ham-Let (Israel-Canada) Ltd. (an Israel company)
Ham-Let CFS Ltd. (a United Kingdom company)
CFS GmbH (a Germany company)
HTC Ltd. (an Israel company)
UCT Incubator Ltd. (an Israel company)
Astava International B.V. (a Netherlands company)
Astava B.V. (a Netherlands company)
Ham-Let GmBH (a Germany company)
Polkas Sp. Z.o.o. (a Poland company)
Ham-Let Russia LLC (a Russia company)
Ham-Let France (a France company)
Ham-Let U.S.A., Inc. (a Texas corporation)
Ham-Let Singapore Valves & Fittings PTE Ltd. (a Singapore company)
Ham-Let (Canada) Fittings & Valves, Inc. (a Canada company)
Ham-Let Motoyama Japan Co., Ltd. (a Japan company)
Ham-Let Benelux B.V. (a Netherlands company)
Ham-Let Shanghai Trade Co., Ltd. (a Chinese company)
Ham-Let (Thailand) Ltd. (a Thailand company)
Hoffman Instrumentation Supply, Inc.
HIS Innovation Group Ireland LTD
Document
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-278195) and Form S-8 (Nos. 333-278114, 333-235574, 333-219447, 333-188995, 333-167530, 333-165782, 333-158108, 333-151335, 333-141989, 333-135147, 333-123820, and 333-114051) of Ultra Clean Holdings, Inc. of our report dated February 25, 2025 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 25, 2025
Document
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-278195) and Form S-8 (No. 333-278114, No. 333-235574, No. 333-219447, No. 333-188995, No. 333-167530, No. 333-165782, No. 333-158108, No. 333-151335, No. 333-141989, No. 333-135147, No. 333-123820, and No. 333-114051) of Ultra Clean Holdings, Inc., (the “Company”), of our report dated March 6, 2024, except for Note 16 to the consolidated financial statements, as to which the date is February 25, 2025, relating to the 2023 and 2022 consolidated financial statements of the Company, appearing in this Annual Report on Form 10-K of the Company for the year ended December 27, 2024.
/s/ Moss Adams LLP
San Francisco, California
February 25, 2025
Document
EXHIBIT 31.1
CERTIFICATION
I, James P. Scholhamer, certify that:
1.I have reviewed this annual report on Form 10-K of Ultra Clean Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2025
| /s/ James P. Scholhamer |
|---|
| James P. Scholhamer<br>Chief Executive Officer |
Document
EXHIBIT 31.2
CERTIFICATION
I, Sheri Savage, certify that:
1.I have reviewed this annual report on Form 10-K of Ultra Clean Holdings, Inc.
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2025
| /s/ Sheri Savage |
|---|
| Sheri Savage<br>Chief Financial Officer |
Document
EXHIBIT 32.1
ULTRA CLEAN HOLDINGS, INC.
SARBANES-OXLEY ACT SECTION 906 CERTIFICATION
The certification set forth below is being submitted in connection with the annual report on Form 10-K of Ultra Clean Holdings, Inc. for the year ended December 27, 2024, (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, James P. Scholhamer, the Chief Executive Officer of Ultra Clean Holdings, Inc., certify that:
1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ultra Clean Holdings, Inc.
Date: February 25, 2025
| /s/ James P. Scholhamer |
|---|
| James P. Scholhamer<br>Chief Executive Officer |
Document
EXHIBIT 32.2
ULTRA CLEAN HOLDINGS, INC.
SARBANES-OXLEY ACT SECTION 906 CERTIFICATION
The certification set forth below is being submitted in connection with the annual report on Form 10-K of Ultra Clean Holdings, Inc. for the year ended December 27, 2024, (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, Sheri Savage, the Chief Financial Officer of Ultra Clean Holdings, Inc., certify that:
1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ultra Clean Holdings, Inc.
Date: February 25, 2025
| /s/ Sheri Savage |
|---|
| Sheri Savage<br>Chief Financial Officer |