10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2012

or

¨ 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 incorporation or organization)	(I.R.S. Employer Identification No.)
26462 Corporate Avenue, Hayward, California	94545
(Address of principal executive offices)	(Zip Code)

(510) 576-4400

Registrant’s telephone number, including area code

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares outstanding of the issuer’s common stock as of July 27, 2012: 23,331,276

ULTRA CLEAN HOLDINGS, INC.

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22
ITEM 4.	CONTROLS AND PROCEDURES	23
	PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	24
ITEM 1A.	RISK FACTORS	24
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	35
ITEM 4.	MINE SAFETY DISCLOSURES	35
ITEM 5.	OTHER INFORMATION	35
ITEM 6.	EXHIBITS	35
SIGNATURES		36

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share amounts)

	June 29, 2012			December 30, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	51,137		$	52,155
Accounts receivable, net of allowance of $8 and $5, respectively		41,942			41,051
Inventory		44,451			55,473
Prepaid expenses and other		6,364			5,441
Total current assets		143,894			154,120
Equipment and leasehold improvements, net		8,762			10,009
Purchased intangibles, net		8,987			8,987
Other non-current assets		5,177			5,183
Total assets	$	166,820		$	178,299
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank borrowings	$	2,736		$	2,931
Accounts payable		25,797			29,451
Accrued compensation and related benefits		3,924			2,803
Deferred rent, current portion		968			895
Other current liabilities		2,191			662
Total current liabilities		35,616			36,742
Long-term debt		938			21,802
Deferred rent and other liabilities		1,990			2,470
Total liabilities		38,544			61,014
Commitments and contingencies (See note 6)
Stockholders’ equity:
Preferred stock — $0.001 par value, 10,000,000 authorized; none outstanding		—			—
Common stock — $0.001 par value, 90,000,000 authorized; 23,330,376 and 22,910,649 shares issued and outstanding, in 2012 and 2011, respectively		111,369			108,838
Common shares held in treasury, at cost, 601,944 shares in 2012 and 2011		(3,337	)		(3,337	)
Accumulated other comprehensive loss		(123	)		(—	)
Retained earnings		20,367			11,784
Total stockholders’ equity		128,276			117,285
Total liabilities and stockholders’ equity	$	166,820		$	178,299

(See accompanying notes to condensed consolidated financial statements)

3

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in thousands, except per share data)

	Three months ended						Six months ended
	June 29, 2012			July 1, 2011			June 29, 2012			July 1, 2011
Sales	$	101,949		$	133,741		$	212,514		$	260,460
Cost of goods sold		87,695			114,748			182,600			223,915
Gross profit		14,254			18,993			29,914			36,545
Operating expenses:
Research and development		1,288			1,437			2,694			3,042
Sales and marketing		1,666			2,018			3,410			4,075
General and administrative		6,384			6,045			12,627			11,748
Total operating expenses		9,338			9,500			18,731			18,865
Income from operations		4,916			9,493			11,183			17,680
Interest and other income (expense), net		(14	)		(367	)		(119	)		(735	)
Income before provision for income taxes		4,902			9,126			11,064			16,945
Income tax provision		979			2,168			2,481			4,167
Net income	$	3,923		$	6,958		$	8,583		$	12,778
Net income per share:
Basic	$	0.17		$	0.31		$	0.37		$	0.57
Diluted	$	0.17		$	0.30		$	0.36		$	0.54
Shares used in computing net income per share:
Basic		23,292			22,734			23,289			22,597
Diluted		23,710			23,482			23,893			23,528

(See accompanying notes to condensed consolidated financial statements)

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ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

	Six months ended
	June 29, 2012			July 1, 2011
Cash flows from operating activities:
Net income	$	8,583		$	12,778
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,463			1,361
Excess tax benefit from stock-based compensation		(30	)		(755	)
Stock-based compensation		2,649			2,166
Changes in assets and liabilities:
Accounts receivable, net of allowance		(891	)		(3,190	)
Inventory		11,022			(10,583	)
Prepaid expenses and other		(923	)		(599	)
Other non-current assets		6			(27	)
Accounts payable		(3,777	)		2,969
Accrued compensation and related benefits		1,121			1,448
Other liabilities		1,096			842
Net cash provided by operating activities		20,319			6,410
Cash flows used in investing activities:
Purchases of equipment and leasehold improvements		(216	)		(2,656	)
Net cash used in investing activities		(216	)		(2,656	)
Cash flows provided by (used in) financing activities:
Proceeds from revolving credit facility		19,482			—
Principal payments on revolving credit facility, term debt and capital lease obligations		(40,543	)		(2,421	)
Excess tax benefit from stock-based compensation		30			755
Employees’ taxes paid upon vesting of restricted stock units		(268	)		—
Proceeds from issuance of common stock		178			894
Net cash used in financing activities		(21,121	)		(772	)
Net increase (decrease) in cash		(1,018	)		2,982
Cash and cash equivalents at beginning of period		52,155			34,654
Cash and cash equivalents at end of period	$	51,137		$	37,636
Supplemental items:
Cash paid/refunded during the period:
Income taxes paid	$	1,716		$	2,190
Income tax refunds	$	(649	)	$	(613	)
Interest	$	167		$	616
Non-cash investing activities:
Restricted stock issued		2,674		$	2,765

(See accompanying notes to condensed consolidated financial statements)

5

ULTRA CLEAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization, Basis of Presentation and Significant Accounting Policies

Organization — Ultra Clean Holdings, Inc. (the “Company”) is a leading developer and supplier of critical subsystems, primarily for the semiconductor capital equipment industry. The Company also leverages the specialized skill sets required to support semiconductor capital equipment to serve the technologically similar markets in the flat panel, medical, energy and research industries, collectively referred to as “Other Addressed Industries”. The Company develops, designs, prototypes, engineers, manufactures and tests subsystems which are highly specialized and tailored to specific steps in the semiconductor manufacturing process as well as the manufacturing processes in Other Addressed Industries. Revenue is derived from the sale of gas delivery systems and other critical subsystems including chemical mechanical planarization (CMP) subsystems, chemical delivery modules, top-plate assemblies, frame assemblies, process modules and other high level assemblies.

The Company’s customers are primarily original equipment manufacturers (OEMs) in industries it supports, providing customers complete subsystem solutions that combine the Company’s expertise in design, test, component characterization and highly flexible manufacturing operations with quality control and financial stability. This combination helps the Company to drive down total manufacturing costs, reduce design-to-delivery cycle times and maintain high quality standards for our customers. The Company believes these characteristics, as well as the Company’s standing as a leading supplier of gas delivery systems and other critical subsystems, place the Company in a strong position to benefit from the demand for subsystem outsourcing.

Basis of Presentation — The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). This financial information reflects all adjustments which are, in the opinion of the Company, normal, recurring and necessary to present fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The Company’s December 30, 2011, balance sheet data was derived from audited financial statements as of that date.

The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended December 30, 2011, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2012. The Company’s results of operations for the three months and six months ended June 29, 2012, are not necessarily indicative of the results to be expected for any future periods.

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 in consolidation.

Foreign Currency Translation — The Company has reviewed its non-U.S. subsidiaries (of which all of its non-U.S. asset base resides in Asia) that operate in a local currency environment to determine their functional currency by examining how and in what currency each subsidiary generates cash through billings and cash receipts and how and in what currency the subsidiary expends cash through payment of its vendors and payment of its workforce. Also, these subsidiaries’ individual assets and liabilities that are primarily denominated in the local foreign currency are examined for their impact on the Company’s cash flows. All have been determined to have the U.S. dollar as its functional currency. All balance sheet accounts of these local functional currency subsidiaries are translated at the fiscal period-end exchange rate, and income and expense accounts are translated using average rates in effect for the period, except for costs related to those balance sheet items that are translated using historical exchange rates. The resulting translation adjustments are recorded as cumulative translation adjustments, and are a component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense), net.

Use of Accounting Estimates — The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment. Actual amounts may differ from those estimates.

Certain Significant Risks and Uncertainties — The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, any of the following areas could have a negative effect on the Company in terms of its future financial position, results of operations or cash flows: the general state of the U.S. and world economies, the highly cyclical nature of the industries the Company serves; the loss of any of a small number of customers; ability to obtain additional financing; failure to successfully integrate completed acquisitions; pursuing acquisition opportunities; regulatory changes; fundamental changes in the

6

technology underlying semiconductor, flat panel, solar and medical device manufacturing processes or manufacturing equipment; the hiring, training and retention of key employees; successful and timely completion of product design efforts; and new product design introductions by competitors.

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

Significant sales to customers — The Company had significant sales to two customers- Applied Materials, Inc. and Lam Research Corporation, each of which accounted for 10% or more of sales for the six months ended June 29, 2012 and July 1, 2011. Sales to each of these customers as a percentage of total sales were as follows:

	Six months ended
	June 29, 2012			July 1, 2011
Applied Materials, Inc. (1)		44.5	%		38.5	%
Lam Research Corporation (2)		37.7	%		33.8	%
Total		82.2	%		72.3	%

(1) In November 2011, Applied Materials Inc. completed the acquisition of Varian Semiconductor Equipment Associates, Inc., one of the Company’s customers. The sales percentages for Applied Materials, Inc. for the six months ended June 29, 2012 include sales to Varian Semiconductor Equipment Associates, Inc. The sales percentages for Applied Materials, Inc. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Varian Semiconductor Equipment Associates, Inc., for comparison purposes.

(2) In June 2012, Lam Research Corp. completed the acquisition of Novellus Systems, Inc., one of the Company’s customers. The sales percentages for Lam Research Corp. for the six months ended June 29, 2012 include sales to Novellus Systems, Inc. The sales percentages for Lam Research Corp. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Novellus Systems, Inc., for comparison purposes.

These two customers’ accounts receivable balances were individually greater than 10% of accounts receivable and, in the aggregate, represented approximately 86% and 72% of accounts receivable as of June 29, 2012 and December 30, 2011, respectively.

Fair Value of Financial Instruments — The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and bank borrowings. The carrying value of these instruments approximates their fair value because of their short-term nature.

The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value in the following hierarchy:

Level 1 — Observable inputs, such as quoted prices in active markets,

Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly,

Level 3 — Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The Company’s only financial asset or liability measured at fair value on a recurring basis is an overnight sweep account invested in money market funds with a carrying value and fair value of $26.6 million at June 29, 2012, each valued based on Level 2 inputs.

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.

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. 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. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of income as income tax expense.

The determination of the Company’s tax provision is subject to judgments and estimates. The carrying value of the Company’s net deferred tax assets, which is made up primarily of tax deductions, assumes it will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, the Company makes judgments with respect to whether it is likely to generate sufficient future taxable income to realize these assets. The Company has a valuation allowance on the deferred tax assets of one of its China subsidiaries in the amount of $441,000 as of June 29, 2012.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position. Management believes that it has adequately provided for any adjustments that may result from these examinations, however, the outcome of tax audits cannot be predicted with certainty.

7

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

	Six months ended
	June 29, 2012			July 1, 2011
Beginning balance	$	350		$	204
Additions related to sales		58			447
Warranty claims		(83	)		(328	)
Ending balance	$	325		$	323

Revenue Recognition — Product revenue is generally recorded upon shipment. In arrangements which specify title transfer upon delivery, revenue is not recognized until the product is delivered. The Company recognizes revenue when persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability is reasonably assured. If the Company has not substantially completed a product or fulfilled the terms of a sales agreement at the time of shipment, revenue recognition is deferred until fulfillment. The Company’s standard arrangement for its customers includes a signed purchase order or contract, no right of return of delivered products and no customer acceptance provisions.

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

Research and Development Costs — Research and development costs are expensed as incurred.

Net Income (loss) per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options and restricted stock using the treasury stock method, except when such shares are anti-dilutive (see Note 5 to Condensed Consolidated Financial Statements).

Comprehensive Income (Loss) — The Company reports by major components and as a single total, the change in its net assets during the period from non-owner sources. Comprehensive income (loss) for all periods presented was the same as net income (loss).

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 considered to be the Chief Executive Officer. The Company operates in one reporting segment.

8

Stock-Based Compensation Expense

The Company maintains stock-based compensation plans which allow for the issuance of equity-based awards to executives and certain employees. These equity-based awards include stock options, restricted stock awards and restricted stock units which can be either time-based or performance-based. The Company also maintains an employee stock purchase plan that provides for the issuance of shares to all eligible employees of the Company at a discounted price.

Stock-based compensation expense includes compensation costs related to estimated fair values of stock options and awards granted. The estimated fair value of the Company’s equity-based awards, net of expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis over a weighted average period of four years for stock options three years for restricted stock awards and will be adjusted for subsequent changes in estimated forfeitures and future option grants.

The Company applies the fair value recognition provisions based on the FASB’s guidance regarding stock-based compensation. The exercise price of each stock option equals the market price of the Company’s stock on the date of grant. The estimated fair value of the Company’s equity-based awards, less expected forfeitures, is amortized over the awards’ vesting periods on a straight-line basis over a weighted average period of four years and will be adjusted for subsequent changes in estimated forfeitures and future option grants. Most options are scheduled to vest over four years and expire no later than ten years from the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the expected term of the awards; the Company’s expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company estimates the expected term of share-based awards granted based on the Company’s historical option term experience. The Company estimates the volatility of its common stock based upon the Company’s historical stock price volatility over the length of the expected term of the options. The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining maturities similar to the expected term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest. The Company also considers, each quarter, whether there have been any significant changes in facts and circumstances that would affect its forfeiture rate.

Stock Options

The following table summarizes information with respect to options granted, exercised and canceled in the quarter ended June 29, 2012 and outstanding at June 29, 2012:

	Number of Shares
Options outstanding at December 30, 2011		1,654,691
Granted		—
Exercised		(72,725	)
Canceled		(4,722	)
Options outstanding at June 29, 2012		1,577,244

There were no options granted by the Company during either of the six month periods ended June 29, 2012 or July 1, 2011.

The weighted-average exercise price, aggregate intrinsic value and weighted average remaining contractual life of outstanding options as of June 29, 2012 were $6.78 per share, $2.6 million and 4.5 years, respectively. As of June 29, 2012, 1,433,509 options with a weighted-average exercise price of $7.28 per share, aggregate intrinsic value of $1.9 million and a weighted average remaining contractual life of 4.3 years were exercisable. The total unamortized expense of the Company’s unvested options, net of forfeitures, as of June 29, 2012, was $0.1 million.

Employee Stock Purchase Plan

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. Under the ESPP, substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 95 percent of the fair market value of the Company’s stock at the end of each applicable purchase period.

Restricted Stock Units and Restricted Stock Awards

The Company grants Restricted Stock Units (“RSU’s”) to employees and Restricted Stock Awards (“RSA”) to non-employee directors as part of the Company’s long term equity compensation plan.

Restricted Stock Units — RSU’s are granted to employees with a per share or unit purchase price of zero dollars and either have time based or performance based vesting. RSU’s typically vest over three years, subject to the employee’s continued service with the Company. For purposes of determining compensation expense related to these RSU’s, the fair value is determined based on the closing market price of the Company’s common stock on the date of award. The expected cost of the grant is reflected over the service period, and is reduced for estimated forfeitures. The Company granted 548,900 RSU’s (including 110,375 performance stock units) during the quarter ended March 30, 2012, with a weighted average fair value of $8.21 per share and 443,500 RSU’s (including 66,250 performance stock units) during the quarter ended April 1, 2011, with a weighted average fair value of $10.30 per share. The Company granted 4,450 RSU’s during the quarter ended June 29, 2012, with a weighted average fair value of $6.41 and granted 249,550 RSU’s during the quarter ended July 1, 2011, with a weighted average fair value of $11.20 per share. During the six months ended June 29, 2012, 32,420 vested shares were withheld to satisfy withholding tax obligations, resulting in the net issuance of 48,497 shares. As of June 29, 2012, $7.7 million of stock-based compensation cost, net of forfeitures, related to RSU’s remains to be amortized, of which substantially all is expected to be recognized over an estimated period of less than three years. As of June 29, 2012, a total of 1,350,810 RSU’s remain outstanding with an aggregate intrinsic value of $8.7 million and a weighted average remaining contractual term of 1.4 years.

Restricted Stock Awards — During each of the quarters ended June 29, 2012 and July 1, 2011, the Company issued 30,000 shares of restricted stock awards to its non-employee directors. The total unamortized expense of the Company’s unvested restricted stock awards as of June 29, 2012, was approximately $0.2 million.

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The following table summarizes the Company’s restricted stock unit and restricted stock award activity for the six months ended June 29, 2012 (in thousands):

	Number of Shares
Unvested restricted stock units and restricted stock awards at December 30, 2011		1,167
Granted		583
Vested		(335	)
Forfeited		(37	)
Unvested restricted stock units and restricted stock awards at June 29, 2012		1,378

The following table shows the Company’s stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):

	Three months ended						Six months ended
	June 29, 2012			July 1, 2011			June 29, 2012			July 1, 2011
Cost of sales	$	422		$	329		$	815		$	650
Research and development		86			79			165			158
Sales and marketing		112			93			206			214
General and administrative		777			663			1,463			1,144
Total stock-based compensation expense		1,397			1,164			2,649			2,166
Income tax benefit		(279	)		(277	)		(585	)		(534	)
Total stock-based compensation expense, net of income tax benefit	$	1,118		$	887		$	2,064		$	1,632

(1) As of June 29, 2012 and July 1, 2010, there were no stock-based compensation expenses capitalized in inventory.

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Recently Issued Accounting Standards — In September 2011, the FASB issued authoritative guidance to allow entities to use a qualitative approach to test goodwill for impairment. This authoritative guidance permits an entity to first perform 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 it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The implementation of this authoritative guidance is not anticipated to have an impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued authoritative guidance on the presentation of comprehensive income to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the requirement regarding the presentation of reclassification adjustments out of accumulated other comprehensive income was deferred indefinitely. The new guidance, except for the provision deferred, was effective for the Company in the first quarter of fiscal 2012. The implementation of this authoritative guidance changed only the presentation of comprehensive income and had no impact on the Company’s financial position or results of operations.

In May 2011, the FASB issued authoritative guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This authoritative guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. This authoritative guidance also expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance was effective for the Company in the first quarter of fiscal 2012. The implementation of this authoritative guidance did not have a material impact on the Company’s financial position or results of operations.

11

ULTRA CLEAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

2. Balance Sheet Information (in thousands)

Inventory consisted of the following (in thousands):

	June 29, 2012			December 30, 2011
Raw materials	$	38,473		$	42,976
Work in process		8,306			12,953
Finished goods		2,307			3,486
		49,086			59,415
Reserve for excess and obsolete		(4,635	)		(3,942	)
Total	$	44,451		$	55,473

Equipment and leasehold improvements, net, consisted of the following (in thousands):

	June 29, 2012			December 30, 2011
Computer equipment and software	$	7,105		$	7,089
Furniture and fixtures		1,584			1,761
Machinery and equipment		8,781			9,282
Leasehold improvements		10,857			10,860
		28,327			28,992
Accumulated depreciation and amortization		(19,565	)		(18,983	)
Total	$	8,762		$	10,009

3. Borrowing Arrangements

As of June 29, 2012, the Company had borrowing arrangements with Silicon Valley Bank under a Loan and Security Agreement (the “Loan Agreement”) which included a $25.0 million revolving credit facility (“revolver”), maturing on December 31, 2013, and an $8.0 million term loan (“term loan”), maturing on October 21, 2013. The aggregate amount of the revolver was secured by substantially all of the Company’s assets. During the second quarter of 2012, however, the Company paid off the entire balance of the revolver and, therefore, had no outstanding balance due as of June 29, 2012. As of June 29, 2012, the outstanding balance of the term loan was $3.7 million.

The interest rate on the revolver during the six months ended June 29, 2012 was 3.5%. Pursuant to the Loan Agreement, the term loan bears interest per annum at a variable rate equal to the greater of prime rate, as defined per the loan agreement, plus a margin of 75 basis points. During the six months ended and as of June 29, 2012, the interest rate on the outstanding term loan was 4.0%. The Loan Agreement contains a number of financial and reporting covenants. The Company was in compliance with all of such covenants as of June 29, 2012.

On July 3, 2012, in connection with our acquisition of AIT, the Company entered into a new credit agreement (the “Credit Agreement”) by and among the Company, certain of its subsidiaries, Silicon Valley Bank, U.S. Bank National Association and the other several lenders party thereto from time to time (collectively, the “Lenders”). The Credit Agreement provides for a term loan in an aggregate principal amount of $40.0 million (the “New Term Loan”) and a revolving credit facility in an aggregate principal amount of $40.0 million (the “New Revolving Credit Facility”), a letter of credit facility in the aggregate availability amount of $15.0 million (as a sublimit of such New Revolving Credit Facility) (the “L/C Facility”) and a swingline sub-facility in the aggregate availability amount of $4.0 million (as a sublimit of the New Revolving Credit Facility) (together with the Term Loan, the Revolving Credit Facility and the L/C Facility, the “Senior Secured Credit Facility”). On July 3, 2012, the Company borrowed an aggregate of $40.0 million under the New Term Loan and approximately $39.8 million under the New Revolving Credit Facility. The borrowed funds were used at the closing of our merger with AIT to finance the merger and repay the outstanding balance of $3.7 million to Silicon Valley Bank as lender under our prior Loan Agreement. The prior Loan Agreement was terminated in connection with this transaction.

The New Term Loan must be repaid in consecutive quarterly installments of $2.5 million, with the first payment due on September 30, 2012, and with the balance of the outstanding principal amount of the New Term Loan due at the final maturity, which is July 3, 2016. The New Revolving Credit Facility is available for the four-year period beginning on July 3, 2012. The Credit Agreement includes customary representations, warranties, covenants and events of default. The Company and certain of its subsidiaries have agreed to secure all of their obligations under the Credit Agreement by granting a first priority lien in substantially all of their respective personal property assets (subject to certain exceptions and limitations).

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At the Company’s option, borrowings under the New Term Loan and New Revolving Credit Facility (subject to certain limitations) bear interest at either a base rate or at the London Interbank Offered Rate (“LIBOR”) (with the LIBOR being adjusted for certain Eurocurrency reserve requirements, if any, as described in the Credit Agreement), plus, in each case, an applicable margin based on our consolidated leverage ratio. All loans described above made on July 3, 2012 were initially base rate loans, carrying interest of 3.75%. The Company expects, however, that the effective interest rate will be higher due to the incurrence of certain loan-related merger costs that will be treated as deferred interest and amortized over the life of the loan.

The Credit Agreement requires us to maintain a consolidated fixed charge coverage ratio (as defined in the Credit Agreement) of at least 1.75 to 1.00 initially and 2.00 to 1.00 from and after March 2013. The Credit Agreement requires the Company to maintain a consolidated leverage ratio (as defined in the Credit Agreement) no greater than 2.25 to 1.00 as of the end of the third quarter of fiscal 2012, stepping down to 2.00 to 1.00 as of the end of the fourth quarter of fiscal 2012 and the first quarter of fiscal 2013, 1.50 to 1.00 as of the end of the second and third quarters of fiscal 2013 and 1.25 to 1.00 as of the end of each fiscal quarter thereafter. The Credit Agreement also requires the Company to maintain minimum domestic cash of $20.0 million as of the last day of any fiscal quarter and $15.0 million as of the last day of any other month from September 1, 2012 through June 30, 2013 and $25.0 million as of the last day of any fiscal quarter and $20.0 million as of the last day of any other month after June 30, 2013. The Credit Agreement also includes other customary affirmative and negative covenants.

The Credit Agreement also contains provisions requiring the following mandatory prepayments (subject to certain exceptions and limitations): (i) prepayments equal to 50% of the net cash proceeds from the issuance of capital stock by the Company’s primary operating subsidiary (or any of its subsidiaries); (ii) prepayments equal to 100% of the net cash proceeds from the incurrence of any indebtedness by the Company’s primary operating subsidiary over $250,000; (iii) prepayments equal to the net cash proceeds from certain asset sales or insurance or condemnation recoveries; and (iv) annual prepayments in an amount equal to (a) 33% of excess cash flow (as defined in the Credit Agreement) if the aggregate outstanding principal amount of the New Term Loan equals or exceeds $20.0 million and (b) 25% of excess cash flow if the aggregate outstanding principal amount of the New Term Loan equals or exceeds $10.0 million but is less than $20.0 million.

13

ULTRA CLEAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

4. Income Tax

The Company’s income tax provision and related effective tax rate for the three and six month periods ended June 29, 2012 was $900,000 and 20% and $2,481,000 and 22.4%, respectively, compared to $2,168,000 and 23.8% and $4,167,000 and 24.6%, respectively for the same periods a year ago. The change in respective rates reflects, primarily, changes in the geographic mix of worldwide earnings and financial results for the first half of 2012 compared to the same period in 2011.

The following table summarizes the activity related to the Company’s uncertain tax positions (in thousands):

	Six months ended
	June 29, 2012		July 1, 2011
Balance as of the beginning of period	$	132	$	39
Increases related to prior year tax positions		22		—
Expiration of the statute of limitations for the assessment of taxes		—		(39	)
Balance as of the end of period	$	154	$	—

The determination of the Company’s tax provision is subject to judgments and estimates. The carrying value of the Company’s net deferred tax assets, which is made up primarily of tax deductions, assumes the Company will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, the Company makes judgments with respect to whether it is likely to generate sufficient future taxable income to realize these assets. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position.

As of June 29, 2012, the Company maintained a full valuation allowance on one of its China subsidiaries in the amount of $441,000 as the Company believes it is more likely than not that the deferred tax asset will not be realized. In order to reverse a valuation allowance, U.S. GAAP guidance requires the Company to review its cumulative twelve-quarter income/loss as well as its ability to generate sufficient future taxable income to realize the Company’s net deferred tax assets. During the quarter ended June 29, 2012, the Company conducted a review of this subsidiary, as well as its other worldwide subsidiaries, and determined that the valuation allowance on its consolidated deferred tax assets is adequate.

The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company’s 2008 through 2011 federal income tax returns are open to audit through the statute of limitations by the Internal Revenue Service. The Company’s 2007 through 2011 state income tax returns are open to audit by the California Franchise Tax Board. The Company is also subject to examination in various other jurisdictions for various periods. The Company’s federal returns are still open for fiscal years 2004 through 2007 due to the carryback of losses for these years.

The Company is currently experiencing a tax holiday related to its Singapore subsidiary that will expire for tax years beginning January 2015. The Company’s Singapore subsidiary recorded a net profit for the three and six month period ended June 29, 2012.

Undistributed earnings of the Company’s foreign subsidiaries at June 29, 2012, are considered to be indefinitely reinvested and no provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.

Sales, use and value-added taxes receivable and payable are recorded on a net basis by jurisdiction. Subsequent to the issuance of the July 1, 2011 consolidated financial statements, management determined that certain of these receivables and payables had previously been recorded on a gross basis. Accordingly, the amounts previously reported as of July 1, 2011 and December 31, 2010, have been corrected to be reported on a net basis. Accrued liabilities were reduced by $5.0 million and $2.7 million, respectively as of July 1, 2011 and December 31, 2010 from $6.0 and $3.2 million as previously reported to $1.0 and $0.5 million, respectively. Prepaid and other current assets were reduced by $5.0 and $2.7 million as of July 1, 2011 and December 31, 2010 from $8.9 and $5.9 million as previously reported to $3.8 and $3.2 million, respectively. Additionally, the consolidated statement of cash flows for the six months ended July 1, 2011 has been corrected, within cash flows from operating activities, to report a change in prepaid expenses and other current assets of $0.6 million rather than a change of $2.9 million as previously reported, and a change in accrued liabilities of $0.8 million rather than a change of $3.2 million as previously reported. These corrections had no effect on the Company’s previously reported stockholders’ equity, results of operations, or net cash provided by operations.

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5. Net Income Per Share

Basic net income per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share (in thousands, except per share data):

	Three months ended				Six months ended
	June 29, 2012		July 1, 2011		June 29, 2012		July 1, 2011
Numerator:
Net income	$	3,923	$	6,958	$	8,583	$	12,778
Denominator:
Shares used in computation — basic:
Weighted average common shares outstanding		23,292		22,734		23,289		22,597
Shares used in computing basic net income per share		23,292		22,734		23,289		22,597
Shares used in computation — diluted:
Shares used in computing basic net income per share		23,292		22,734		23,289		22,597
Dilutive effect of common shares outstanding subject to repurchase		101		170		239		313
Dilutive effect of options outstanding		317		578		365		618
Shares used in computing diluted net income per share		23,710		23,482		23,893		23,528
Net income per share — basic	$	0.17	$	0.31	$	0.37	$	0.57
Net income per share — diluted	$	0.17	$	0.30	$	0.36	$	0.54

The Company had securities outstanding which could potentially dilute basic earnings per share in the future, but the incremental shares from the assumed exercise of these securities were excluded in the computation of diluted net income per share, as their effect would have been anti-dilutive. Such outstanding securities consisted of 618,156 and 322,091 stock options for the three months ended June 29, 2012 and July 1, 2011, respectively, and 547,473 and 322,683 stock options for the six months ended June 29, 2012 and July 1, 2011, respectively.

6. Commitments and Contingencies

The Company had commitments to purchase inventory totaling approximately $26.0 million at June 29, 2012.

The Company leases properties domestically in Hayward, California, Austin, Texas and South San Francisco, California and internationally in China and Singapore. The Company’s total remaining future minimum lease payments as of June 29, 2012, over the remaining terms of these leases will be approximately $10.6 million.

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 cannot be predicted with certainty, the Company has not had a history of outcomes to date that have been material to the statement of operations and does not believe that any of these proceedings or other claims will have a material adverse effect on its consolidated financial condition or results of operations.

7. Segment Information

The Company operates in one reportable segment and is engaged in the development, manufacture and supply of critical subsystems for the semiconductor capital equipment, flat panel, medical, energy and research industries. The nature of the Company’s

15

products and production processes as well as type of customers and distribution methods is consistent among all of the Company’s products. The Company’s foreign operations are conducted primarily through its wholly-owned subsidiary in China. The Company’s principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.

All information on sales by geographic area is based upon the location to which the products were shipped. The following table sets forth revenue by geographic area (in thousands):

	Three months ended				Six months ended
	June 29, 2012		July 1, 2011		June 29, 2012		July 1, 2011
United States	$	73,291	$	103,633	$	155,279	$	213,442
Asia		26,658		26,086		57,142		41,985
Europe		—		4,022		93		5,033
	$	101,949	$	133,741	$	212,514	$	260,460

At June 29, 2012 and July 1, 2011, approximately $4.4 million and $4.3 million, respectively, of the Company’s long-lived assets were located in Asia, and the remaining balances were located in the United States.

8. Subsequent Events

On July 3, 2012, The Company completed the acquisition of American Integration Technologies LLC (“AIT”), a supplier of critical subsystems to the semiconductor capital equipment, medical, energy, industrial and aerospace industries, for approximately $74.4 million in cash (excluding net working capital adjustments) and 4.5 million shares of newly issued common stock. The Company’s primary reasons for this acquisition was to immediately add to its existing customer base in both the semiconductor and medical spaces and to provide additional manufacturing capabilities. The Company financed the cash portion of the merger, and repaid existing indebtedness, by borrowing a total of $79.8 million under a new senior secured credit facility, of which $40.0 million represents borrowings under a term loan and $39.8 million represents borrowings under a revolving credit facility. Following the acquisition of AIT, the Company’s cash totaled approximately $45.3 million and total debt was approximately $79.8 million. See further discussion of the new borrowing arrangements in Note 3. Borrowing Arrangements in Notes to Condensed Consolidated Financial Statements. Due to the limited time since the acquisition date and limitations on access to AIT’s information prior to the acquisition date, the initial accounting for the business combination is incomplete at this time. As a result, we are unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired and resulting from the transaction, including the information required for indemnification assets, contingencies, non-controlling interests and goodwill. Also, because the initial accounting for the transaction is incomplete, we are unable to provide the supplemental pro forma revenue and earnings of the combined entity. We will include this information in our Quarterly Report on Form 10-Q for the three months ended September 28, 2012.

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ITEM 2. Management’s Discussion And Analysis of Financial Condition And Results Of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q in our Annual Report on Form 10-K filed with the SEC on March 21, 2012, and in our Quarterly Report on Form 10-Q filed with the SEC on May 7, 2012. This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses gross margins and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K filed with the SEC on March 21, 2012, and in our Quarterly Report on Form 10-Q filed with the IGC on May 7. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We are a leading developer and supplier of critical subsystems, primarily for the semiconductor capital equipment industry. We also leverage the specialized skill sets required to support semiconductor capital equipment to serve the technologically similar markets in the flat panel, medical, energy and research industries, collectively referred to as “Other Addressed Industries.” We develop, design, prototype, engineer, manufacture and test subsystems which are highly specialized and tailored to specific steps in the semiconductor manufacturing process as well as the manufacturing process in Other Addressed Industries. Our revenue is derived primarily from the sale of gas delivery systems and other critical subsystems including chemical mechanical planarization (“CMP”) subsystems, chemical delivery modules, top-plate assemblies, frame assemblies, process modules and other high level assemblies.

Our customers are primarily original equipment manufacturers (OEMs) in industries we support, providing customers complete subsystem solutions that combine our expertise in design, test, component characterization and highly flexible manufacturing operations with quality control and financial stability. This combination helps us to drive down total manufacturing costs, reduce design-to-delivery cycle times and maintain high quality standards for our customers. We believe these characteristics, as well as our standing as a leading supplier of gas delivery systems and other critical subsystems, place us in a position to benefit from the growing demand for subsystem outsourcing.

On July 3, 2012, we completed the acquisition of American Integration Technologies LLC (“AIT”), a supplier of critical subsystems to the semiconductor capital equipment, medical, energy, industrial and aerospace industries, for approximately $74.4 million in cash (excluding net working capital adjustments) and 4.5 million shares of our newly issued common stock. We financed the cash portion of the merger, and repaid our existing indebtedness, by borrowing a total of $79.8 million under a new senior secured credit facility, of which $40.0 million represents borrowings under a term loan and $39.8 million represents borrowings under a revolving credit facility.

Financial Highlights

Sales for the three months ended June 29, 2012, were $101.9 million, a decrease of $31.8 million, or 23.8%, from the comparable quarter of 2011. Gross profit for the three months ended June 29, 2012, decreased $4.7 million, to $14.3 million, or 14.0% of sales, from $19.0 million, or 14.2% of sales, for the three months ended July 1, 2011. Sales for the six months ended June 29, 2012, were $212.5 million, a decrease of $48.0 million, or 18.4%, from the comparable period of 2011. Gross profit for the six months ended June 29, 2012, decreased $6.6 million, to $29.9 million, or 14.1% of sales, from $36.5 million, or 14.0% of sales, for the three months ended July 1, 2011. Total operating expenses for the three months ended June 29, 2012, were $9.3 million, or 9.2% of sales, compared to $9.5 million, or 7.1% of sales, for the three months ended July 1, 2011. Total operating expenses for the six months ended June 29, 2012, were $18.7 million, or 8.8% of sales, compared to $18.9 million, or 7.2% of sales, for the six months ended July 1, 2011. We earned net income of $3.9 million for the three months ended June 29, 2012 compared to net income of $7.0 million for the three months ended July 1, 2011. We earned net income of $8.6 million for the three months ended June 29, 2012 compared to net income of $12.8 million for the three months ended July 1, 2011.

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Our two largest customers accounted for approximately 82% of the Company’s sales in the first six months of 2012. For a further discussion, see Note 1. Organization Basis of Presentation and Significant Accounting Policies- Significant sales to customers in Notes to Condensed Consolidated Financial Statements above.

Effective as of the end of the first quarter of 2012, we agreed to terminate our arrangement with FEI Corporation, whereby FEI would take back the manufacturing process they had been outsourcing to us since 2008. As part of the arrangement, we agreed to assist FEI during the transition period through our third quarter of fiscal 2012 and, as a result, will record a revenue stream totaling $2.1 million related to these efforts during that timeframe, offset by associated costs. During the second quarter of fiscal 2012, we received payments totaling $2.1 million, of which we recorded half of this amount in revenue in the second quarter and deferred the remainder to be recognized in the third quarter of fiscal 2012. During the second quarter we also received cash for all remaining outstanding accounts receivable and remaining inventory we had with FEI.

Results of Operations

For the periods indicated, the following table sets forth certain costs and expenses and other income items as a percentage of sales. The table and subsequent discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in our quarterly report.

	Three months ended						Six months ended
	June 29, 2012			July 1, 2011			June 29, 2012			July 1, 2011
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		86.0	%		85.8	%		85.9	%		86.0	%
Gross profit		14.0	%		14.2	%		14.1	%		14.0	%
Operating expenses:
Research and development		1.3	%		1.1	%		1.3	%		1.2	%
Sales and marketing		1.6	%		1.5	%		1.6	%		1.6	%
General and administrative		6.3	%		4.5	%		5.9	%		4.4	%
Total operating expenses		9.2	%		7.1	%		8.8	%		7.2	%
Income from operations		4.8	%		7.1	%		5.3	%		6.8	%
Interest and other income (expense), net		(0.0	)%		(0.3	)%		(0.1	)%		(0.3	)%
Income before provision for income taxes		4.8	%		6.8	%		5.2	%		6.5	%
Income tax provision		1.0	%		1.6	%		1.2	%		1.6	%
Net income		3.8	%		5.2	%		4.0	%		4.9	%

Sales

Sales for the three months ended June 29, 2012 decreased $31.8 million, or 23.8%, to $101.9 million from $133.7 million in the comparable period of 2011. Sales for the six months ended June 29, 2012 decreased $47.9 million, or 18.4%, to $212.5 million from $260.5 million in the comparable period of 2011. The reduction in sales for both the three and six months ended June 29, 2012, reflects primarily the decrease in semiconductor revenues resulting from the continued semiconductor industry downturn which began during the third quarter of fiscal 2011as well as the continued softness in the energy industry. In addition, sales to FEI decreased in the second quarter of fiscal 2012 compared to the comparable quarter in 2011 as well as the previous first quarter of 2012. For a further discussion regarding FEI, see Financial Highlights above. We expect sales to decrease in the third quarter of 2012 primarily due to the continued slow-down in the semiconductor industry, offset by an expected increase in sales as we consolidate results for our newly-acquired AIT subsidiary.

Gross Profit

Cost of goods sold consists primarily of purchased materials, labor and overhead, including depreciation related to certain capital assets associated with the design and manufacture of products sold. Gross profit for the three months ended June 29, 2012, decreased $4.7 million to $14.3 million, or 14.0% of sales, from $19.0 million, or 14.2% of sales, for the same period in 2011. Our gross margin for the three months ended June 29, 2012, decreased from the comparable period in 2011 due primarily to lower factory utilization resulting from lower revenues during the first quarter of 2012 offset by lower material and direct labor costs as a percentage of gross revenues. Gross profit for the six months ended June 29, 2012, decreased $6.6 million to $29.9 million, or 14.1% of sales, from $36.5 million, or 14.0% of sales, for the same period in 2011. Our gross margin for the six months ended June 29, 2012, increased from the comparable period in 2011 due primarily to lower material and direct labor costs as a percentage of gross revenues. We expect our gross profit to be lower in the third quarter of 2012 due to expected lower revenues.

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Research and Development Expense

Research and development expense consists primarily of activities related to new component testing and evaluation, test equipment and fixture development, product design, and other product development activities. Research and development expense for the three months ended June 29, 2012 decreased $0.1 million, or 10.4%, to $1.3 million, or 1.3% of sales, compared to $1.4 million, or 1.1% of sales in the comparable period in 2011. Research and development expense for the six months ended June 29, 2012 decreased $0.3 million, or 11.4%, to $2.7 million, or 1.3% of sales, compared to $3.0 million, or 1.2% of sales in the comparable period in 2011. The decrease in expense for the three and six month periods from the comparable prior period is primarily due to reduced payroll and associated costs as a result of reduced headcount offset by the reassignment of existing resources to research and development activities.

Sales and Marketing Expense

Sales and marketing expense consists primarily of salaries and commissions paid to our sales and service employees, salaries paid to our engineers who work with the sales and service employees to help determine the components and configuration requirements for new products and other costs related to the sales of our products. Sales and marketing expense for three months ended June 29, 2012, decreased $0.4 million to $1.7 million, or 1.6% of sales, compared to $2.0 million, or 1.5% of sales, in the comparable period of 2011. The decrease in expense is primarily due to decreased payroll and related benefit costs due to reduced fully employed and temporary headcount and a reduction in commission expense resulting from reduced revenues. Sales and marketing expense for the six months ended June 29, 2012, decreased $0.7 million to $3.4 million, or 1.6% of sales, compared to $4.1 million, or 1.6% of sales, in the comparable period of 2011. The decrease in expense is primarily due to decreased payroll and related benefit costs due to reduced fully employed and temporary headcount and a reduction in commission expense resulting from reduced sales.

General and Administrative Expense

General and administrative expense consists primarily of salaries and overhead associated with our administrative staff and professional fees. General and administrative expense increased approximately $0.3 million, or 5.6% for the three months ended June 29, 2012, to $6.4 million, or 6.3% of sales, compared with $6.0 million, or 4.5% of sales, in the comparable period of 2011. The increase in dollars when comparing the three months ended June 29, 2012, with the comparable period in 2011 is primarily due to an increase in stock compensation costs and an increase in headcount and related payroll costs in our Singapore office as we continue to expand our operations there. The increase in general and administrative expense as a percent of sales in the three months ended June 29, 2012, compared to the comparable period of 2011 is due to decreased sales. General and administrative expense increased approximately $0.9 million, or 7.5% for the six months ended June 29, 2012, to $12.6 million, or 5.9% of sales, compared with $11.7 million, or 4.4% of sales, in the comparable period of 2011. The increase in dollars when comparing the six months ended June 29, 2012, with the comparable period in 2011 is primarily due to an increase in stock compensation costs and an increase in headcount and related payroll costs in the Company’s Singapore office as we continue to expand our operations there.

Interest and Other Income (Expense), net

Interest and other income (expense), net, for the three months ended June 29, 2012, was $(0.1) million compared to $(0.4) million in the comparable period of 2011. Interest and other income (expense), net, for the six months ended June 29, 2012, was $(0.1) million compared to $(0.7) million in the comparable period of 2011. The decrease in interest expense in the three months and six months ended June 29, 2012, was primarily due to reductions in the average balance of our line of credit during the six months ended June 29, 2012. We paid off our line of credit balance of $19.5 million at the beginning of the second quarter of 2012.

Income Tax Provision

Our effective tax rate for the three months ended June 29, 2012, and July 1, 2011, was 20.0% and 23.8%, respectively. Our effective tax rate for the six months ended June 29, 2012, and July 1, 2011, was 22.4% and 24.6%, respectively. The change in respective rates reflects, primarily, a change in the geographic distribution of our world-wide earnings in foreign jurisdictions with lower tax rates or tax holidays.

Liquidity and Capital Resources

We have required capital principally to fund our working capital needs, satisfy our debt obligations, maintain our equipment and purchase new capital equipment. As of June 29, 2012, we had cash of $51.1 million compared to $52.2 million as of December 30, 2011. Our cash and cash equivalents, as well as cash generated from operations, was our principal source of liquidity as of June 29, 2012.

For the six months ended June 29, 2012, we generated cash from operating activities of $20.3 million compared to $6.4 million for the comparable period of 2011. Operating cash flows generated in the six months ended June 29, 2012, were from $8.6 million of net income; net non-cash activity, including depreciation and amortization of $1.5 million and stock-based compensation of $2.6 million; an increase in accrued compensation and related benefits of $1.1 million, an increase in other liabilities of $1.1 million and a decrease in inventory of $11.0 million. Offsetting cash used in operating activities resulted from an increase in accounts receivable of $0.9 million, an increase in prepaid expenses and other current assets of $0.9 million and a decrease in accounts payable of $3.8 million. Our cash flows from operations in any given period are largely driven by the timing of sales, the collection of accounts receivable and the payment of accounts payable.

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Net cash used in investing activities for the six months ended June 29, 2012, was $0.2 million as a result of capital expenditures. Investments in capital equipment in 2011 reflect our continued investment in our Asian subsidiaries as well as our domestic operating units. These investments are driven by the timing of our capital expenditures budget.

Net cash used in financing activities for the six months ended June 29, 2012, was $21.1 million compared to $0.8 million for the comparable period of 2011. For the six months ended June 29, 2012, our cash used in financing activities was due primarily to payments on the Company’s term debt and line of credit of $21.1 million and employees’ taxes paid upon vesting of restricted stock units of $0.3 million, offset by proceeds from option exercises of $0.2 million. See “—Borrowing Arrangements” below for information about our new borrowing arrangements we entered into in connection with our acquisition of AIT on July 3, 2012.

We anticipate that our existing cash 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 state of the worldwide economy, the cyclical expansion or contraction of the semiconductor capital equipment industry and the other industries we serve and capital expenditures required to meet possible increased demand for our products.

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 those of our current stockholders. We may also require the consent of our senior 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.

In addition, the undistributed earnings of our foreign subsidiaries at June 29, 2012, are considered to be indefinitely reinvested and unavailable for distribution in the form of dividends or otherwise. Accordingly, no provisions for U.S. income taxes have been provided thereon. The Company anticipates it has adequate liquidity and capital resources and would not need to repatriate earnings.

Borrowing Arrangements

As of June 29, 2012, we had borrowing arrangements with Silicon Valley Bank under a Loan and Security Agreement (the “Loan Agreement”) which included a $25.0 million revolving credit facility (“revolver”), maturing on December 31, 2013, and an $8.0 million term loan (“term loan”), maturing on October 21, 2013. The aggregate amount of the revolver was secured by substantially all of our assets. During the second quarter of 2012, however, we paid off the entire balance of the revolver and, therefore, had no outstanding balance due as of June 29, 2012. As of June 29, 2012, the outstanding balance of the term loan was $3.7 million.

The interest rate on the revolver during the six months ended June 29, 2012 was 3.5%. Pursuant to the Loan Agreement, the term loan bears interest per annum at a variable rate equal to the greater of prime rate, as defined per the loan agreement, plus a margin of 75 basis points. During the six months ended and as of June 29, 2012, the interest rate on the outstanding term loan was 4.0%. The Loan Agreement contains a number of financial and reporting covenants. We were in compliance with all of such covenants as of June 29, 2012.

On July 3, 2012, in connection with our acquisition of AIT, we entered into a new credit agreement (the “Credit Agreement”) by and among the Company, certain of its subsidiaries, Silicon Valley Bank, U.S. Bank National Association and the other several lenders party thereto from time to time (collectively, the “Lenders”). The Credit Agreement provides for a term loan in an aggregate principal amount of $40.0 million (the “New Term Loan”) and a revolving credit facility in an aggregate principal amount of $40.0 million (the “New Revolving Credit Facility”), a letter of credit facility in the aggregate availability amount of $15.0 million (as a sublimit of such New Revolving Credit Facility) (the “L/C Facility”) and a swingline sub-facility in the aggregate availability amount of $4.0 million (as a sublimit of the New Revolving Credit Facility) (together with the Term Loan, the Revolving Credit Facility and the L/C Facility, the “Senior Secured Credit Facility”). On July 3, 2012, we borrowed an aggregate of $40.0 million under the New Term Loan and approximately $39.8 million under the New Revolving Credit Facility. The borrowed funds were used at the closing of our merger with AIT to finance the merger and repay the outstanding balance of $3.7 million to Silicon Valley Bank as lender under our prior Loan Agreement. The prior Loan Agreement was terminated in connection with this transaction.

The New Term Loan must be repaid in consecutive quarterly installments of $2.5 million, with the first payment due on September 30, 2012, and with the balance of the outstanding principal amount of the New Term Loan due at the final maturity, which is July 3, 2016. The New Revolving Credit Facility is available for the four-year period beginning on July 3, 2012. The Credit Agreement includes customary representations, warranties, covenants and events of default. We and certain of our subsidiaries have agreed to secure all of our obligations under the Credit Agreement by granting a first priority lien in substantially all of our and their respective personal property assets (subject to certain exceptions and limitations).

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At our option, borrowings under the New Term Loan and New Revolving Credit Facility (subject to certain limitations) bear interest at either a base rate or at the London Interbank Offered Rate (“LIBOR”) (with the LIBOR being adjusted for certain Eurocurrency reserve requirements, if any, as described in the Credit Agreement), plus, in each case, an applicable margin based on our consolidated leverage ratio. All loans described above made on July 3, 2012 were initially base rate loans, carrying interest of 3.75%. We expect, however, that the effective interest rate will be higher due to the incurrence of certain loan-related merger costs that will be treated as deferred interest and amortized over the life of the loan.

The Credit Agreement requires us to maintain a consolidated fixed charge coverage ratio (as defined in the Credit Agreement) of at least 1.75 to 1.00 initially and 2.00 to 1.00 from and after March 2013. The Credit Agreement requires us to maintain a consolidated leverage ratio (as defined in the Credit Agreement) no greater than 2.25 to 1.00 as of the end of the third quarter of fiscal 2012, stepping down to 2.00 to 1.00 as of the end of the fourth quarter of fiscal 2012 and the first quarter of fiscal 2013, 1.50 to 1.00 as of the end of the second and third quarters of fiscal 2013 and 1.25 to 1.00 as of the end of each fiscal quarter thereafter. The Credit Agreement also requires us to maintain minimum domestic cash of $20.0 million as of the last day of any fiscal quarter and $15.0 million as of the last day of any other month from September 1, 2012 through June 30, 2013 and $25.0 million as of the last day of any fiscal quarter and $20.0 million as of the last day of any other month after June 30, 2013. The Credit Agreement also includes other customary affirmative and negative covenants.

The Credit Agreement also contains provisions requiring the following mandatory prepayments (subject to certain exceptions and limitations): (i) prepayments equal to 50% of the net cash proceeds from the issuance of capital stock by our primary operating subsidiary (or any of its subsidiaries); (ii) prepayments equal to 100% of the net cash proceeds from the incurrence of any indebtedness by our primary operating subsidiary over $250,000; (iii) prepayments equal to the net cash proceeds from certain asset sales or insurance or condemnation recoveries; and (iv) annual prepayments in an amount equal to (a) 33% of excess cash flow (as defined in the Credit Agreement) if the aggregate outstanding principal amount of the New Term Loan equals or exceeds $20.0 million and (b) 25% of excess cash flow if the aggregate outstanding principal amount of the New Term Loan equals or exceeds $10.0 million but is less than $20.0 million.

Capital Expenditures

Capital expenditures were $0.2 million in the six months ended June 29, 2012. The Company’s anticipated capital expenditures for the remainder of 2012 are approximately $2.0 million, which we expect to finance through cash from operations.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relations with 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.

Contractual Obligations

Other than operating leases for certain equipment and real estate and purchase order commitments primarily for inventory, we have no off-balance sheet transactions, unconditional purchase obligations or similar instruments and, other than the arrangements described under “—Borrowing Arrangements” above, are not a guarantor of any other entities’ debt or other financial obligations. The following table summarizes our future minimum lease payments, principal payments under debt obligations and our purchase obligations for the purchase of inventory as of June 29, 2012 (in thousands):

	2012		2013		2014		2015		2016		Thereafter		Total
Capital leases	$	5	$	10	$	7	$	—	$	—	$	—	$	22
Operating leases (1)		2,145		3,745		3,083		1,281		321		—		10,575
Borrowing Arrangement (3)		1,354		2,320		—		—		—		—		3,674
Purchase order commitments		25,951		—		—		—		—		—		25,951
Total (2)	$	29,455	$	6,075	$	3,090	$	1,281	$	321	$	—	$	40,222

(1) Operating lease expense reflects (a) the lease for our headquarters facility in Hayward, California that expires in 2015; (b) the leases for manufacturing facilities in South San Francisco that expire in 2012 thru 2013 (c) the leases for manufacturing facilities in China and Singapore that expire in 2012 thru 2016 and; (d) the leases for manufacturing facilities in Austin, Texas that expire in 2016. We have options to renew certain of the leases in South San Francisco, Hayward and Austin which we expect to exercise.

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(2) As a result of the implementation of FASB’s guidance regarding accounting for uncertainty in income taxes, we have recorded an additional tax liability of $154,000 to offset the recognition of previously recorded excess tax benefits. Because of the uncertainty surrounding the future payment of these liabilities, the amount has been excluded from the table above.

(3) This balance was repaid in full on July 3, 2012 in connection with our entry into our new Credit Agreement, under which we borrowed $40.0 million under the New Term Loan and approximately $39.8 million under the New Revolving Credit Facility. The New Term Loan must be repaid in consecutive quarterly installments of $2.5 million, with the first payment due on September 30, 2012, and with the balance of the outstanding principal amount of the New Term Loan due at the final maturity, which is July 3, 2016. The New Revolving Credit Facility is available for the four-year period beginning on July 3, 2012.

Critical Accounting Policies, Significant Judgments and Estimates

Our condensed consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our financial statements. Estimates and judgments are reviewed on an on-going basis, including those related to sales, inventories, intangible assets, stock compensation and income taxes. The estimates and judgments are based 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 the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to the purchase accounting, revenue recognition, inventory valuation, accounting for income taxes, valuation of intangible assets and goodwill and equity incentives to employees to be critical policies due to the estimates and judgments involved in each. Our significant accounting policies and critical estimates are disclosed in our 2011 Annual Report on Form 10-K as filed with the SEC on March 21, 2012. No material changes to our significant accounting policies and critical estimates have occurred subsequent to December 30, 2011.

Recently Issued Accounting Standards

See Recently Issued Accounting Standards in Note 1 of Notes to Condensed Consolidated Financial Statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of changes in value of financial instruments caused by fluctuations in interest rates and foreign exchange rates.

Foreign Exchange Rates

Currently, a significant majority of our sales and arrangements with third-party suppliers provide for pricing and payment in U.S. dollars, and, therefore, are not subject to material exchange rate fluctuations. Therefore, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies,, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us. We do not currently hedge our foreign exchange exposure. A hypothetical change of 10% in foreign currency exchange rates would not have a material effect on our consolidated financial condition or results of operations.

Chinese authorities recently relaxed controls of its currency, the Renminbi, and allowed the currency to strengthen against other world currencies, including the U.S. dollar. We continue to monitor any potential impact of the appreciation of the Renminbi on our operations in China as well as globally. Changes in the value of the Renminbi did not have a material impact on our results of operations for any of the periods presented above disclosed in our condensed consolidated financial statements included in this Quarterly Report.

Interest Rates

Our interest rate risk for the first six months of 2012 related primarily to our outstanding debt which totaled $24.7 million as of December 30, 2011 and $3.7 million as of June 29, 2012, and carries interest rates pegged to the prime rate. An immediate increase in interest rates of 100 basis points would increase our interest expense by less than $0.1 million per quarter, assuming constant borrowing levels. This would be partially offset by increased interest income on our invested cash. Conversely, an immediate decline of 100 basis points in interest rates would decrease our interest expense by less than $0.1 million per quarter, assuming constant borrowing levels. This would be partially offset by decreased interest income on our invested cash. As of July 3, 2012, our interest rate risk relates primarily to our new Credit Agreement, for which outstanding balances are currently a function of a base rate.

We invest our cash and cash equivalents primarily in the operation of the Company. We do not enter into investments for trading or speculative purposes. We believe that we do not have material exposure to changes in the fair value as a result of changes in interest rates due to the short term nature of our investments. Declines in interest rates may reduce future investment income. However, a hypothetical change of 100 basis points in the interest rate on our investments would not have a material effect on our consolidated financial condition or results of operations.

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ITEM 4. Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon our evaluation, we concluded that our disclosure controls and procedures were effective as of June 29, 2012.

As required by Rule 13a-15(d), management, including our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on our evaluation, we concluded that there has been no such change during the fiscal quarter covered by this report.

Any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

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PART II. OTHER INFORMATION

ITEM 1. 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 statement of operations and do not believe that any of these proceedings or other claims will have a material effect on our consolidated financial condition or results of operations.

ITEM 1A. Risk Factors

The highly volatile nature of the industries we serve could harm our operating results.

Our business and operating results depend in significant part upon capital expenditures by manufacturers in the semiconductor capital equipment, flat panel, medical, energy and research industries, which in turn depend upon the current and anticipated market demand for such products. Historically, the industries we serve (in particular the semiconductor industry) have been highly cyclical, with recurring periods of over-supply of products that have had a severe negative effect on the demand for capital equipment used to manufacture such products. We have experienced and anticipate that we will continue to experience significant fluctuations in customer orders for our products through such cycles. Slowdowns in the industries we serve have had, and future slowdowns may also have, a material adverse effect on our operating results. During periods of decreasing demand for our products, we must be able to appropriately align our cost structure with prevailing market conditions, effectively manage our supply chain and motivate and retain employees. During periods of increased demand, we must increase manufacturing capacity and inventory to meet customer demands, effectively manage our supply chain and attract, retain and motivate a sufficient number of employees. If we are not able to timely and appropriately adapt to the changes in our business environment, our results of operations will be harmed. Also, the cyclical and volatile nature of the industries we serve make future revenues, results of operations and net cash flows difficult to estimate.

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

A relatively small number of OEM customers have historically accounted for a significant portion of our sales, and we expect this trend to continue. As a group, two customers accounted for 82% of our sales for the six months ended June 29, 2012, and three customers accounted for 68%, 72% and 79% of our sales for fiscal years 2011, 2010 and 2009, respectively. We expect that our sales will continue to be concentrated among a small number of customers after our merger with AIT on July 3, 2012. Because of the small number of OEMs in the markets we serve, most of which are already our customers, it would be difficult to replace lost revenue resulting from the loss of, or the reduction, cancellation or delay in purchase orders by any one of these customers. Our and AIT’s customer contracts generally do not require customers to place any orders. Consolidation among our customers, or a decision by any one or more of our customers to outsource all or most manufacturing and assembly work to a single equipment manufacturer, may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on an even smaller number of customers. For example, two of our largest semiconductor customers announced in June 2012 that they had completed a transaction pursuant to which they consolidated their businesses. Also, In November 2011, Applied Materials, Inc. completed the acquisition of Varian Semiconductor Equipment Associates, Inc., one of our customers. In addition, we have in the past lost business from customers

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who have taken the manufacturing of our products in-house. For example, we terminated our manufacturing services to FEI Company at the beginning of our second quarter of fiscal 2012. If we are unable to replace revenue from customers who determine to take subsystem assembly in-house, or if additional customers determine to in-source subsystem assembly, such events could have a material adverse impact on our financial position and results of operation.

In addition, by virtue of our and AIT’s largest customers’ size and the significant portion of revenue that our combined company derives from them, they are able to exert significant influence and pricing pressure in the negotiation of our commercial agreements and the conduct of our business with them. We may also be asked to accommodate customer requests that extend beyond the express terms of our agreements in order to maintain our relationships with our customers. If we are unable to retain and expand our business with these customers on favorable terms, our business and operating results will be adversely affected.

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

We are exposed to risks associated with weakness in the global economy.

We rely to a significant extent on OEM customers, whose business, in turn, depends largely on consumer spending and capital expenditures by businesses. Continuing difficulties in the financial markets and uncertainty regarding the global economy are posing challenges to our business. Economic uncertainty and related factors, including unemployment, the European debt crisis, inflation and fuel prices, exacerbate negative trends in business and consumer spending and may cause certain of our customers to push out, cancel, or refrain from placing orders for products or services, which may reduce sales. Difficulties in obtaining capital, uncertain market conditions, or reduced profitability may also cause some customers to scale back operations, exit businesses, merge with other manufacturers, or file for bankruptcy protection and potentially cease operations, leading to customers’ reduced research and development funding and/or capital expenditures and, in turn, lower orders from our customers and/or additional slow moving or obsolete inventory or bad debt expense for us. These conditions may also similarly affect key suppliers, which could impair their ability to deliver parts and result in delays for our products or require us to either procure products from high-cost suppliers, or if no additional suppliers exist, to reconfigure the design and manufacture of our products, and we may be unable to fulfill some customer orders. While past downturns in our business have been followed by periods of growth, this correlation may not occur in the future.

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

We rely on both single-source and sole-source suppliers, some of whom are relatively small, for many of the components we use in our products. In addition, our customers often specify components of particular suppliers that we must incorporate into our products. Our suppliers are under no obligation to provide us with components. As a result, the loss of or failure to perform by any of these providers could adversely affect our business and operating results. In addition, the manufacturing of certain components and subsystems is an extremely complex process. Therefore, if a supplier were unable to provide the volume of components we require on a timely basis and at acceptable prices and quality, we would have to identify and qualify replacements from alternative sources of supply. However, the process of qualifying new suppliers for complex components is also lengthy and could delay our production, which would adversely affect our business, operating results and financial condition. Disruption in supply resulting from natural disasters, such as the recent earthquakes, tsunami and related events in Japan, may result in certain of our suppliers being unable to deliver sufficient quantities of components or raw materials at all or in a timely manner. If we, or our vendors, are unable to procure sufficient quantities of components or raw materials from suppliers, it could influence decisions by our customers to delay or cancel orders and decisions by our vendors to fulfill our purchase orders and, consequently, have a material adverse effect on our results of operations.

We may also experience difficulty in obtaining sufficient supplies of components and raw materials in times of significant growth in our business. For example, we have in the past experienced shortages in supplies of various components, such as mass flow controllers, valves and regulators, and certain prefabricated parts, such as sheet metal enclosures, used in the manufacture of our products. [In addition, one of our competitors manufactures mass flow controllers that may be specified by one or more of our customers. If we are unable to obtain these particular mass flow controllers from our competitor or convince a customer to select alternative mass flow controllers, we may be unable to meet that customer’s requirements, which could result in a loss of market share.

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

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

• mobilize our supply chain in order to maintain component and raw material supply;

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

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

• expand, if necessary, our manufacturing capacity; and

• maintain our product quality as we increase production.

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

We have significant existing indebtedness; the restrictive covenants under our debt agreements or other limitations on financing may limit our ability to expand or pursue our business strategy or make capital expenditures; if we are forced to prepay some or all of our indebtedness our financial position would be severely and adversely affected.

We have significant outstanding indebtedness. On July 3, 2012, we refinanced our existing credit facility and entered into a new credit agreement with Silicon Valley Bank and U.S. Bank National Association. The new credit agreement provides for a new term loan in an aggregate principal amount of $40.0 million and a new revolving credit facility in an aggregate principal amount of $40.0 million. On July 3, 2012, we borrowed $40.0 million under the new term loan and $39.8 million under the new revolving credit facility to finance our merger with AIT and repay Silicon Valley Bank as lender under the existing credit facility. As of June 29, 2012 and July 3, 2012, the long-term portions of our outstanding indebtedness under our old and new credit facilities were $0.9 million and $21.8 million, respectively, and the short-term portions were $2.7 million and $2.9 million, respectively. As of June 29, 2012 and July 3, 2012, we had $24.8 million and $zero million of undrawn capacity under our existing and new revolving credit facilities, respectively.

Our new credit agreement contains certain reporting and financial covenants that must be met on a quarterly basis in order for us to remain in compliance. The covenants also restrict our ability to take certain actions, including our ability to:

• incur additional debt, including guarantees, or create liens;

• pay dividends and make distributions in respect of our capital stock;

• repurchase capital stock;

• make investments or other restricted payments;

• engage in transactions with stockholders and affiliates;

• sell or otherwise dispose of assets;

• make payments on subordinated indebtedness; and

• engage in certain mergers and acquisitions, new lines of business or make other fundamental changes.

We cannot assure you that we will meet these financial covenants in subsequent periods. Under our new credit agreement, the bank has the right to declare all obligations immediately due and payable if we are in default. If we are unable to meet any covenants, we cannot assure you that the bank will grant waivers or amend the covenants, or that the bank will not terminate the agreement, preclude further borrowings or require us to immediately repay any outstanding borrowings. In addition, the new credit agreement has certain mandatory prepayment provisions, including annual prepayments of excess cash flow above certain thresholds. As long as our indebtedness remains outstanding, the restrictive covenants and mandatory prepayment provisions could impair our ability to expand or pursue our business strategies or obtain additional funding. Forced prepayment of some or all of our indebtedness would reduce our available cash balances and have an adverse impact on our operating and financial performance.

We may not be able to fund our future capital requirements 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 of $0.2 million and $0.4 million for the three and six months ended June 29, 2012 and $4.0 million in fiscal 2011 related to our manufacturing facilities in the United States, China and Singapore. In addition, we paid approximately $74.4 million (excluding working capital adjustments) and issued 4.5 million shares of our common stock in connection with our merger with AIT. The cash portion of the merger consideration was financed through the new credit facility described above, of which an aggregate of $79.8 million was outstanding as of July 3, 2012. The amount of our future capital requirements or strategic acquisitions will depend on many factors, including:

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

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

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

• the cost required to complete AIT’s enterprise resource planning implementation and to migrate AIT and its subsidiaries to our enterprise resource planning system;

• changing manufacturing capabilities to meet new customer requirements;

• market acceptance of our products; and

• our ability to identify appropriate acquisition opportunities and successfully negotiate the terms of such acquisitions.

At June 29, 2012, we had $51.1 million in cash and cash equivalents. On July 3, 2012, after consummation of our merger with AIT, the refinancing of our existing credit facility and payment of transaction expenses, we had $45.3 million in cash and cash equivalents and $zero million available under our new revolving credit facility for future borrowings. In addition, as of June 29, 2012, $25.0 million of our cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations or to fund capital expenditures or other strategic acquisitions in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds.

Given our significant existing leverage, lack of additional availability under our current revolving line of credit and the potential tax effects of repatriating foreign cash, we may need to raise additional funds through public or private equity or debt financing if our current domestic cash and cash flow from operations are insufficient to fund our future activities. We may not be able to obtain additional debt financing when and if necessary in a timely manner. Access to capital markets has, in the past, been unavailable to companies such as ours and there can be no assurance that we would be able to complete an equity or other financing 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, if and when needed, we may not be able to develop or enhance our products, take advantage of future opportunities, including potential acquisitions, grow our business or respond to competitive pressures or unanticipated requirements, any of which could adversely affect our business, operating results and financial condition.

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

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

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

• overall economic conditions;

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

• strategic decisions by our customers to terminate their outsourcing relationship with us;

• strategic consolidation by our customers;

• cancellations and postponements of previously placed orders;

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

• disruptions or delays in the manufacturing of our products or in the supply of components or raw materials that are incorporated into or used to manufacture our products, thereby causing us to delay the shipment of products;

• decreased margins for several or more quarters following the introduction of new products, especially as we introduce new subsystems;

• delays in ramp-up in production, low yields or other problems experienced at our manufacturing facilities in China;

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• changes in design-to-delivery cycle times;

• inability to reduce our costs quickly in step with reductions in our prices or in response to decreased demand for our products;

• changes in our mix of products sold;

• write-offs of excess or obsolete inventory;

• one-time expenses or charges associated with failed acquisition negotiations or completed acquisitions;

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

• geographic mix of 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 quarter. Moreover, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, we would expect to experience an immediate and significant decline in the trading price of our common stock.

We have established, and as markets will allow, intend to expand our operations in Asia, which exposes us to risks associated with operating in a foreign country.

Depending on market conditions, we intend to expand our operations in Asia, principally in China and Singapore. In addition, through our merger with AIT, we acquired a manufacturing facility in Cebu, Philippines. The book value of our assets in Asia was $67.0 million as of December 30, 2011.

We are exposed to political, economic, legal and other risks associated with operating in Asia, including:

• foreign currency exchange fluctuations;

• political, civil and economic instability;

• tariffs and other barriers;

• timing and availability of export licenses;

• disruptions to our and our customers’ operations due to the outbreak of diseases, such as SARS and avian flu;

• disruptions in operations due to China’s developing domestic infrastructure, including transportation and energy;

• difficulties in developing relationships with local suppliers;

• difficulties in attracting new international customers;

• difficulties in accounts receivable collections;

• difficulties in staffing and managing distant international subsidiary and branch operations;

• the burden of complying with foreign and international laws and treaties;

• legal systems potentially subject to undue influence or corruption;

• difficulty in transferring funds to other geographic locations; and

• potentially adverse tax consequences.

Our operations in Asia also subject us to U.S. laws governing the export of equipment. These laws are complex and require us to obtain clearances for the export to Asia of certain equipment. We may fail to comply with these laws and regulations, which could require us to cease use of certain equipment and expose us to fines or penalties.

Over the past several years the Chinese government has pursued economic reform policies, including the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue these policies or may significantly alter them to our detriment from time to time without notice. Changes in laws and regulations or their interpretation, the imposition of confiscatory taxation policies, new restrictions on currency conversion or limitations on sources of supply could materially and adversely affect our Chinese operations, which could result in the partial or total loss of our investment in that country and materially and adversely affect our future operating results.

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

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

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

The manufacturing of our products is a highly complex process that involves the integration of multiple components and requires effective management of our supply chain while meeting our customers’ design-to-delivery cycle time requirements. Through the course of the manufacturing process, our customers may modify design and system configurations in response to changes in their own customers’ requirements. In order to rapidly respond to these modifications and deliver our products to our customers in a timely manner, we must effectively manage our manufacturing and procurement process. If we fail to manage this process effectively, we risk losing customers and damaging our reputation. We may also be subject to liability under our agreements with our customers if we or our suppliers fail to re-configure manufacturing processes or components in response to these modifications, which may lead to product defect claims by our customers. In addition, if we acquire inventory in excess of demand or that does not meet customer specifications, we could incur excess or obsolete inventory charges. These risks are even greater during the current extended period of macroeconomic uncertainty and as we continue to expand our business beyond gas delivery systems into new subsystems. In the current economic environment, certain of our suppliers may be forced out of business, which could require us to either procure products from higher-cost suppliers or, if no additional suppliers exist, reconfigure the design and manufacture of our products. This could limit our growth and have a material adverse effect on our business, financial condition and operating results.

OEMs may not continue to outsource critical subsystems, which would adversely impact our operating results.

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

If our new products are not accepted by OEMs or if we are unable to maintain historical margins on our new products, our operating results would be adversely impacted.

We design, develop and market critical subsystems to OEMs. The introduction of new products is inherently risky because it is difficult to foresee the adoption of new standards, coordinate our technical personnel and strategic relationships and win acceptance of new products by OEMs. We may not be able to recoup design and development expenditures if our new products are not accepted by OEMs. Newly introduced products typically carry lower gross margins than existing products for several or more quarters following their introduction. If any of our new 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.

The success of our merger with AIT will depend, among other things, on successfully maintaining or improving relationships with AIT’s pre-existing customers and motivating and retaining AIT’s employees, and any failure to integrate successfully the businesses of Ultra Clean and AIT will adversely affect the combined company’s future results.

Our merger with AIT was a significant acquisition to us and the largest acquisition in our history. The success of our merger with AIT will depend, in large part, on the ability of the combined company to realize the anticipated benefits of the transaction, including combined capabilities and resources, new customers and, to a lesser extent, annual net operating synergies. To realize these anticipated benefits, the combined company must successfully integrate the businesses of Ultra Clean and AIT. Our efforts to integrate two

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companies that have previously operated independently may result in significant challenges, and we may be unable to accomplish the integration smoothly or successfully. The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in the combined company’s failure to achieve some or all of the anticipated benefits of the merger. In particular, like us, AIT’s revenue is concentrated in a small number of customers who do not have long-term purchase orders or contracts that contain minimum purchase commitments. AIT’s customers may react negatively to the merger and reduce or cease doing business with the combined company in favor of our competitors or taking our business in-house. The failure to maintain important customer relationships could have a material adverse effect on the business, financial condition or results of operations of the combined company. The integration also requires combining personnel with varied business backgrounds and combining businesses with different corporate cultures and objectives. AIT has its own unique business culture and business processes that may be disrupted in the process of integrating the businesses of the combined company. These disruptions could result in employee dissatisfaction and attrition, operational inefficiencies or increased operating costs and have a material adverse impact on the combined company’s results of operation and financial condition.

Other potential difficulties that may be encountered in the integration process include the following:

• Complexities associated with managing the larger, more complex, combined business, including integrating supply and distribution channels, computer and accounting systems, and other aspects of operations;

• Ensuring AIT and the combined company are in compliance with public company obligations within required periods, including the corporate governance and other requirements of the Sarbanes-Oxley Act of 2002, to which AIT was not previously subject as a privately held company;

• Integrating capabilities from the two companies while maintaining focus on providing consistent, high quality products;

• Incorporating different financial and reporting controls, processes, systems and technologies into our existing business environment.

• Potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the merger for which we do not have recourse under the merger agreement; and

• Performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the merger and integrating the companies’ operations.

We may incur substantial costs associated with these activities and we may suffer other material adverse effects from our integration efforts, including write-downs, impairment charges or unforeseen liabilities which could negatively affect our operating results or financial position or could otherwise harm our business. We cannot assure you that the combined company will be successful or will realize expected operating efficiencies, revenue and earnings accretion and other benefits currently anticipated to result from the merger. The dedication of management resources to such integration may also detract attention from the day-to-day business, and we may need to hire additional management personnel to manage our acquisitions successfully, resulting in increased operating costs.

We may not be able to integrate efficiently the operations of other businesses acquired in the future, which would adversely affect the combined company’s future results.

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. For example, we acquired Sieger Engineering, Inc. in June 2006 and AIT in July 2012. Management also evaluates other potential strategic transactions regularly with its advisors and our board of directors in the ordinary course of business. If we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms of the acquisition, financing the acquisition, or effectively integrating the acquired business, product or technology into our existing business and operations. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of 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 issues.

Additionally, in connection with any acquisitions we are able to complete, we would likely face challenges in integrating the acquired business that are similar to those we may face in integrating AIT’s operations that are discussed in the preceding risk factor. These challenges may result in substantial costs, the failure to achieve expected synergies or other anticipated benefits and other effects which could adversely affect our results of operations in a material way. The dedication of management resources to such integration or divestitures may divert attention from our day-to-day business, and we may need to hire additional management personnel to manage our acquisitions successfully.

Moreover, our recent acquisition of AIT could compound the challenges of integrating complementary products, services and technologies in the future. As discussed above, our integration with AIT is in its early stages, and the integration could divert a significant amount of management resources, resulting in less employee time and resources available to focus on negotiating and integrating new acquisitions.

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If we finance future acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could affect the market price of our stock. Even if an acquisition or other investment is not completed, we may incur significant management time and effort and financial cost in evaluating such acquisition or investment, which has in the past had, and could in the future have, an adverse effect on our results of operations. Furthermore, due to the limited liquidity in the credit market and our existing leverage, the financing of any such acquisition may be difficult to obtain, and the terms of such financing may not be favorable.

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

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

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

We have in the past and may in the future receive claims that our products, processes or technologies infringe the patents or other proprietary rights of third parties. In addition, we may be unaware of intellectual property rights of others that may be applicable to our products. Any litigation regarding our patents or other intellectual property could be costly and time-consuming and divert our management and key personnel from our business operations, any of which could have a material adverse effect on our business and results of operations. The complexity of the technology involved in our products and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement may also require us to enter into costly license agreements. However, we may not be able to obtain licenses on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against the development, manufacture and sale of certain of our products if any such claims prove successful.

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

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

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

• identify emerging technological trends in the industries we serve, including new standards for our products;

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

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

• ramp-up production of new products, especially new subsystems, in a timely manner and with acceptable yields;

• successfully manage development production cycles; and

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

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

Although we have not faced competition in the past from the largest subsystem and component manufacturers in the industries we serve, these suppliers could compete with us in the future. Increased competition has in the past resulted, and could in the future result, in price reductions, reduced gross margins or loss of market share, any of which would harm our operating results. We are subject to significant pricing pressure as we attempt to maintain and increase market share with our existing customers. Competitors may introduce

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new products for the markets currently served by our products. These products may have better performance, lower prices and achieve broader market acceptance than our products. Further, OEMs typically own the design rights to their products and may provide these designs to other subsystem manufacturers. If our competitors obtain proprietary rights to these designs such that we are unable to obtain the designs necessary to manufacture products for our OEM customers, our business, financial condition and operating results could be adversely affected.

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

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

New capital equipment typically has a lifespan of several years, and OEMs frequently specify which systems, subsystems, components and instruments are to be used in their equipment. Once a specific system, subsystem, component or instrument is incorporated into a piece of capital equipment, it will likely continue to be incorporated into that piece of equipment for at least several months before the OEM would be in a position to switch to the product of another supplier.

Accordingly, it is important that our products are designed into the new capital equipment of OEMs, which we refer to as a design win, in order to retain our competitive position with existing customers and to obtain new customers.

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

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

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

• cause delays in product introductions and shipments;

• result in increased costs and diversion of development resources;

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

• require design modifications;

• result in liability for the unintended release of hazardous materials;

• create claims for rework, replacement and/or damages under our contracts with customers;

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

• result in lower yields for semiconductor manufacturers.

If any of our products contain defects or have reliability, quality or compatibility problems, our reputation might be damaged and customers might be reluctant to buy our products. We may also face a higher rate of product defects as we increase our production levels. Product defects could result in the loss of existing customers or impair our ability to attract new customers. In addition, we may not find defects or failures in our products until after they are installed in a manufacturer’s fabrication facility. We may have to invest significant capital and other resources to correct these problems. Our current or potential customers also might seek to recover from us any losses resulting from defects or failures in our products. Hazardous materials flow through and are controlled by our products and an unintended release of these materials could result in serious injury or death. Liability claims could require us to spend significant time and money in litigation or pay significant damages.

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

Our future success depends in part on the continued service of our key executive officers, as well as our research, engineering, sales, manufacturing and administrative personnel, most of whom are not subject to employment or non-competition agreements. In addition, competition for qualified personnel in the technology industry is intense, and we operate in geographic locations in which labor markets are particularly competitive.

Our business is particularly dependent on expertise which only a very limited number of engineers possess. The loss of any of our key employees and officers, including our Chief Executive Officer, our President and Chief Operating Officer, our Chief Financial Officer, any of our Senior Vice Presidents or any of the senior managers of AIT, or the failure to attract and retain new qualified employees, could adversely affect our business, operating results and financial condition.

The challenges of employee retention may also increase during the integration process with AIT because of the necessity of combining personnel with varied business backgrounds and combining different corporate cultures and objectives. The process of integrating operations and making such adjustments could cause an interruption of, or loss of momentum in, the activities of one or more of our businesses and the loss of key personnel. Employee uncertainty, lack of focus or turnover during the integration process may also disrupt our businesses.

Fluctuations in currency exchange rates may adversely affect our financial condition and results of operations.

Our international sales are denominated primarily, though not entirely, in U.S. dollars. Many of the costs and expenses associated with our Chinese subsidiaries and Singapore subsidiary are paid in Chinese Renminbi and Singapore dollars, respectively, and we expect our exposure to Chinese Renminbi and Singapore dollars to increase as we increase production in those facilities. In addition, purchases of some of our components are denominated in Japanese Yen and Euros. Changes in exchange rates among other currencies in which our revenue or costs are denominated and the U.S. dollar may affect our revenue, cost of sales and operating margins. While fluctuations in the value of our revenue, cost of sales and operating margins as measured in U.S. dollars have not materially affected our results of operations historically, we do not currently hedge our foreign exchange exposure, and exchange rate fluctuations could have an adverse effect on our financial condition and results of operations in the future.

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

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

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

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

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 future annual and quarterly tax rates could be affected by numerous factors, including changes in the: (1) applicable tax laws; (2) amount and composition of pre-tax income in countries with differing tax rates; or (3) valuation of our deferred tax assets and liabilities.

In addition, we are subject to regular examination by the Internal Revenue Service and other tax authorities, and from time to time we initiate amendments to previously filed tax returns. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations and amendments to determine the adequacy of our provision for income taxes, which requires estimates and judgments. Although we believe our tax estimates are reasonable, there can be no assurance that the tax authorities will agree with such estimates. We may have to engage in litigation to achieve the results reflected in the estimates, which may be time-consuming and expensive. There can be no assurance that we will be successful or that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.

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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 manage new product transitions;

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

• speculation in the press or investment community;

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

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

• general market conditions;

• the effects of war and terrorist attacks; and

• domestic and international economic factors unrelated to our performance.

The stock markets in general, and the markets for technology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

A sale of a substantial number of shares of our common stock by the former owner of AIT may cause the price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market could harm the market price of our common stock. We issued 4.5 million shares of our common stock in connection with our acquisition of AIT, representing approximately 16% of our total common shares outstanding immediately following the completion of the merger. We entered into a lock-up and standstill agreement with AIT’s former owner, AIT Holding Company, LLC, and certain of its affiliates which prohibits any sales of the shares until January 3, 2013. After January 3, 2013, the holders are permitted to sell up to 25% of the shares in any given 90-day period over the subsequent twelve months, after which twelve month period there are no further contractual transfer restrictions on the shares, and the shares can be freely sold by their holders, subject to compliance with state and federal securities laws. As the lock-up restrictions expire, the shares issued in connection with the merger will thus become available for resale in the public market, and such sales could significantly decrease the market price of our common stock.

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 or securities analysts publish about us or our business. If any of the analysts who cover us issue an adverse opinion regarding our stock, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, 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, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not intend to declare and pay dividends on our capital stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of the credit agreement we entered into in July 2012 restricts our ability to pay dividends. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 18, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) for the acquisition of American Integration Technologies, LLC (“AIT”) from its sole member, AIT Holding Company LLC (“AIT Holding”). Upon completion of the merger on July 3, 2012 and pursuant to the Merger Agreement, we issued 4,500,000 shares of our common stock to AIT Holding, of which 745,920 shares were placed in escrow as security for AIT Holding’s indemnification obligations during the escrow period provided in the Merger Agreement. The shares were issued as part of the consideration we gave to AIT Holding for our acquisition of AIT. The shares were issued in a private placement in reliance on the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. No general solicitation was involved in connection with the offer and sale of such shares, and we relied upon the representations made by AIT Holding pursuant to the Merger Agreement in determining that such exemption was available.

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ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

(a) Exhibits

The following exhibits are filed with this current Report on Form 10-Q for the quarter ended June 29, 2012:

Exhibit Number	Description
2.1(a)	Agreement and Plan of Merger, dated as of May 18, 2012, among American Integration Technologies, LLC, AIT Holding Company, LLC, Ultra Clean Holdings, Inc. and Element Merger Subsidiary, LLC.
4.1	Lock-Up and Standstill Agreement, dated July 3, 2012, among Ultra Clean Holdings, Inc., AIT Holding Company LLC, HLHZ AIT Holdings, L.L.C. and Houlihan Lokey, Inc.
4.2	Registration Rights Agreement, dated July 3, 2012, among Ultra Clean Holdings, Inc. and AIT Holding Company LLC.
10.1(b)	Credit Agreement, dated as of July 3, 2012, among Ultra Clean Holdings, Inc., Ultra Clean Technology Systems and Service, Inc., American Integration Technologies LLC, Ultra Clean Asia Pacific Pte. Ltd., the several lenders from time to time party thereto, Silicon Valley Bank and U.S. Bank National Association.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(a) Filed as an exhibit to the Registrant’s Current Report on Form 8-K, filed May 18, 2012.

(b) Filed as an exhibit to the Registrant’s Current Report on Form 8-K, filed July 3, 2012.

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SIGNATURES

Pursuant to the requirements 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.
	(Registrant)
Date: August 6, 2012
	By:	/S/     CLARENCE L. GRANGER
	Name:	Clarence L. Granger
	Title:	Chairman and Chief Executive Officer
		(Principal Executive Officer and duly authorized signatory)
Date: August 6, 2012
	By:	/S/    KEVIN C. EICHLER
	Name:	Kevin C. Eichler
	Title:	Chief Financial Officer (Principal Financial Officer and duly authorized signatory)

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Exhibit Index

Exhibit Number	Description
2.1(a)	Agreement and Plan of Merger, dated as of May 18, 2012, among American Integration Technologies, LLC, AIT Holding Company, LLC, Ultra Clean Holdings, Inc. and Element Merger Subsidiary, LLC.
4.1	Lock-Up and Standstill Agreement, dated July 3, 2012, among Ultra Clean Holdings, Inc., AIT Holding Company LLC, HLHZ AIT Holdings, L.L.C. and Houlihan Lokey, Inc.
4.2	Registration Rights Agreement, dated July 3, 2012, among Ultra Clean Holdings, Inc. and AIT Holding Company LLC.
10.1(b)	Credit Agreement, dated as of July 3, 2012, among Ultra Clean Holdings, Inc., Ultra Clean Technology Systems and Service, Inc., American Integration Technologies LLC, Ultra Clean Asia Pacific Pte. Ltd., the several lenders from time to time party thereto, Silicon Valley Bank and U.S. Bank National Association.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(a) Filed as an exhibit to the Registrant’s Current Report on Form 8-K, filed May 18, 2012.

(b) Filed as an exhibit to the Registrant’s Current Report on Form 8-K, filed July 3, 2012.

37

EX-4.1

LOCK-UP AND STANDSTILL AGREEMENT

July 3, 2012

Ultra Clean Holdings, Inc.

26462 Corporate Avenue

Hayward, California 94545

Attention: Clarence L. Granger,

Chief Executive Officer

Ladies and Gentlemen:

Pursuant to the terms of the Agreement and Plan of Merger dated as of May 18, 2012 (the “Merger Agreement”) among Ultra Clean Holdings, Inc. (“Parent”), American Integration Technologies LLC, AIT Holding Company LLC (“AIT”), and Element Merger Subsidiary, LLC, a wholly owned subsidiary of Parent, AIT will receive cash and Shares (as that term is defined herein), which Shares AIT may distribute, subject to the terms herein and the Merger Agreement, to its members from time to time in one or more transactions (i) exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), or (ii) pursuant to an effective registration statement thereunder. In order to induce Parent to enter into the Merger Agreement, Parent and AIT are entering into this letter agreement (this “Agreement”), and HLHZ AIT Holdings, L.L.C. (“HLHZ”) and Houlihan Lokey, Inc. (“HL”) each are entering into this Agreement solely with respect to Sections 7, 8 and 9 of this Agreement, subject to Section 6 of this Agreement. For purposes of this Agreement, “Shares” shall mean the Stock Consideration (as defined in the Merger Agreement); and “HL Funds” shall mean HLHZ and HL, together with their Affiliates (as defined in the Merger Agreement) and any other fund managed by HL, but shall not include ORIX Corporation and its subsidiaries. The parties hereto hereby agree as follows:

1. Until the date that is six (6) months following the Closing Date (as defined in the Merger Agreement) (the “Initial Release Date”), AIT agrees not to sell, offer to sell, contract to sell, sell any option or contract for the sale or purchase of, lend, enter into any swap or other arrangement that transfers to another any of the economic consequences of ownership of, or otherwise dispose of (collectively, “Transfer”) any Shares; provided, however, that any Transfer of Shares to Parent or to AIT pursuant to the terms and conditions of the Escrow Agreement shall not be deemed a Transfer.

2. From the Initial Release Date until the date that is eighteen (18) months following the Closing Date (as defined in the Merger Agreement) (the “Second Release Date”), AIT agrees not to Transfer any Shares unless (i) each such Transfer during that period complies with the Securities Act of 1933, as

amended (the “Securities Act”) and (ii) Transfers made by AIT (together with any Transfers by transferees or distributees of Shares which it received solely pursuant to Section 6 hereof; provided, however, that any Transfers by such transferees or distributees of Shares received by it pursuant to Sections 1, 2 or 3 of this Agreement shall not be included) during any consecutive 90-day period do not exceed a number of shares equal to 25% of the Shares (each, a “Tranche”); provided, however, that if a failure to Transfer all of the Shares in any given Tranche results from a delay in causing any registration statement under the Registration Rights Agreement to become or remain effective, then the Shares in such Tranche that could not be so Transferred shall be added, until so Transferred, to the number of Shares that may be Transferred in any subsequent Tranche pursuant hereto.

3. Beginning on the Second Release Date and thereafter, AIT shall not be subject to any contractual limitation hereunder on its ability to Transfer any Shares.

4. AIT acknowledges the restrictions and requirements that may be applicable to it under Rule 144 promulgated under the Securities Act, as well as Section 16 of the Securities Exchange Act of 1934, as amended.

5. AIT acknowledges that Parent may impose stock transfer restrictions on the Shares (including placing legends on the Shares indicating that such Shares are subject to this Agreement) to enforce the provisions of this Agreement or to the extent that restrictions exist under the Securities Act. AIT further acknowledges that the restrictions imposed by this Agreement are in addition to any other restrictions imposed on the Transfer of the Shares pursuant to any other agreement in effect between Parent and AIT or pursuant to applicable law; provided that, if any Shares cease to be subject to any restrictions on Transfer (i) under the Securities Act or (ii) this Agreement, as applicable, upon the written request of AIT and the submission of evidence reasonably satisfactory to Parent, including, if requested by Parent, an opinion of counsel at the expense of AIT, Parent shall issue to AIT a new certificate or certificates evidencing those Shares without any legend or stock transfer restriction that may have been placed thereon with respect thereto.

6. Notwithstanding anything contained herein to the contrary and in addition to any Transfers permitted by Section 2 hereof, AIT may, subject to the Merger Agreement, make one or more Distributions (as defined in the Merger Agreement), or otherwise Transfer any number of Shares to such party’s “affiliates” (as defined in Rule 405 under the Securities Act), spouse, ex-spouse, domestic partner, lineal descendant or antecedent, brother or sister, the adopted child or adopted grandchild, or the spouse or domestic partner of any child, adopted child, grandchild or adopted grandchild of such party, or a trust or trusts for the benefit of such party or those members of such party’s family specified in

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this Section; provided that (i) any such distributee or transferee receiving Shares pursuant to this Section 6 that is not one of the HL Funds agrees in writing to be bound by this Agreement (other than Section 7) with respect to those Shares Transferred to it pursuant to this Section 6 as if such distributee or transferee were AIT and (ii) any such distributee or transferee receiving Shares pursuant to this Section 6 that is one of the HL Funds agrees in writing to be bound by this Agreement in its entirety with respect to those Shares Transferred to it pursuant to this Section 6 as if such distributee or transferee were AIT.

7. Standstill.

(a) Each of AIT and the HL Funds agree that for a period of twenty-seven (27) months following the date hereof (the “Standstill Period”), neither it nor any person acting on behalf of, or in concert with it, will, directly or indirectly, without Parent’s prior written consent, (i) acquire, agree to acquire, propose, seek or offer to acquire, any securities or assets of Parent or any of its subsidiaries, (ii) enter, agree to enter, propose, seek or offer to enter into any merger, business combination, recapitalization, restructuring or other extraordinary transaction involving Parent or any of its subsidiaries, (iii) make, or in any way participate or engage in, any solicitation of proxies to vote any voting securities of Parent, (iv) form, join or in any way participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting securities of Parent, except any “group” deemed to exist solely as a result of the Stock Consideration paid to AIT as part of the Merger Agreement, (v) otherwise act, alone or in concert with others, to seek to control or influence the management or the policies of Parent, (vi) disclose any intention, plan or arrangement prohibited by, or inconsistent with, the foregoing, or (vii) advise, assist or encourage or enter into any discussions, negotiations, agreements or arrangements with any other persons in connection with the foregoing. Each of AIT and the HL Funds further agrees that during the Standstill Period none of such parties (nor any person acting on behalf of or in concert with such parties) will, without the written consent of Parent, (x) request Parent or any of its representatives, directly or indirectly, to amend or waive any provision of this paragraph (including this sentence), or (y) take any action that might require Parent to make a public announcement regarding the possibility of a business combination, merger or other type of transaction described in this paragraph with such party. Additionally, for the duration of the Standstill Period, the HL Funds shall place and maintain Parent’s securities on HL’s “restricted securities” list, which securities shall be subject to HL’s restricted securities policy (the “Policy”). The HL Funds agree that such Policy shall: (1) prohibit the HL Funds and their managers, officers, directors, partners and other employees from acquiring, directly or indirectly, Parent securities, or entering into Transfers with respect to

3

Parent securities, for their own account; (2) be strictly enforced by the HL Funds without waiver or exemption; and (3) not be amended or modified as it pertains to Parent securities.

(b) For clarity, nothing in this Section 7 shall be deemed to, in any way, restrict the ability of AIT or the HL Funds (or any other holder of the Shares) to Transfer or otherwise distribute any Shares as specifically allowed (i) pursuant to Sections 1, 2, 3, and 6 of this Agreement, (ii) pursuant to the Registration Rights Agreement and (iii) otherwise in the Merger Agreement.

(c) AIT and the HL Funds each shall be released from this Section 7 on the earlier of: (i) expiration of the Standstill Period; or (ii) the date on which AIT and the HL Funds collectively hold less than twenty five percent (25%) of the Stock Consideration.

(d) Notwithstanding anything to the contrary contained in this Agreement, it is understood that the HL Funds are a full-service securities firm, and as such, may, from time to time, effect transactions for the account of its customers, hold positions in securities, provide investment banking and financing advice and otherwise conduct business in the ordinary course as a broker-dealer, investment adviser, block positioner or investment bank, and that this Agreement shall not be deemed or interpreted to prohibit, restrict, or otherwise limit such business activities.

8. Each party hereto agrees that any breach by it of any provision of this Agreement would irreparably injure Parent and that money damages would be an inadequate remedy therefor. Accordingly, each party hereto agrees that Parent shall be entitled to one or more injunctions enjoining any such breach and requiring specific performance of this Agreement and consents to the entry thereof, in addition to any other remedy to which Parent is entitled at law or in equity.

9. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

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If the above reflects our agreement with you, please sign in the place indicated below.

AIT HOLDING COMPANY LLC
By:	/s/ Joseph Julian
	Name:	Joseph Julian
	Title:	Chairman

HLHZ AIT HOLDINGS, L.L.C.
By: HLHZ Investments II, L.L.C.
Its:	Manager
By:	Houlihan Lokey, Inc.
Its:	Manager
By:	/s/ Joseph Julian
	Joseph A. Julian, its Authorized Officer

HOULIHAN LOKEY, INC.
By:	/s/ David A. Preiser
	Name:	David A. Preiser
	Title:	Sr. Managing Director

[Signature page to Lockup and Standstill Agreement]

5

ACCEPTED AND AGREED TO:

ULTRA CLEAN HOLDINGS, INC.
By:	/s/ Kevin C. Eichler
	Name:	Kevin C. Eichler
	Title:	Chief Financial Officer, Senior Vice President and Secretary

[Signature page to Lockup and Standstill Agreement]

6

EX-4.2

REGISTRATION RIGHTS AGREEMENT

dated as of

July 3, 2012

among

ULTRA CLEAN HOLDINGS, INC.,

AND

AIT HOLDING COMPANY LLC

TABLE OF CONTENTS

	PAGE
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions		1
ARTICLE 2
REGISTRATION RIGHTS
Section 2.01. Demand Registration		5
Section 2.02. Piggyback Registration		8
Section 2.03. Shelf Registration		9
Section 2.04. Registration Procedures		10
Section 2.05. Indemnification by Parent		17
Section 2.06. Indemnification by Participating Stockholders		18
Section 2.07. Conduct of Indemnification Proceedings		18
Section 2.08. Contribution		19
Section 2.09. Participation in Public Offering		20
Section 2.10. Other Indemnification		21
Section 2.11. Cooperation by Parent		21
Section 2.12. Transfer of Registration Rights		21
ARTICLE 3
BENEFIT OF RULE 144
Section 3.01. Reports Under Exchange Act		21
ARTICLE 4
MISCELLANEOUS
Section 4.01. Lockup Agreement		22
Section 4.02. Binding Effect; Assignability; Benefit		22
Section 4.03. Notices		23
Section 4.04. Waiver; Amendment; Termination		24
Section 4.05. Governing Law		24
Section 4.06. Jurisdiction		24
Section 4.07. WAIVER OF JURY TRIAL		24
Section 4.08. Specific Enforcement		25
Section 4.09. Counterparts; Effectiveness		25
Section 4.10. Entire Agreement		25
Section 4.11. Captions		25

i

Section 4.12. Severability	25
Exhibit A: Joinder Agreement

ii

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) dated as of July 3, 2012 is entered into between Ultra Clean Holdings, Inc., a Delaware corporation (“Parent”), and AIT Holding Company LLC (“AIT”).

W I T N E S S E T H :

WHEREAS, pursuant to the Agreement and Plan of Merger dated as of May 18, 2012 among Parent, American Integration Technologies LLC, AIT and Element Merger Subsidiary, LLC, AIT has acquired securities of Parent (the “Merger Agreement”);

WHEREAS, AIT may make distributions of Parent’s securities to one or more of the members of AIT in transactions exempt from the registration requirements of the Securities Act or pursuant to an effective registration statement;

WHEREAS, Parent, AIT, HLHZ AIT Holdings, L.L.C. (“HLHZ”) and Houlihan Lokey, Inc. (“HL”) are entering into a Lockup and Standstill Agreement dated as of the date hereof (the “Lockup and Standstill Agreement”);

WHEREAS, the parties hereto desire to enter into this Agreement to govern certain of their rights, duties and obligations after consummation of the transactions contemplated by the Merger Agreement;

NOW, THEREFORE, in consideration of the 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:

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person, provided that no securityholder of Parent shall be deemed an Affiliate of any other securityholder solely by reason of any investment in Parent. For the purpose of this definition, the term “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

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“Business Day” shall have the meaning ascribed to the same term in the Merger Agreement.

“Common Stock” means the common stock, par value $0.001 per share, of Parent and any stock into which such Common Stock may thereafter be converted or changed.

“Parent Securities” means (i) the Common Stock, (ii) securities convertible into or exchangeable for Common Stock, (iii) any other equity or equity-linked security issued by Parent and (iv) options, warrants or other rights to acquire Common Stock or any other equity or equity-linked security issued by Parent.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“FINRA” means the Financial Industry Regulatory Authority, Inc.

“HL Funds” means HLHZ and HL, together with their Affiliates and any other fund managed by HL.

“HL Fund Shares” means that number of Shares of the Stock Consideration (as defined in the Merger Agreement) beneficially owned by the HL Funds or with respect to which the HL Funds would be deemed to have beneficial ownership for purposes of determining status as an affiliate of Parent pursuant to SEC rules and regulations.

“Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Public Offering” means an underwritten public offering of Registrable Securities of Parent pursuant to an effective registration statement under the Securities Act.

“Registrable Securities” means, at any time, any Shares and any securities issued or issuable in respect of such Shares by way of conversion, exchange, stock dividend, split or combination, recapitalization, merger, consolidation, other reorganization or otherwise until (i) a registration statement covering such Shares has been declared effective by the SEC and such Shares have been disposed of pursuant to such effective registration statement, except with respect to Shares that remain subject to the Rule 144 restrictions applicable to Parent’s affiliates following such disposition pursuant to such effective registration statement, (ii) such Shares are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met or such securities may be sold pursuant to

2

Rule 144(b)(1) or (iii) such Shares are otherwise Transferred, Parent has delivered a new certificate or other evidence of ownership for such Shares not bearing the legend required pursuant to this Agreement and such Shares may be resold without subsequent registration under the Securities Act.

“Registration Expenses” means any and all expenses incident to the performance of or compliance with any registration or marketing of securities, including without limitation all (i) registration and filing fees, and all other fees and expenses payable in connection with the listing of securities on any securities exchange or automated interdealer quotation system, (ii) fees and expenses of compliance with any securities or “blue sky” laws (including reasonable fees and disbursements of counsel in connection with “blue sky” qualifications of the securities registered), (iii) expenses in connection with the preparation, printing, mailing and delivery of any registration statements, prospectuses and other documents in connection therewith and any amendments or supplements thereto, (iv) security engraving and printing expenses, (v) internal expenses of Parent (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (vi) reasonable fees and disbursements of counsel for Parent and customary fees and expenses for independent certified public accountants retained by Parent (including the expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letters requested pursuant to Section 2.04(i)), (vii) reasonable fees and expenses of any special experts retained by Parent in connection with such registration, (viii) fees and expenses in connection with any review by the FINRA of the underwriting arrangements or other terms of the offering, and all fees and expenses of any “qualified independent underwriter,” including the fees and expenses of any counsel thereto, (ix) fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding any underwriting fees, discounts and commissions attributable to the sale of Registrable Securities, (x) costs of printing and producing any agreements among underwriters, underwriting agreements, any “blue sky” or legal investment memoranda and any selling agreements and other documents in connection with the offering, sale or delivery of the Registrable Securities, (xi) transfer agents’ and registrars’ fees and expenses, (xii) expenses relating to any analyst or investor presentations or any “road shows” undertaken in connection with the registration, marketing or selling of the Registrable Securities, (xiii) fees and expenses payable in connection with any ratings of the Registrable Securities, including expenses relating to any presentations to rating agencies and (xiv) reasonable fees and expenses of one counsel of the Registering Stockholders. For the avoidance of doubt, except as set forth in (xiv) above, Registration Expenses shall not include any out-of-pocket expenses of Requesting Stockholders, including, without limitation, expenses relating to any counsel, accountant, custodian or attorney-in-fact for any such Requesting Stockholder and shall not include underwriter discounts or commissions.

3

“Requesting Stockholder” means (i) AIT so long as it is a Stockholder, and (ii) any other Stockholder so long as such other Stockholder holds at least 25% of the Stock Consideration (as defined in the Merger Agreement), in each case, requesting a Demand Registration pursuant to Section 2.01 hereof.

“Rule 144” means Rule 144 (or any successor provisions) under the Securities Act.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” means shares of Common Stock.

“Shelf Registration Statement” means a “shelf” registration statement filed under the Securities Act providing for the registration of, and the sale and/or distribution on a continuous or delayed basis by the holders of, the Registrable Securities pursuant to, Rule 415 under the Securities Act and/or any similar rule that may be adopted by the SEC, filed by Parent pursuant to the provisions of Section 2.03 of this Agreement, including the prospectus contained therein, any amendments and supplements to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.

“Stockholder” means at any time, any Person (other than Parent) who shall then be a party to or bound by this Agreement, so long as such Person shall “beneficially own” (as such term is defined in Rule 13d-3 of the Exchange Act) any Parent Securities.

“Transfer” means, with respect to any Parent Securities, (i) when used as a verb, to sell, distribute, assign, dispose of, exchange, pledge, encumber, hypothecate or otherwise transfer such Parent Securities or any participation or interest therein, whether directly or indirectly, or agree or commit to do any of the foregoing and (ii) when used as a noun, a direct or indirect sale, distribution, assignment, disposition, exchange, pledge, encumbrance, hypothecation, or other transfer of such Parent Securities or any participation or interest therein or any agreement or commitment to do any of the foregoing.

(b) Each of the following terms is defined in the Section set forth opposite such term:

Term	Section
Applicable Effectiveness Period	2.04(a)
Applicable Efforts	2.04
Damages	2.05

4

Term	Section
Demand Registration	2.01(a)
Effectiveness Deadline Date	2.03(a)
Indemnified Party	2.07
Indemnifying Party	2.07
Inspectors	2.04(n)
Maximum Offering Size	2.01(e)
Other Effectiveness Period	2.04(a)
Participating Stockholders	2.04
Piggyback Registration	2.02(a)
Records	2.04(n)
Registering Stockholders	2.01(a)(ii)
Shelf Effectiveness Period	2.03(b)
Shelf Registration	2.03(a)

ARTICLE 2

REGISTRATION RIGHTS

Section 2.01. Demand Registration. (a) If at any time from January 3, 2013 until July 3, 2016 (but only once), Parent shall have received a written request from a Requesting Stockholder that Parent effect the registration under the Securities Act of all or any portion of such Requesting Stockholder’s Registrable Securities (provided, however, that any sales made pursuant to such request may only be effected up to the maximum number of shares that may be sold pursuant to the Lockup and Standstill Agreement), and specifying the intended method of disposition thereof, then Parent shall promptly give notice of such requested registration (each such request shall be referred to herein as a “Demand Registration”) at least 15 Business Days prior to the anticipated filing date of the registration statement relating to such Demand Registration to the other Stockholders and thereupon shall use reasonable best efforts to effect, as expeditiously as reasonably practicable, and in any event within 45 days after such notice (provided, however, that such 45-day period may be extended by Parent for so long as necessary to reasonably promptly respond to any comments of the SEC to the satisfaction of the SEC), the registration under the Securities Act of:

(i) all Registrable Securities for which the Requesting Stockholder has requested registration under this Section 2.01 (for purposes of this Section 2.01, AIT may include in its Registrable Securities the Registrable Securities held by HL Funds), and

(ii) subject to the restrictions set forth in Sections 2.01(e) and 2.02, all other Registrable Securities of the same class as those requested to be registered by the Requesting Stockholder that any other Stockholders

5

with rights to request registration under Section 2.02 (all such Stockholders, together with the Requesting Stockholder, the “Registering Stockholders”) have requested Parent to register by request received by Parent within 15 Business Days after such Stockholders receive Parent’s notice of the Demand Registration,

all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, provided that Parent shall not be obligated to effect a Demand Registration unless (i) the aggregate gross proceeds expected to be received from the sale of the Registrable Securities requested to be included in such Demand Registration equals or exceeds $5,000,000 or (ii) the Demand Registration relates to a Distribution (as defined in the Merger Agreement). In no event shall Parent be required to effect more than one Demand Registration hereunder. Parent shall not be required to effect a Demand Registration pursuant to Rule 415 (or its successor provision) under the Securities Act.

(b) Promptly after the expiration of the 15-Business Day period referred to in Section 2.01(a)(ii), Parent will notify all Registering Stockholders of the identities of the other Registering Stockholders and the number of shares of Registrable Securities requested to be included therein. At any time prior to the effective date of the registration statement relating to such registration, the Requesting Stockholders may revoke such request, without liability to any of the other Registering Stockholders, by providing a notice to Parent revoking such request; provided, that such notice is received by Parent a reasonable time before the registration statement applicable to such registration becomes effective such that Parent may amend such registration statement to remove such Registering Stockholder prior to effectiveness.

(c) Parent shall be liable for and pay all Registration Expenses in connection with any Demand Registration, regardless of whether such registration is effected.

(d) A Demand Registration shall not be deemed to have occurred unless the registration statement relating thereto (i) has become effective under the Securities Act and (ii) has remained effective for a period of at least 90 days (or such shorter period in which all Registrable Securities of the Registering Stockholders included in such registration have actually been sold thereunder), provided that such registration statement shall not be considered a Demand Registration if, after such registration statement becomes effective, (1) such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court and (2) less than 90% of the Registrable Securities included in such registration statement have been sold thereunder.

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(e) If a Demand Registration involves a Public Offering and the managing underwriter advises Parent and the Requesting Stockholder that, in its view, the number of shares of Registrable Securities requested to be included in such registration (including any securities that Parent proposes to be included that are not Registrable Securities) exceeds the largest number of shares that can be sold without having an adverse effect on such offering, including the price at which such shares can be sold (the “Maximum Offering Size”), Parent shall include in such registration, in the priority listed below, up to the Maximum Offering Size:

(i) First, all Registrable Securities requested to be registered by the Requesting Stockholder;

(ii) second, all other Registrable Securities requested to be included in such registration by any Registering Stockholder (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such other Stockholders on the basis of the relative number of Registrable Securities so requested to be included in such registration by each such Stockholders); and

(iii) third, any securities proposed to be registered by Parent.

For purposes of this Section 2.01, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in this Section 2.01(e), fewer than 60% of the total number of Registrable Securities that Stockholders requested to be included in such registration statement are actually included.

(f) Upon notice to each Registering Stockholder, Parent may postpone effecting a registration pursuant to this Section 2.01 on one occasion during any period of twelve consecutive months for a reasonable time specified in the notice but not exceeding 75 days (which period may not be extended or renewed), if Parent shall furnish to the Requesting Stockholder a certificate signed by the chief executive officer of Parent stating that in the good faith judgment of Parent, it would be materially detrimental to Parent or its stockholders for such registration to proceed as expeditiously as possible because such action would (x) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Parent; (y) require premature disclosure of material information that the Parent has a bona fide business purpose for preserving as confidential; or (z) render the Parent unable to comply with requirements under the Securities Act or Exchange Act; provided, however, that the Parent shall not register any securities for its own account or that of any other stockholder during such 75-day period.

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Section 2.02. Piggyback Registration. (a) If at any time Parent proposes to register any Parent Securities under the Securities Act (other than a registration on Form S-8 or S-4, or any successor forms, relating to Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of Parent or in connection with a direct or indirect acquisition by Parent of another Person), whether or not for sale for its own account, other than pursuant to Section 2.03, Parent shall each such time give notice as soon as practicable (but in no event less than 10 Business Days prior to the anticipated filing date of the registration statement relating to such registration) to each Stockholder, which notice shall set forth such Stockholder’s rights under this Section 2.02 and shall offer such Stockholder the opportunity to include in such registration statement the number of Registrable Securities of the same class or series as those proposed to be registered as each such Stockholder may request (a “Piggyback Registration”), subject to the provisions of Section 2.02(b). Upon the request of any such Stockholder made within 15-Business Days after the receipt of notice from Parent (which request shall specify the number of Registrable Securities intended to be registered by such Stockholder), Parent shall use its commercially reasonable efforts to effect the registration under the Securities Act of all Registrable Securities that Parent has been so requested to register by all such Stockholders, to the extent requisite to permit the disposition of the Registrable Securities to be so registered, provided that: (i) if such registration involves a Public Offering, all such Stockholders requesting to be included in Parent’s registration must sell their Registrable Securities to the underwriters selected as provided herein on the same terms and conditions as apply to Parent or any other Requesting Stockholders, as applicable, and (ii) if, at any time after giving notice of its intention to register any Parent Securities pursuant to this Section 2.02(a) and prior to the effective date of the registration statement filed in connection with such registration, Parent shall determine for any reason not to register such securities, Parent shall give notice to all such Stockholders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration. Parent shall pay all Registration Expenses in connection with each Piggyback Registration.

(b) If a Piggyback Registration involves a Public Offering (other than any Demand Registration, in which case the provisions with respect to priority of inclusion in such offering set forth in Section 2.01(e) shall apply), and the managing underwriter advises Parent that, in its view, the number of Shares that Parent and such Stockholders intend to include in such registration exceeds the Maximum Offering Size, Parent shall include in such registration, in the following priority, up to the Maximum Offering Size:

(i) first, so much of the Parent Securities proposed to be registered for the account of Parent as would not cause the offering to exceed the Maximum Offering Size;

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(ii) second, all Registrable Securities requested to be included in such registration by any other Stockholders pursuant to Section 2.02 (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Stockholders on the basis of the relative number of shares of Registrable Securities so requested to be included in such registration by such Stockholders); and

(iii) third, all other securities with registration rights properly requested to be included in such registration (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such other stockholders on the basis of the relative number of shares of registrable securities so requested to be included in such registration by such stockholders).

(c) Parent shall be liable for and pay all Registration Expenses in connection with any Piggyback Registration, regardless of whether such registration is effected.

Section 2.03. Shelf Registration. (a) Parent shall file with the SEC a Shelf Registration Statement covering (i) one or more Distributions (as defined in the Merger Agreement) and (ii) the resale of the HL Fund Shares by AIT and/or the HL Funds; provided, however, that the number of HL Fund Shares that may be resold pursuant to this subsection (ii) shall not exceed that number of shares that, following such resale, would result in the HL Fund Shares being nine and nine-tenths percent (9.9%) or less of the number of shares of Parent Common Stock then issued and outstanding; provided, further, that the number of Shares that may be resold pursuant to subsections (i) and (ii) shall be subject to the restrictions set forth in the Lockup and Standstill Agreement (the “Shelf Registration”). Parent shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act no later than the six-month anniversary of the date of this Agreement (the “Effectiveness Deadline Date”). The Shelf Registration Statement shall be on Form S-3 (except if Parent is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form for such purpose) and shall contain (except if otherwise required by the Act) a plan of distribution reasonably agreed upon by Parent and AIT.

(b) Parent shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included in the Shelf Registration Statement to be usable by Stockholders as set forth in Section 2.03(a) until the earlier of (i) the eighteen month anniversary of the date of this Agreement and (ii) 90 days following such date that the number of HL Fund Shares is less than ten percent (10%) of the number of shares of Parent Common Stock issued and outstanding (such period being referred to herein as the “Shelf Effectiveness Period”).

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(c) Parent shall be liable for and pay all Registration Expenses in connection with the Shelf Registration Statement.

Section 2.04. Registration Procedures. With respect to any registration under Section 2.01, Section 2.02 or Section 2.03, subject to the provisions of such Sections, Parent shall use its (i) reasonable best efforts with respect to its obligations under Section 2.01 and Section 2.03 and (ii) commercially reasonable efforts with respect to its obligations under Section 2.02 (collectively, “Applicable Efforts”) to effect the registration of such Registrable Securities on behalf of such Stockholders participating in such registration (the “Participating Stockholders”) in accordance with the intended method of disposition thereof as expeditiously as reasonably practicable, and, in connection with any such request:

(a) With respect to a registration pursuant to Section 2.01 or Section 2.02, Parent shall as expeditiously as reasonably practicable prepare and file with the SEC a registration statement on any form for which Parent then qualifies or that counsel for Parent shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use Applicable Efforts to cause such filed registration statement to become and remain effective for a period of not less than 90 days pursuant to a registration statement in accordance with Section 2.01 hereof (or such shorter period in which all of the Registrable Securities of the Participating Stockholders included in such registration statement shall have actually been sold thereunder) (the “Other Effectiveness Period”, with each Other Effectiveness Period and Shelf Effectiveness Period referred to herein as an “Applicable Effectiveness Period”).

(b) Parent shall furnish to Stockholder and any underwriters no fewer than five Business Days prior to the initial filing of the registration statement, a copy of such registration statement, and shall furnish to such Participating Stockholders and underwriters, if any, no fewer than two Business Days prior to the filing of any amendment or supplement to the prospectus included therein, a copy of such amendment or supplement, which documents shall be subject to the reasonable review of such stockholders and underwriters and their respective counsel, and shall not file with the SEC any such documents to which such Participating Stockholders or underwriters, if any, shall reasonably object; provided, however, that Parent shall not have any obligation so to modify any information if Parent reasonably expects that so doing would cause the prospectus to contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

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(c) During an Applicable Effectiveness Period, Parent shall promptly take such action as may be necessary so that (i) each of the registration statement and any amendment thereto and the prospectus contained therein and any amendment or supplement thereto (and each report or other document incorporated by reference therein in each case) complies in all material respects with the Securities Act and the Exchange Act and the rules and regulations thereunder, (ii) each of the registration statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) each of the prospectus and any amendment or supplement to the prospectus does not at any time during the Applicable Effectiveness Period include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, after the filing of the registration statement, Parent shall: (x) cause the registration statement and the related prospectus to be promptly amended and/or supplemented by any required amendment and/or supplement, and, as so amended and/or supplemented, to be filed pursuant to Rule 424 under the Securities Act, as may be necessary to comply with the Securities Act in order to enable the disposition of the securities covered by such registration statement; (y) comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the such Stockholders thereof set forth in such registration statement or supplement to such prospectus; and (z) take all reasonable actions required to prevent the entry of a stop order or to remove it if entered.

(d) Parent shall as promptly as practicable advise each Stockholder:

(i) when the registration statement and any amendment thereto or a supplement to any prospectus forming a part of such registration statement has been filed with the SEC and when the registration statement or any post-effective amendment thereto has become effective;

(ii) when the SEC notifies Parent whether there will be a “review” of such registration statement and whenever the SEC comments in writing on such registration statement, including the documents incorporated by reference therein (Parent shall provide true and complete copies of such comments and all written responses thereto to each of the Participating Stockholders, as well as any underwriter, and shall provide, no fewer than five Business Days prior to the filing of any response to any comment that pertains to the Participating Stockholders or any underwriter or to the plan of distribution, and shall reflect in each such response when

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so filed with the SEC, such comments as such Participating Stockholders reasonably may propose, but not information which Parent believes would constitute material and non-public information; provided, that Parent shall not have any obligation so to include any such comments if Parent reasonably expects that so doing would cause the registration statement or such response to the SEC to contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading);

(iii) of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus (and Parent shall as promptly as practicable prepare and make available to each such Stockholder and file with the SEC any such supplement or amendment);

(iv) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for such purpose;

(v) of the receipt by Parent of any notification with respect to the suspension of the qualification of the securities included in the registration statement for sale in any jurisdiction or the initiation of any proceeding for such purpose;

(vi) if, at any time, the representations and warranties of Parent in any applicable underwriting agreement cease to be true and correct in all material respects; and

(vii) if changes in the registration statement or the prospectus contained therein are required in order that the registration statement and prospectus do not contain an untrue statement of a material fact and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading.

(e) Parent shall use Applicable Efforts to prevent the issuance, and if issued to obtain the withdrawal, of any stop order or other order suspending the effectiveness of the registration statement or the use of any prospectus or preliminary prospectus as promptly as practicable.

(f) Parent shall use Applicable Efforts to: (i) register or qualify the Registrable Securities covered by such registration statement under such other securities or “blue sky” laws of such jurisdictions in the United States as any Participating Stockholder reasonably (in light of such Stockholder’s intended plan of distribution) requests; (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be

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necessary by virtue of the business and operations of Parent; (iii) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers and sales in such jurisdictions for the Applicable Effectiveness Period; and (iv) do any and all other acts and things that may be reasonably necessary or advisable in connection with a registration of shares to enable such Participating Stockholders to consummate the disposition of the Registrable Securities owned by such Stockholder, provided that Parent shall not be required to: (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2.04(f); (B)subject itself to taxation in any such jurisdiction; or (C) consent to general service of process in any such jurisdiction, unless the Parent is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(g) Parent shall cooperate and assist in any filings required to be made with FINRA and each securities exchange, if any, on which any of Parent’s securities are then listed or quoted and on each inter-dealer quotation system on which any of Parent’s securities are then quoted, and in the performance of any due diligence investigation by any underwriter or dealer manager (including any “qualified independent underwriter”) that is required to be retained in accordance with FINRA rules.

(h) With respect to Section 2.01 only, the underwriter or underwriters in connection with any Public Offering shall be selected by the Requesting Stockholder, subject only to the reasonable approval of the Parent. With respect to Section 2.03(a)(ii) only, the underwriter or underwriters in connection with any Public Offering shall be selected by the Participating Stockholders, subject only to the reasonable approval of Parent. In connection with any Public Offering, Parent shall enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are required in order to expedite or facilitate the disposition of such Registrable Securities in any such Public Offering, including, if applicable, the engagement of a “qualified independent underwriter” in connection with the qualification of the underwriting arrangements with FINRA.

(i) As promptly as practicable, Parent shall: (A) provide each underwriter, each Participating Stockholder, any accounting firm and any other agent or counsel retained by such holders or any such underwriter the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and each amendment or supplement thereto; (B) make such representations and warranties to the Participating Stockholders and to the underwriters, in form, substance and scope as are customarily made by issuers to selling stockholders and underwriters in comparable underwritten offerings of equity securities; (C) obtain opinions of counsel to Parent (which counsel and opinions (in form, scope and substance)

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shall be reasonably satisfactory to the underwriters) addressed to the underwriters and each requesting Participating Stockholder, covering such matters as are customarily covered in opinions requested in comparable underwritten offerings of equity securities (it being agreed that the matters to be covered shall include, without limitation, as of the date of the opinion and as of the date of effectiveness or the date of the most recent post-effective amendment thereto, as the case may be, and as of the date of the prospectus, comment of such counsel as to the absence, to such counsel’s knowledge, from the registration statement and the prospectus contained therein, including the documents incorporated by reference therein, of an untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made,) not misleading); (D) in connection with any underwritten offering, obtain “cold comfort” letters and updates thereof from the independent registered public accounting firm of Parent (and, if necessary, from the independent registered public accounting firm of any subsidiary of Parent or of any business acquired by Parent for which financial statements and financial data are, or are required to be, included in the registration statement), addressed to each requesting Participating Stockholder (if such Stockholder has provided such letter, representations or documentation, if any, required for such cold comfort letter to be so addressed) and the underwriters, in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with comparable underwritten offerings; (E) deliver such other documents and certificates as may be reasonably requested by any Participating Stockholders and the underwriters, if any, including without limitation certificates to evidence compliance with any conditions contained in the underwriting agreement or other agreements entered into by Parent in connection therewith; and (F) cause the senior executive officers of Parent to facilitate, cooperate with, and participate in each proposed offering contemplated herein and customary selling efforts related thereto, except to the extent that such participation materially interferes with the management of Parent’s business; provided that the Applicable Effectiveness Period shall be increased by the period of time that management cannot so participate. No registration shall be deemed to have been effective if the conditions to closing in the underwriting agreement are not satisfied by reason of a wrongful act, misrepresentation or breach of such underwriting agreement.

(j) Parent shall use Applicable Efforts to comply with all applicable rules and regulations of the SEC and make generally available to its security holders, as soon as reasonably practicable, but no later than 90 days after the end of the 12-month period beginning with the first day of Parent’s first quarter commencing after the effective date of the applicable registration statement, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder and covering a period of 12 months, beginning with the first month after the effective date of the registration statement.

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(k) Parent may require each Participating Stockholder promptly to furnish in writing to Parent such information regarding such Stockholder, the plan of distribution of the Registrable Securities and other information as Parent may from time to time reasonably request and such other information as may be legally required in connection with such registration.

(l) Parent shall use its Applicable Efforts to list all Registrable Securities covered by such registration statement on any securities exchange or quotation system on which any of the same class of Parent Securities are then listed or traded.

(m) Parent shall provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

(n) Upon execution of confidentiality agreements in form and substance reasonably satisfactory to Parent, Parent shall, as promptly as practicable, (A) make reasonably available for inspection by requesting Participating Stockholders, any underwriter participating in any disposition pursuant to the Registration, one accountant and any other professional retained by such holders or any such underwriter (collectively, the “Inspectors”) all relevant financial and other records, pertinent corporate documents and properties of Parent and its subsidiaries (collectively, the “Records”) and (B) cause Parent’s officers, directors, employees and independent registered public accounting firm to make themselves reasonably available upon reasonable notice and for reasonable periods of time to discuss the business of the Parent and to respond to appropriate questions and to supply all information reasonably requested by such holders or any such underwriter, accountant or professional in connection with the registration (and the prospectus), in each case, as is customary for similar due diligence examinations; provided, however, that all records that Parent determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (1) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement, (2) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or disclosure is required by an official or representative of a governmental agency or authority or self-regulatory authority or stock exchange the rules of which Parent is subject or (3) such Records become available to the public generally or through a third party without a breach of an obligation of confidentiality. Each Stockholder further agrees that, upon learning that disclosure of such Records is sought in a court of competent

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jurisdiction or otherwise, it shall give notice to Parent and assist Parent, at Parent’s expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential.

(o) Each such Participating Stockholder agrees that, upon receipt of any notice from Parent of the happening of any event of the kind described in Section 2.04(d)(iii), Section 2.04(d)(iv), Section 2.04(d)(v) or Section 2.04(d)(vii), such Stockholder shall forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Stockholder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.04(c), and, if so directed by Parent, such Stockholder shall deliver to Parent all copies, other than any permanent file copies then in such Stockholder’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. If Parent shall give such notice, Parent shall extend the period during which such registration statement shall be maintained effective by the number of Business Days during the period from and including the date of the giving of such notice to the date when Parent shall make available to such Stockholder a prospectus supplemented or amended to conform with the requirements of Section 2.04(c) and/or when such suspension is removed, as the case may be.

(p) Parent shall take all other reasonable steps necessary or appropriate to effect the registration, and to assist the Stockholder in effecting the distribution, offering and sale of the Registrable Securities covered by the registration statement contemplated hereby, including, without limitation:

(i) furnishing to each Participating Stockholder and each underwriter, if any, without charge, as many conformed copies as such Stockholder or underwriter may reasonably request of the applicable Registration Statement and any amendment or post-effective amendment thereto, including financial statements and schedules;

(ii) delivering to each Participating Stockholder and each underwriter, if any, without charge, as many copies of the applicable Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Stockholder or underwriter may reasonably request (it being understood that Parent consents to the use of such Prospectus or any amendment or supplement thereto by each Participating Stockholder and the underwriter(s), if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto); and

(iii) in connection with any sale of Registrable Securities that will result in such securities no longer being Registrable Securities,

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cooperate with each Participating Stockholder and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates or security entitlements representing Registrable Securities to be sold and not bearing any restrictive Securities Act legends; and to register such Registrable Securities in such denominations and such names as such Participating Stockholder or the underwriter(s), if any, may request at least two Business Days prior to such sale of Registrable Securities.

Section 2.05. Indemnification by Parent. Parent agrees to indemnify and hold harmless each Registering Stockholder holding Registrable Securities covered by a registration statement, its officers, directors, partners, members, owners, legal counsel and accountants and each Person, if any, who controls such Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses) (“Damages”) caused by or relating to any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if Parent shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by or relating to any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such Damages are caused by or related to any such untrue statement or omission or alleged untrue statement or omission so made based upon information furnished in writing to Parent by such Stockholder or on such Stockholder’s behalf expressly for use therein, provided that the foregoing indemnity with respect to any preliminary prospectus or prospectus shall not apply to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting such Damages at or prior to the written confirmation of the sale of the Registrable Securities to such Person, if it is determined that Parent has provided such prospectus to such Stockholder and it was the responsibility of such Stockholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be), and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such Damages. Parent also agrees to indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act on substantially the same basis as that of the indemnification of the Stockholders provided in this Section 2.05.

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Section 2.06. Indemnification by Participating Stockholders. Each Registering Stockholder holding Registrable Securities included in any registration statement, severally and not jointly, agrees to indemnify and hold harmless Parent, its officers and directors and each Person, if any, who controls Parent within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from Parent to such Stockholder, but only (i) with respect to information furnished in writing by such Stockholder or on such Stockholder’s behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus or (ii) to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting any such Damages at or prior to the written confirmation of the sale of the Registrable Securities to such Person, if it is determined that it was the responsibility of such Stockholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. Each such Stockholder also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act on substantially the same basis as that of the indemnification of Parent provided in this Section 2.06. As a condition to including Registrable Securities in any registration statement filed in accordance with Article 2, Parent may require that it shall have received an undertaking reasonably satisfactory to it from any underwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities.

Section 2.07. Conduct of Indemnification Proceedings. If any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article 2, such Person (an “Indemnified Party”) shall promptly notify the Person against whom such indemnity may be sought (the “Indemnifying Party”) in writing and the Indemnifying Party, upon the request of the Indemnified Party, shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses, provided that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the

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Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, in connection with any proceeding or related proceedings in the same jurisdiction, the Indemnifying Party shall not be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Without the prior written consent of the Indemnified Party, no Indemnifying Party shall effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party.

Section 2.08. Contribution. If the indemnification provided for in this Article 2 is unavailable to the Indemnified Parties in respect of any Damages, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages (i) as between Parent and the Registering Stockholders holding Registrable Securities covered by a registration statement, on the one hand, and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by Parent and such Stockholders, on the one hand, and the underwriters, on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of Parent and such Stockholders, on the one hand, and of such underwriters, on the other, in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations and (ii) as between Parent, on the one hand, and each such Stockholder, on the other, in such proportion as is appropriate to reflect the relative fault of Parent and of each such Stockholder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by Parent and such Stockholders, on the one hand, and such underwriters, on the other, shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by Parent and such Stockholders bear to the total underwriting discounts and commissions received by such underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of Parent

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and such Stockholders, on the one hand, and of such underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by Parent and such Stockholders or by such underwriters. The relative fault of Parent, on the one hand, and of each such Stockholder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

Parent and the Stockholders agree that it would not be just and equitable if contribution pursuant to this Section 2.08 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 2.08, (x) no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any Damages that such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Registering Stockholder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Stockholder were offered to the public (less underwriters’ discounts and commissions) exceeds the amount of any Damages that such Stockholder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission; (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and (z) in no event shall a Stockholder’s liability pursuant to this Section 2.07, when combined with the amounts paid or payable by such Stockholder pursuant to Section 2.06, exceed the proceeds from the offering received by such Stockholder (net of any underwriter’s discounts and commissions and other selling expenses paid by such Stockholder), except in the case of willful misconduct or fraud by such Stockholder.

Section 2.09. Participation in Public Offering. No Person may participate in any Public Offering hereunder unless such Person (a) agrees to sell such

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Person’s securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and the provisions of this Agreement in respect of registration rights.

Section 2.10. Other Indemnification. Indemnification similar to that specified herein (with appropriate modifications) shall be given by Parent and each Registering Stockholder participating therein with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with Public Offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

Section 2.11. Cooperation by Parent. If any Stockholder shall transfer any Registrable Securities pursuant to Rule 144, Parent shall cooperate, to the extent commercially reasonable, with such Stockholder and shall provide to such Stockholder such information as such Stockholder shall reasonably request.

Section 2.12. Transfer of Registration Rights. Subject to Section 4.02(b), a Stockholder may Transfer its rights under this Article 2 if the Transferee will hold at least 25% of the Stock Consideration after such Transfer. Subject to the foregoing sentence, none of the rights of Stockholders under this Article 2 shall be assignable by any Stockholder to any Person acquiring Securities in any Public Offering or pursuant to Rule 144.

ARTICLE 3

BENEFIT OF RULE 144

Section 3.01. Reports Under Exchange Act. With a view to making available to the Stockholders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Stockholder to sell securities of Parent to the public without registration, Parent shall:

(a) make and keep available adequate current public information, as those terms are understood and defined in Rule 144, at all times after the effective date of the registration statement filed by the Parent

(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Parent under the Securities Act and the Exchange Act; and

21

(c) furnish to any Stockholder, so long as the Stockholder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by Parent that it has complied with the reporting requirements of Rule 144, the Securities Act, and the Exchange Act; and (ii) such information as may be reasonably requested in availing any Stockholder of any rule or regulation of the SEC that permits the selling of any such securities without registration.

ARTICLE 4

MISCELLANEOUS

Section 4.01. Lockup Agreement. Any rights granted to the Stockholders hereunder are granted and made expressly subject to the Lockup and Standstill Agreement (as defined in the Merger Agreement) and Parent shall not be required to take any action which contravenes the terms of such Lockup and Standstill Agreement.

Section 4.02. Binding Effect; Assignability; Benefit. (a) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns.

(b) Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any party hereto pursuant to any Transfer of Parent Securities or otherwise, except that (i) following any Distribution (as defined in the Merger Agreement) or one or more other distributions of Parent Securities by a Stockholder to its beneficial owners, (ii) following the Transfer of Parent Securities by a Stockholder to a transferee that is such Stockholder’s Affiliate, spouse, ex-spouse, domestic partner, lineal descendant or antecedent, brother or sister, the adopted child or adopted grandchild, or the spouse or domestic partner of any child, grandchild or adopted grandchild of such Stockholder, trust for the benefit of such Stockholder or those members of such Stockholder’s family specified in this subsection (b), and (iii) pursuant to Section 2.12; such Transferee may (unless already bound hereby) execute and deliver to Parent an agreement to be bound by this Agreement in the form of Exhibit A hereto and shall thenceforth be a “Stockholder” for purposes of, and have the rights of a “Stockholder” under, this Agreement, provided that any such Transfer pursuant to this Section 4.02(b) must be in accordance with the Lockup and Standstill Agreement.

(c) Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

22

Section 4.03. Notices. All notices, requests and other communications to any party shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile or electronic transmission,

if to Parent:

Ultra Clean Holdings, Inc.

26462 Corporate Avenue

Attention: Casey Eichler

Facsimile No.: 510-576-4401

E-mail: ceichler@uct.com

With a copy to:

Davis Polk & Wardwell

1600 El Camino Real

Menlo Park, CA 94025

Attention: Alan F. Denenberg

Telephone No.: 650-752-2000

Facsimile No.: 650-752-3604

E-mail: alan.denenberg@davispolk.com

if to AIT:

Houlihan Lokey

245 Park Avenue

New York, New York 10167

Attention: Dave Salemi

Facsimile No.: 212-582-3016

E-mail: dsalemi@hl.com

with a copy to (which shall not constitute notice):

Bryan Cave LLP

3161 Michelson Drive, 15th Floor

Irvine, California 92612

Attention: Brett J. Souza

Facsimile No.: 949-223-7100

E-mail: bjsouza@bryancave.com

All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. local 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.

23

Any Person that becomes a Stockholder shall provide its name, address and fax number to Parent. Parent shall not be obligated to provide notice or to include such Person’s Registrable Securities in a registration statement under the provisions of this Agreement to the extent that Parent has not received such information in sufficient time to fulfill its obligations hereunder.

Section 4.04. Waiver; Amendment; Termination. No provision of this Agreement may be waived except by an instrument in writing executed by the party against whom the waiver is to be effective. No provision of this Agreement may be amended or otherwise modified except by an instrument in writing executed by all parties hereto.

Section 4.05. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflicts of laws rules of such state.

Section 4.06. 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 state courts located in the State of New York, city of New York, Borough of Manhattan, or, if such court shall not have jurisdiction, any federal court located in the State of New York, city of New York, Borough of Manhattan, 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 4.03 shall be deemed effective service of process on such party.

Section 4.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

24

Section 4.08. Specific Enforcement. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.

Section 4.09. Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received released counterparts hereof signed by all of the other parties hereto.

Section 4.10. Entire Agreement. This Agreement, the Merger Agreement and the Ancillary Agreements (as defined in the Merger Agreement) constitute the entire agreement among the parties hereto and supersede all prior and contemporaneous agreements and understandings, both oral and written, among the parties hereto with respect to the subject matter hereof and thereof.

Section 4.11. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

Section 4.12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

[Remainder of page intentionally left blank; signature page follows]

25

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

ULTRA CLEAN HOLDINGS, INC.
By:	/s/ Kevin C. Eichler
	Name:	Kevin C. Eichler
	Title:	Chief Financial Officer, Senior Vice President and Secretary

[Signature page to Registration Rights Agreement]

26

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

AIT HOLDING COMPANY LLC
By:	/s/ Joseph Julian
	Name:	Joseph Julian
	Title:	Chairman

[Signature page to Registration Rights Agreement]

27

EXHIBIT A

JOINDER TO REGISTRATION RIGHTS AGREEMENT

This Joinder Agreement (this “Joinder Agreement”) is made as of the date written below by the undersigned (the “Joining Party”) in accordance with the Registration Rights Agreement dated as of July 3, 2012 (the “Registration Rights Agreement”) between Ultra Clean Holdings, Inc., and AIT Holding Company LLC, as the same may be amended from time to time. Capitalized terms used, but not defined, herein shall have the meaning ascribed to such terms in the Registration Rights Agreement.

The Joining Party hereby acknowledges, agrees and confirms that, by its execution of this Joinder Agreement, the Joining Party shall be deemed to be a party to the Registration Rights Agreement as of the date hereof and shall have all of the rights and obligations of a “Stockholder” thereunder as if it had executed the Registration Rights Agreement as a Stockholder. The Joining Party hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Registration Rights Agreement, as amended as of the date hereof.

28

IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of the date written below.

Date:                  ,         

[NAME OF JOINING PARTY]
By:
	Name:
	Title:

Address for Notices:

29

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Clarence L. Granger, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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: August 6, 2012

/s/ CLARENCE L. GRANGER

Clarence L. Granger

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kevin C. Eichler, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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: August 6, 2012

/s/ KEVIN C. EICHLER

Kevin C. Eichler

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q (the “Report”) of Ultra Clean Holdings, Inc. (the “Company”) 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.

Clarence L. Granger, the Chief Executive Officer and Kevin C. Eichler, the Chief Financial Officer of the Company, each certifies that, to the best of his knowledge:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: August 6, 2012

/s/ CLARENCE L. GRANGER

Clarence L. Granger

Chairman and Chief Executive Officer

Date: August 6, 2012

/s/ KEVIN C. EICHLER

Kevin C. Eichler

Chief Financial Officer

XML

Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 29, 2012
Commitments and Contingencies (Additional Textual) [Abstract]
Minimum lease payments	$ 10.6
Inventory [Member]
Commitments and Contingencies (Textual) [Abstract]
Purchase commitment	$ 26.0

XML

Organization, Basis of Presentation and Significant Accounting Policies (Details Textual) (USD $)	6 Months Ended					3 Months Ended		6 Months Ended			0 Months Ended	3 Months Ended			6 Months Ended		3 Months Ended		6 Months Ended					6 Months Ended		12 Months Ended	6 Months Ended
	Jun. 29, 2012 Segment	Jul. 29, 2012	Jul. 01, 2011	Jun. 29, 2012 Subsidiaries [Member]	Jun. 29, 2012 Level 2 [Member] Money Market Funds [Member]	Mar. 30, 2012 Stock Options [Member]	Apr. 01, 2011 Stock Options [Member]	Jun. 29, 2012 Stock Options [Member]	Jul. 01, 2011 Stock Options [Member]	Jul. 29, 2012 Stock Options [Member]	Jan. 04, 2011 Restricted Stock Units [Member]	Jun. 29, 2012 Restricted Stock Units [Member]	Mar. 30, 2012 Restricted Stock Units [Member]	Jul. 01, 2011 Restricted Stock Units [Member]	Jun. 29, 2012 Restricted Stock Units [Member]	Jul. 01, 2011 Restricted Stock Units [Member]	Jun. 29, 2012 Restricted Stock Awards [Member]	Jul. 01, 2011 Restricted Stock Awards [Member]	Jun. 29, 2012 Restricted Stock Awards [Member]	Jun. 29, 2012 Applied Materials, Inc [Member]	Jul. 01, 2011 Applied Materials, Inc [Member]	Jun. 29, 2012 Lam Research Corporation [Member]	Jul. 01, 2011 Lam Research Corporation [Member]	Jun. 29, 2012 Accounts receivable [Member]	Jun. 29, 2012 Accounts receivable [Member] Applied Materials, Inc [Member]	Dec. 30, 2011 Accounts receivable [Member] Lam Research Corporation [Member]	Jun. 29, 2012 Maximum [Member] Stock Options [Member]	Jun. 29, 2012 Minimum [Member] Stock Options [Member]	Jun. 29, 2012 Minimum [Member] Restricted Stock Units [Member]
Organization, Basis of Presentation and Significant Accounting Policies (Textual) [Abstract]
Sales to customers																				10.00%	10.00%	10.00%	10.00%
Number of customers	2
Accounts receivable balances, aggregate																								10.00%	86.00%	72.00%
Money market funds at fair value on recurring basis					$ 26,600,000
Money market funds at carrying value					26,600,000
Valuation allowance on deferred tax asset	441,000,000,000			441,000,000
Product warranty period (in years)	2 years
Shares weighted average vesting period, years	4 years							4 years											3 years
Shares vesting period, years																											10 years	4 years
Dividend yield	0.00%
Weighted-average exercise price, outstanding								$ 6.78
Aggregate intrinsic value, outstanding								2,600,000
Weighted average remaining contractual life, outstanding (in years)								4 years 6 months
Weighted-average exercise price, exercisable								$ 7.28
Aggregate intrinsic value, exercisable								1,900,000
Weighted average remaining contractual life, exercisable (in years)								4 years 3 months 18 days
Restricted stock units granted to employees								$ 0
Granted, Number of Shares						1,433,509
Performance stock units granted						110,375	66,250
Weighted average fair value, granted								$ 8.21
Employee common stock fair market value rate	95.00%
Stock-based compensation cost, net of forfeitures															7,700,000
Stock-based compensation costs expected to be recognized over an estimated period (in years)																													3 years
Granted stock units											443,500	4,450	548,900	249,550
Weighted average fair value, granted											$ 10.30	$ 6.41	$ 8.21			$ 11.20
Vested shares withheld to satisfy withholding tax obligations	32,420
Net issuance of shares	48,497
Outstanding restricted stock units												1,350,810			1,350,810
Aggregate intrinsic value															8,700,000
Weighted average remaining contractual term (in years)															1 year 4 months 24 days
Stock issued								30,000	30,000								30,000	30,000
Unamortized expense of unvested options										100,000							200,000		200,000
Stock based compensation expenses capitalized in inventory		$ 0	$ 0

XML

Income Tax

6 Months Ended

Jun. 29, 2012

Income Tax [Abstract]

Income Tax

4. Income Tax

The Company’s income tax provision and related effective tax rate for the three and six month periods ended June 29, 2012 was $900,000 and 20% and $2,481,000 and 22.4%, respectively, compared to $2,168,000 and 23.8% and $4,167,000 and 24.6%, respectively for the same periods a year ago. The change in respective rates reflects, primarily, changes in the geographic mix of worldwide earnings and financial results for the first half of 2012 compared to the same period in 2011.

The following table summarizes the activity related to the Company’s uncertain tax positions (in thousands):

	Six months ended
	June 29, 2012		July 1, 2011
Balance as of the beginning of period	$	132	$	39
Increases related to prior year tax positions		22		—
Expiration of the statute of limitations for the assessment of taxes		—		(39	)
Balance as of the end of period	$	154	$	—

The determination of the Company’s tax provision is subject to judgments and estimates. The carrying value of the Company’s net deferred tax assets, which is made up primarily of tax deductions, assumes the Company will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, the Company makes judgments with respect to whether it is likely to generate sufficient future taxable income to realize these assets. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position.

As of June 29, 2012, the Company maintained a full valuation allowance on one of its China subsidiaries in the amount of $441,000 as the Company believes it is more likely than not that the deferred tax asset will not be realized. In order to reverse a valuation allowance, U.S. GAAP guidance requires the Company to review its cumulative twelve-quarter income/loss as well as its ability to generate sufficient future taxable income to realize the Company’s net deferred tax assets. During the quarter ended June 29, 2012, the Company conducted a review of this subsidiary, as well as its other worldwide subsidiaries, and determined that the valuation allowance on its consolidated deferred tax assets is adequate.

The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company’s 2008 through 2011 federal income tax returns are open to audit through the statute of limitations by the Internal Revenue Service. The Company’s 2007 through 2011 state income tax returns are open to audit by the California Franchise Tax Board. The Company is also subject to examination in various other jurisdictions for various periods. The Company’s federal returns are still open for fiscal years 2004 through 2007 due to the carryback of losses for these years.

The Company is currently experiencing a tax holiday related to its Singapore subsidiary that will expire for tax years beginning January 2015. The Company’s Singapore subsidiary recorded a net profit for the three and six month period ended June 29, 2012.

Undistributed earnings of the Company’s foreign subsidiaries at June 29, 2012, are considered to be indefinitely reinvested and no provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.

Sales, use and value-added taxes receivable and payable are recorded on a net basis by jurisdiction. Subsequent to the issuance of the July 1, 2011 consolidated financial statements, management determined that certain of these receivables and payables had previously been recorded on a gross basis. Accordingly, the amounts previously reported as of July 1, 2011 and December 31, 2010, have been corrected to be reported on a net basis. Accrued liabilities were reduced by $5.0 million and $2.7 million, respectively as of July 1, 2011 and December 31, 2010 from $6.0 and $3.2 million as previously reported to $1.0 and $0.5 million, respectively. Prepaid and other current assets were reduced by $5.0 and $2.7 million as of July 1, 2011 and December 31, 2010 from $8.9 and $5.9 million as previously reported to $3.8 and $3.2 million, respectively. Additionally, the consolidated statement of cash flows for the six months ended July 1, 2011 has been corrected, within cash flows from operating activities, to report a change in prepaid expenses and other current assets of $0.6 million rather than a change of $2.9 million as previously reported, and a change in accrued liabilities of $0.8 million rather than a change of $3.2 million as previously reported. These corrections had no effect on the Company’s previously reported stockholders’ equity, results of operations, or net cash provided by operations.

XML

Income Tax (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011	Jan. 01, 2010
Activity related to uncertain tax positions
Balance as of the beginning of period	$ 132		$ 39
Increases related to prior year tax positions	22
Expiration of the statute of limitations for the assessment of taxes		(39)
Balance as of the end of period	$ 154		$ 39

XML

Borrowing Arrangements (Details) (USD $)	6 Months Ended		6 Months Ended			9 Months Ended					6 Months Ended
	Jun. 29, 2012	Jul. 03, 2012	Jun. 29, 2012 Bank Loan [Member]	Jun. 29, 2012 Revolving credit facility [Member]	Jul. 03, 2012 Revolving credit facility [Member]	Sep. 30, 2012 Term Loan Credit Facility [Member]	Jul. 03, 2012 Term Loan Credit Facility [Member]	Jun. 29, 2012 Term Loan Credit Facility [Member]	Jul. 03, 2012 Letter of Credit [Member]	Jul. 03, 2012 Swingline sub-facility [Member]	Jun. 29, 2012 Matures on January 29, 2012 [Member] Revolving credit facility [Member]	Jun. 29, 2012 Matures on October 21, 2013 [Member] Term Loan Credit Facility [Member]	Jun. 29, 2012 Matures on July 03, 2016 [Member] Term Loan Credit Facility [Member]
Borrowing Arrangements (Textual) [Abstract]
Borrowing capacity under credit facility				$ 25,000,000	$ 40,000,000		$ 40,000,000	$ 8,000,000	$ 15,000,000	$ 4,000,000
Debt instrument, maturity date											Dec. 31, 2013	Oct. 21, 2013	Jul. 03, 2016
Interest rate				3.50%				4.00%
Basis spread on variable rate								0.75%
Variable interest rate				4.00%				4.00%
Debt outstanding, total								3,700,000
Outstanding amount of borrowing under credit facility					39,800,000		40,000,000
Repay outstanding balance to Silicon Valley Bank			3,700,000
Term loan repaid						2,500,000
Maturity period of line of credit facility				4 years
Borrowing Arrangements (Additional Textual) [Abstract]
Base interest rate	3.75%
Fixed charge coverage ratio for fiscal year	1.75
Fixed charge coverage ratio for next fiscal year	2.00
Consolidated leverage ratio for third quarter of fiscal year	2.25
Consolidated leverage ratio for fourth quarter of fiscal year.	2.00
Consolidated leverage ratio for first quarter of next year.	2.00
Consolidated leverage ratio for second quarter of next year	1.50
Consolidated leverage ratio for third quarter of next year	1.50
Consolidated leverage ratio thereafter third quarter of next year	1.25
Minimum domestic cash balance on last day for any quarters from September beginning of fiscal year to June last of next year		20,000,000
Minimum domestic cash balance on last day for any month from September beginning of fiscal year to June last of next year		15,000,000
Minimum domestic cash balance on last day for any quarters thereafter June last of next year		25,000,000
Minimum domestic cash balance on last day for any month thereafter June last of next year		20,000,000
Percentage of net cash proceeds of subsidiary capital stock for debt prepayment		50.00%
Percentage of net cash proceeds of subsidiary capital stock for debt prepayment indebtedness amount over by specific amount	100.00%
Debt specific amount under prepayment condition of indebtedness		250,000
Percentage of excess cash flow use for annual debt payment condition one	33.00%
Percentage of excess cash flow use for annual debt payment condition two	25.00%
Term loan principal amount outstanding condition one		20,000,000
Term loan principal amount outstanding condition two		$ 10,000,000

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Income Tax (Details Textual) (USD $)	0 Months Ended	3 Months Ended		6 Months Ended
	Jan. 04, 2011	Jun. 29, 2012	Jul. 01, 2011	Jun. 29, 2012	Jul. 01, 2011	Dec. 30, 2011	Jun. 30, 2011	Dec. 31, 2010	Dec. 31, 2009
Income Tax (Textual) [Abstract]
Income tax provision		$ 979,000	$ 2,168,000	$ 2,481,000	$ 4,167,000
Effective tax rate		20.00%	23.80%	22.40%	24.60%
Valuation allowance		441,000,000,000		441,000,000,000
Decrease in current accrued liabilities			1,000,000		1,000,000		6,000,000	3,200,000	500,000
Decrease in accrued liabilities			5,000,000		5,000,000			2,700,000
Decrease in prepaid expenses and other current asset		6,364,000	3,800,000	6,364,000	3,800,000	5,441,000	8,900,000	5,900,000	3,200,000
Decrease in prepaid and other current assets			5,000,000		5,000,000			2,700,000
Change in prepaid expenses and other current assets	2,900,000	600,000		923,000	599,000
Change in Accrued Liabilities				$ 800,000	$ 3,200,000

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Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011	Jun. 29, 2012	Jul. 01, 2011
Basic and diluted net income per share
Net income	$ 3,923	$ 6,958	$ 8,583	$ 12,778
Weighted average common shares outstanding	23,292	22,734	23,289	22,597
Shares used in computing basic net income per share	23,292	22,734	23,289	22,597
Dilutive effect of options outstanding subject to repurchase	101	170	239	313
Dilutive effect of options outstanding	317	578	365	618
Shares used in computing diluted net income per share	23,710	23,482	23,893	23,528
Net income per share - basic	$ 0.17	$ 0.31	$ 0.37	$ 0.57
Net income per share - diluted	$ 0.17	$ 0.30	$ 0.36	$ 0.54

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Borrowing Arrangements

6 Months Ended

Jun. 29, 2012

Borrowing Arrangements [Abstract]

Borrowing Arrangements

3. Borrowing Arrangements

As of June 29, 2012, the Company had borrowing arrangements with Silicon Valley Bank under a Loan and Security Agreement (the “Loan Agreement”) which included a $25.0 million revolving credit facility (“revolver”), maturing on December 31, 2013, and an $8.0 million term loan (“term loan”), maturing on October 21, 2013. The aggregate amount of the revolver was secured by substantially all of the Company’s assets. During the second quarter of 2012, however, the Company paid off the entire balance of the revolver and, therefore, had no outstanding balance due as of June 29, 2012. As of June 29, 2012, the outstanding balance of the term loan was $3.7 million.

The interest rate on the revolver during the six months ended June 29, 2012 was 3.5%. Pursuant to the Loan Agreement, the term loan bears interest per annum at a variable rate equal to the greater of prime rate, as defined per the loan agreement, plus a margin of 75 basis points. During the six months ended and as of June 29, 2012, the interest rate on the outstanding term loan was 4.0%. The Loan Agreement contains a number of financial and reporting covenants. The Company was in compliance with all of such covenants as of June 29, 2012.

On July 3, 2012, in connection with our acquisition of AIT, the Company entered into a new credit agreement (the “Credit Agreement”) by and among the Company, certain of its subsidiaries, Silicon Valley Bank, U.S. Bank National Association and the other several lenders party thereto from time to time (collectively, the “Lenders”). The Credit Agreement provides for a term loan in an aggregate principal amount of $40.0 million (the “New Term Loan”) and a revolving credit facility in an aggregate principal amount of $40.0 million (the “New Revolving Credit Facility”), a letter of credit facility in the aggregate availability amount of $15.0 million (as a sublimit of such New Revolving Credit Facility) (the “L/C Facility”) and a swingline sub-facility in the aggregate availability amount of $4.0 million (as a sublimit of the New Revolving Credit Facility) (together with the Term Loan, the Revolving Credit Facility and the L/C Facility, the “Senior Secured Credit Facility”). On July 3, 2012, the Company borrowed an aggregate of $40.0 million under the New Term Loan and approximately $39.8 million under the New Revolving Credit Facility. The borrowed funds were used at the closing of our merger with AIT to finance the merger and repay the outstanding balance of $3.7 million to Silicon Valley Bank as lender under our prior Loan Agreement. The prior Loan Agreement was terminated in connection with this transaction.

The New Term Loan must be repaid in consecutive quarterly installments of $2.5 million, with the first payment due on September 30, 2012, and with the balance of the outstanding principal amount of the New Term Loan due at the final maturity, which is July 3, 2016. The New Revolving Credit Facility is available for the four-year period beginning on July 3, 2012. The Credit Agreement includes customary representations, warranties, covenants and events of default. The Company and certain of its subsidiaries have agreed to secure all of their obligations under the Credit Agreement by granting a first priority lien in substantially all of their respective personal property assets (subject to certain exceptions and limitations).

At the Company’s option, borrowings under the New Term Loan and New Revolving Credit Facility (subject to certain limitations) bear interest at either a base rate or at the London Interbank Offered Rate (“LIBOR”) (with the LIBOR being adjusted for certain Eurocurrency reserve requirements, if any, as described in the Credit Agreement), plus, in each case, an applicable margin based on our consolidated leverage ratio. All loans described above made on July 3, 2012 were initially base rate loans, carrying interest of 3.75%. The Company expects, however, that the effective interest rate will be higher due to the incurrence of certain loan-related merger costs that will be treated as deferred interest and amortized over the life of the loan.

The Credit Agreement requires us to maintain a consolidated fixed charge coverage ratio (as defined in the Credit Agreement) of at least 1.75 to 1.00 initially and 2.00 to 1.00 from and after March 2013. The Credit Agreement requires the Company to maintain a consolidated leverage ratio (as defined in the Credit Agreement) no greater than 2.25 to 1.00 as of the end of the third quarter of fiscal 2012, stepping down to 2.00 to 1.00 as of the end of the fourth quarter of fiscal 2012 and the first quarter of fiscal 2013, 1.50 to 1.00 as of the end of the second and third quarters of fiscal 2013 and 1.25 to 1.00 as of the end of each fiscal quarter thereafter. The Credit Agreement also requires the Company to maintain minimum domestic cash of $20.0 million as of the last day of any fiscal quarter and $15.0 million as of the last day of any other month from September 1, 2012 through June 30, 2013 and $25.0 million as of the last day of any fiscal quarter and $20.0 million as of the last day of any other month after June 30, 2013. The Credit Agreement also includes other customary affirmative and negative covenants.

The Credit Agreement also contains provisions requiring the following mandatory prepayments (subject to certain exceptions and limitations): (i) prepayments equal to 50% of the net cash proceeds from the issuance of capital stock by the Company’s primary operating subsidiary (or any of its subsidiaries); (ii) prepayments equal to 100% of the net cash proceeds from the incurrence of any indebtedness by the Company’s primary operating subsidiary over $250,000; (iii) prepayments equal to the net cash proceeds from certain asset sales or insurance or condemnation recoveries; and (iv) annual prepayments in an amount equal to (a) 33% of excess cash flow (as defined in the Credit Agreement) if the aggregate outstanding principal amount of the New Term Loan equals or exceeds $20.0 million and (b) 25% of excess cash flow if the aggregate outstanding principal amount of the New Term Loan equals or exceeds $10.0 million but is less than $20.0 million.

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Net Income Per Share (Details Textual) (Stock Options [Member])	3 Months Ended		6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011	Jun. 29, 2012	Jul. 01, 2011
Stock Options [Member]
Net Income Per Share (Textual) [Abstract]
Antidilutive securities excluded from computation of earnings per share, Amount	618,156	322,091	547,473	322,683

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 29, 2012	Dec. 30, 2011
Current assets:
Cash and cash equivalents	$ 51,137	$ 52,155
Accounts receivable, net of allowance of $8 and $5, respectively	41,942	41,051
Inventory	44,451	55,473
Prepaid expenses and other	6,364	5,441
Total current assets	143,894	154,120
Equipment and leasehold improvements, net	8,762	10,009
Purchased intangibles, net	8,987	8,987
Other non-current assets	5,177	5,183
Total assets	166,820	178,299
Current liabilities:
Bank borrowings	2,736	2,931
Accounts payable	25,797	29,451
Accrued compensation and related benefits	3,924	2,803
Deferred rent, current portion	968	895
Other current liabilities	2,191	662
Total current liabilities	35,616	36,742
Long-term debt	938	21,802
Deferred rent and other liabilities	1,990	2,470
Total liabilities	38,544	61,014
Commitments and contingencies (See note 6)
Stockholders' equity:
Preferred stock - $0.001 par value, 10,000,000 authorized; none outstanding
Common stock - $0.001 par value, 90,000,000 authorized; 23,330,376 and 22,910,649 shares issued and outstanding, in 2012 and 2011, respectively	111,369	108,838
Common shares held in treasury, at cost, 601,944 shares in 2012 and 2011	(3,337)	(3,337)
Accumulated other comprehensive loss	(123)
Retained earnings	20,367	11,784
Total stockholders' equity	128,276	117,285
Total liabilities and stockholders' equity	$ 166,820	$ 178,299

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Organization, Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 29, 2012

Organization, Basis of Presentation and Significant Accounting Policies [Abstract]

Organization, Basis of Presentation and Significant Accounting Policies

1. Organization, Basis of Presentation and Significant Accounting Policies

Organization — Ultra Clean Holdings, Inc. (the “Company”) is a leading developer and supplier of critical subsystems, primarily for the semiconductor capital equipment industry. The Company also leverages the specialized skill sets required to support semiconductor capital equipment to serve the technologically similar markets in the flat panel, medical, energy and research industries, collectively referred to as “Other Addressed Industries”. The Company develops, designs, prototypes, engineers, manufactures and tests subsystems which are highly specialized and tailored to specific steps in the semiconductor manufacturing process as well as the manufacturing processes in Other Addressed Industries. Revenue is derived from the sale of gas delivery systems and other critical subsystems including chemical mechanical planarization (CMP) subsystems, chemical delivery modules, top-plate assemblies, frame assemblies, process modules and other high level assemblies.

The Company’s customers are primarily original equipment manufacturers (OEMs) in industries it supports, providing customers complete subsystem solutions that combine the Company’s expertise in design, test, component characterization and highly flexible manufacturing operations with quality control and financial stability. This combination helps the Company to drive down total manufacturing costs, reduce design-to-delivery cycle times and maintain high quality standards for our customers. The Company believes these characteristics, as well as the Company’s standing as a leading supplier of gas delivery systems and other critical subsystems, place the Company in a strong position to benefit from the demand for subsystem outsourcing.

Basis of Presentation — The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). This financial information reflects all adjustments which are, in the opinion of the Company, normal, recurring and necessary to present fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The Company’s December 30, 2011, balance sheet data was derived from audited financial statements as of that date.

The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended December 30, 2011, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2012. The Company’s results of operations for the three months and six months ended June 29, 2012, are not necessarily indicative of the results to be expected for any future periods.

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 in consolidation.

Foreign Currency Translation — The Company has reviewed its non-U.S. subsidiaries (of which all of its non-U.S. asset base resides in Asia) that operate in a local currency environment to determine their functional currency by examining how and in what currency each subsidiary generates cash through billings and cash receipts and how and in what currency the subsidiary expends cash through payment of its vendors and payment of its workforce. Also, these subsidiaries’ individual assets and liabilities that are primarily denominated in the local foreign currency are examined for their impact on the Company’s cash flows. All have been determined to have the U.S. dollar as its functional currency. All balance sheet accounts of these local functional currency subsidiaries are translated at the fiscal period-end exchange rate, and income and expense accounts are translated using average rates in effect for the period, except for costs related to those balance sheet items that are translated using historical exchange rates. The resulting translation adjustments are recorded as cumulative translation adjustments, and are a component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense), net.

Use of Accounting Estimates — The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment. Actual amounts may differ from those estimates.

Certain Significant Risks and Uncertainties — The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, any of the following areas could have a negative effect on the Company in terms of its future financial position, results of operations or cash flows: the general state of the U.S. and world economies, the highly cyclical nature of the industries the Company serves; the loss of any of a small number of customers; ability to obtain additional financing; failure to successfully integrate completed acquisitions; pursuing acquisition opportunities; regulatory changes; fundamental changes in the technology underlying semiconductor, flat panel, solar and medical device manufacturing processes or manufacturing equipment; the hiring, training and retention of key employees; successful and timely completion of product design efforts; and new product design introductions by competitors.

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

Significant sales to customers — The Company had significant sales to two customers- Applied Materials, Inc. and Lam Research Corporation, each of which accounted for 10% or more of sales for the six months ended June 29, 2012 and July 1, 2011. Sales to each of these customers as a percentage of total sales were as follows:

	Six months ended
	June 29, 2012			July 1, 2011
Applied Materials, Inc. (1)		44.5	%		38.5	%
Lam Research Corporation (2)		37.7	%		33.8	%
Total		82.2	%		72.3	%

(1) In November 2011, Applied Materials Inc. completed the acquisition of Varian Semiconductor Equipment Associates, Inc., one of the Company’s customers. The sales percentages for Applied Materials, Inc. for the six months ended June 29, 2012 include sales to Varian Semiconductor Equipment Associates, Inc. The sales percentages for Applied Materials, Inc. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Varian Semiconductor Equipment Associates, Inc., for comparison purposes.

(2) In June 2012, Lam Research Corp. completed the acquisition of Novellus Systems, Inc., one of the Company’s customers. The sales percentages for Lam Research Corp. for the six months ended June 29, 2012 include sales to Novellus Systems, Inc. The sales percentages for Lam Research Corp. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Novellus Systems, Inc., for comparison purposes.

These two customers’ accounts receivable balances were individually greater than 10% of accounts receivable and, in the aggregate, represented approximately 86% and 72% of accounts receivable as of June 29, 2012 and December 30, 2011, respectively.

Fair Value of Financial Instruments — The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and bank borrowings. The carrying value of these instruments approximates their fair value because of their short-term nature.

The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value in the following hierarchy:

Level 1 — Observable inputs, such as quoted prices in active markets,

Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly,

Level 3 — Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The Company’s only financial asset or liability measured at fair value on a recurring basis is an overnight sweep account invested in money market funds with a carrying value and fair value of $26.6 million at June 29, 2012, each valued based on Level 2 inputs.

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.

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. 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. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of income as income tax expense.

The determination of the Company’s tax provision is subject to judgments and estimates. The carrying value of the Company’s net deferred tax assets, which is made up primarily of tax deductions, assumes it will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, the Company makes judgments with respect to whether it is likely to generate sufficient future taxable income to realize these assets. The Company has a valuation allowance on the deferred tax assets of one of its China subsidiaries in the amount of $441,000 as of June 29, 2012.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position. Management believes that it has adequately provided for any adjustments that may result from these examinations, however, the outcome of tax audits cannot be predicted with certainty.

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

	Six months ended
	June 29, 2012			July 1, 2011
Beginning balance	$	350		$	204
Additions related to sales		58			447
Warranty claims		(83	)		(328	)
Ending balance	$	325		$	323

Revenue Recognition — Product revenue is generally recorded upon shipment. In arrangements which specify title transfer upon delivery, revenue is not recognized until the product is delivered. The Company recognizes revenue when persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability is reasonably assured. If the Company has not substantially completed a product or fulfilled the terms of a sales agreement at the time of shipment, revenue recognition is deferred until fulfillment. The Company’s standard arrangement for its customers includes a signed purchase order or contract, no right of return of delivered products and no customer acceptance provisions.

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

Research and Development Costs — Research and development costs are expensed as incurred.

Net Income (loss) per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options and restricted stock using the treasury stock method, except when such shares are anti-dilutive (see Note 5 to Condensed Consolidated Financial Statements).

Comprehensive Income (Loss) — The Company reports by major components and as a single total, the change in its net assets during the period from non-owner sources. Comprehensive income (loss) for all periods presented was the same as net income (loss).

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 considered to be the Chief Executive Officer. The Company operates in one reporting segment.

Stock-Based Compensation Expense

The Company maintains stock-based compensation plans which allow for the issuance of equity-based awards to executives and certain employees. These equity-based awards include stock options, restricted stock awards and restricted stock units which can be either time-based or performance-based. The Company also maintains an employee stock purchase plan that provides for the issuance of shares to all eligible employees of the Company at a discounted price.

Stock-based compensation expense includes compensation costs related to estimated fair values of stock options and awards granted. The estimated fair value of the Company’s equity-based awards, net of expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis over a weighted average period of four years for stock options three years for restricted stock awards and will be adjusted for subsequent changes in estimated forfeitures and future option grants.

The Company applies the fair value recognition provisions based on the FASB’s guidance regarding stock-based compensation. The exercise price of each stock option equals the market price of the Company’s stock on the date of grant. The estimated fair value of the Company’s equity-based awards, less expected forfeitures, is amortized over the awards’ vesting periods on a straight-line basis over a weighted average period of four years and will be adjusted for subsequent changes in estimated forfeitures and future option grants. Most options are scheduled to vest over four years and expire no later than ten years from the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the expected term of the awards; the Company’s expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company estimates the expected term of share-based awards granted based on the Company’s historical option term experience. The Company estimates the volatility of its common stock based upon the Company’s historical stock price volatility over the length of the expected term of the options. The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining maturities similar to the expected term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest. The Company also considers, each quarter, whether there have been any significant changes in facts and circumstances that would affect its forfeiture rate.

Stock Options

The following table summarizes information with respect to options granted, exercised and canceled in the quarter ended June 29, 2012 and outstanding at June 29, 2012:

	Number of Shares
Options outstanding at December 30, 2011		1,654,691
Granted		—
Exercised		(72,725	)
Canceled		(4,722	)
Options outstanding at June 29, 2012		1,577,244

There were no options granted by the Company during either of the six month periods ended June 29, 2012 or July 1, 2011.

The weighted-average exercise price, aggregate intrinsic value and weighted average remaining contractual life of outstanding options as of June 29, 2012 were $6.78 per share, $2.6 million and 4.5 years, respectively. As of June 29, 2012, 1,433,509 options with a weighted-average exercise price of $7.28 per share, aggregate intrinsic value of $1.9 million and a weighted average remaining contractual life of 4.3 years were exercisable. The total unamortized expense of the Company’s unvested options, net of forfeitures, as of June 29, 2012, was $0.1 million.

Employee Stock Purchase Plan

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. Under the ESPP, substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 95 percent of the fair market value of the Company’s stock at the end of each applicable purchase period.

Restricted Stock Units and Restricted Stock Awards

The Company grants Restricted Stock Units (“RSU’s”) to employees and Restricted Stock Awards (“RSA”) to non-employee directors as part of the Company’s long term equity compensation plan.

Restricted Stock Units — RSU’s are granted to employees with a per share or unit purchase price of zero dollars and either have time based or performance based vesting. RSU’s typically vest over three years, subject to the employee’s continued service with the Company. For purposes of determining compensation expense related to these RSU’s, the fair value is determined based on the closing market price of the Company’s common stock on the date of award. The expected cost of the grant is reflected over the service period, and is reduced for estimated forfeitures. The Company granted 548,900 RSU’s (including 110,375 performance stock units) during the quarter ended March 30, 2012, with a weighted average fair value of $8.21 per share and 443,500 RSU’s (including 66,250 performance stock units) during the quarter ended April 1, 2011, with a weighted average fair value of $10.30 per share. The Company granted 4,450 RSU’s during the quarter ended June 29, 2012, with a weighted average fair value of $6.41 and granted 249,550 RSU’s during the quarter ended July 1, 2011, with a weighted average fair value of $11.20 per share. During the six months ended June 29, 2012, 32,420 vested shares were withheld to satisfy withholding tax obligations, resulting in the net issuance of 48,497 shares. As of June 29, 2012, $7.7 million of stock-based compensation cost, net of forfeitures, related to RSU’s remains to be amortized, of which substantially all is expected to be recognized over an estimated period of less than three years. As of June 29, 2012, a total of 1,350,810 RSU’s remain outstanding with an aggregate intrinsic value of $8.7 million and a weighted average remaining contractual term of 1.4 years.

Restricted Stock Awards — During each of the quarters ended June 29, 2012 and July 1, 2011, the Company issued 30,000 shares of restricted stock awards to its non-employee directors. The total unamortized expense of the Company’s unvested restricted stock awards as of June 29, 2012, was approximately $0.2 million.

The following table summarizes the Company’s restricted stock unit and restricted stock award activity for the six months ended June 29, 2012 (in thousands):

	Number of Shares
Unvested restricted stock units and restricted stock awards at December 30, 2011		1,167
Granted		583
Vested		(335	)
Forfeited		(37	)
Unvested restricted stock units and restricted stock awards at June 29, 2012		1,378

The following table shows the Company’s stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):

	Three months ended						Six months ended
	June 29, 2012			July 1, 2011			June 29, 2012			July 1, 2011
Cost of sales	$	422		$	329		$	815		$	650
Research and development		86			79			165			158
Sales and marketing		112			93			206			214
General and administrative		777			663			1,463			1,144
Total stock-based compensation expense		1,397			1,164			2,649			2,166
Income tax benefit		(279	)		(277	)		(585	)		(534	)
Total stock-based compensation expense, net of income tax benefit	$	1,118		$	887		$	2,064		$	1,632

(1) As of June 29, 2012 and July 1, 2010, there were no stock-based compensation expenses capitalized in inventory.

Recently Issued Accounting Standards — In September 2011, the FASB issued authoritative guidance to allow entities to use a qualitative approach to test goodwill for impairment. This authoritative guidance permits an entity to first perform 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 it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The implementation of this authoritative guidance is not anticipated to have an impact on the Company’s financial position or results of operations.

In September 2011, the FASB issued authoritative guidance to allow entities to use a qualitative approach to test goodwill for impairment. This authoritative guidance permits an entity to first perform 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 it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

In June 2011, the FASB issued authoritative guidance on the presentation of comprehensive income to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the requirement regarding the presentation of reclassification adjustments out of accumulated other comprehensive income was deferred indefinitely. The new guidance, except for the provision deferred, was effective for the Company in the first quarter of fiscal 2012. The implementation of this authoritative guidance changed only the presentation of comprehensive income and had no impact on the Company’s financial position or results of operations.

In May 2011, the FASB issued authoritative guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This authoritative guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. This authoritative guidance also expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance was effective for the Company in the first quarter of fiscal 2012. The implementation of this authoritative guidance did not have a material impact on the Company’s financial position or results of operations.

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Segment Information (Details Textual) (USD $) In Millions, unless otherwise specified	Jun. 29, 2012	Jul. 01, 2011
Segment Information (Textual) [Abstract]
Long-lived assets	$ 4.4	$ 4.3

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Organization, Basis of Presentation and Significant Accounting Policies (Details 2) (Restricted Stock Units and Restricted Stock Awards [Member])	6 Months Ended
	Jun. 29, 2012
Restricted Stock Units and Restricted Stock Awards [Member]
Restricted stock unit and restricted stock award activity
Unvested restricted stock units and restricted stock awards at December 30, 2011	1,167,000
Granted, Number of Shares	583,000
Vested, Number of Shares	(335,000)
Forfeited, Number of Shares	(37,000)
Unvested restricted stock units and restricted stock awards at June 29, 2012	1,378,000

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Subsequent Events (Details Textual) (USD $) Share data in Millions, unless otherwise specified	6 Months Ended
	Jun. 29, 2012	Jul. 03, 2012	Dec. 30, 2011	Jul. 01, 2011	Dec. 31, 2010
Subsequent Events (Additional Textual) [Abstract]
Cash paid for acquisition of Advanced Integration Technologies LLC		$ 74,400,000
Shares of newly issued common stock	4.5
Cash and cash equivalents	51,137,000	45,300,000	52,155,000	37,636,000	34,654,000
Total debt		79,800,000
Senior Secured Credit Facility [Member]
Subsequent Events (Textual) [Abstract]
Outstanding amount of borrowing under credit facility		79,800,000
Revolving credit facility [Member]
Subsequent Events (Textual) [Abstract]
Outstanding amount of borrowing under credit facility		39,800,000
Term Loan Credit Facility [Member]
Subsequent Events (Textual) [Abstract]
Outstanding amount of borrowing under credit facility		$ 40,000,000

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Organization, Basis of Presentation and Significant Accounting Policies (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011	Jun. 29, 2012	Jul. 01, 2011
Stock-based compensation expense included in the condensed consolidated statements of operations
Total stock-based compensation expense	$ 1,397	$ 1,164	$ 2,649	$ 2,166
Income tax benefit	(279)	(277)	(585)	(534)
Total stock-based compensation expense, net of income tax benefit	1,118	887	2,064	1,632
Cost of sales [Member]
Stock-based compensation expense included in the condensed consolidated statements of operations
Total stock-based compensation expense	422	329	815	650
Research and development [Member]
Stock-based compensation expense included in the condensed consolidated statements of operations
Total stock-based compensation expense	86	79	165	158
Sales and marketing [Member]
Stock-based compensation expense included in the condensed consolidated statements of operations
Total stock-based compensation expense	112	93	206	214
General and administrative [Member]
Stock-based compensation expense included in the condensed consolidated statements of operations
Total stock-based compensation expense	$ 777	$ 663	$ 1,463	$ 1,144

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Balance Sheet Information

6 Months Ended

Jun. 29, 2012

Balance Sheet Information [Abstract]

Balance Sheet Information

2. Balance Sheet Information (in thousands)

Inventory consisted of the following (in thousands):

	June 29, 2012			December 30, 2011
Raw materials	$	38,473		$	42,976
Work in process		8,306			12,953
Finished goods		2,307			3,486
		49,086			59,415
Reserve for excess and obsolete		(4,635	)		(3,942	)
Total	$	44,451		$	55,473

Equipment and leasehold improvements, net, consisted of the following (in thousands):

	June 29, 2012			December 30, 2011
Computer equipment and software	$	7,105		$	7,089
Furniture and fixtures		1,584			1,761
Machinery and equipment		8,781			9,282
Leasehold improvements		10,857			10,860
		28,327			28,992
Accumulated depreciation and amortization		(19,565	)		(18,983	)
Total	$	8,762		$	10,009

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 29, 2012	Dec. 30, 2011
Condensed Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance	$ 8	$ 5
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares outstanding
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	90,000,000	90,000,000
Shares of newly issued common stock	23,330,376	22,910,649
Common stock, shares outstanding	23,330,376	22,910,649
Treasury stock, shares	601,944	601,944

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Income Tax (Tables)

6 Months Ended

Jun. 29, 2012

Income Tax [Abstract]

Activity related to uncertain tax positions

	Six months ended
	June 29, 2012		July 1, 2011
Balance as of the beginning of period	$	132	$	39
Increases related to prior year tax positions		22		—
Expiration of the statute of limitations for the assessment of taxes		—		(39	)
Balance as of the end of period	$	154	$	—

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Document and Entity Information	6 Months Ended
	Jun. 29, 2012	Jul. 27, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	ULTRA CLEAN HOLDINGS INC
Entity Central Index Key	0001275014
Document Type	10-Q
Document Period End Date	Jun. 29, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-28
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		23,331,276

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Net Income Per Share (Tables)

6 Months Ended

Jun. 29, 2012

Net Income Per Share [Abstract]

Basic and diluted net income per share

	Three months ended				Six months ended
	June 29, 2012		July 1, 2011		June 29, 2012		July 1, 2011
Numerator:
Net income	$	3,923	$	6,958	$	8,583	$	12,778
Denominator:
Shares used in computation — basic:
Weighted average common shares outstanding		23,292		22,734		23,289		22,597
Shares used in computing basic net income per share		23,292		22,734		23,289		22,597
Shares used in computation — diluted:
Shares used in computing basic net income per share		23,292		22,734		23,289		22,597
Dilutive effect of common shares outstanding subject to repurchase		101		170		239		313
Dilutive effect of options outstanding		317		578		365		618
Shares used in computing diluted net income per share		23,710		23,482		23,893		23,528
Net income per share — basic	$	0.17	$	0.31	$	0.37	$	0.57
Net income per share — diluted	$	0.17	$	0.30	$	0.36	$	0.54

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Condensed Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011	Jun. 29, 2012	Jul. 01, 2011
Condensed Consolidated Statements of Income [Abstract]
Sales	$ 101,949	$ 133,741	$ 212,514	$ 260,460
Cost of goods sold	87,695	114,748	182,600	223,915
Gross profit	14,254	18,993	29,914	36,545
Operating expenses:
Research and development	1,288	1,437	2,694	3,042
Sales and marketing	1,666	2,018	3,410	4,075
General and administrative	6,384	6,045	12,627	11,748
Total operating expenses	9,338	9,500	18,731	18,865
Income from operations	4,916	9,493	11,183	17,680
Interest and other income (expense), net	(14)	(367)	(119)	(735)
Income before provision for income taxes	4,902	9,126	11,064	16,945
Income tax provision	979	2,168	2,481	4,167
Net income	$ 3,923	$ 6,958	$ 8,583	$ 12,778
Net income per share:
Basic	$ 0.17	$ 0.31	$ 0.37	$ 0.57
Diluted	$ 0.17	$ 0.30	$ 0.36	$ 0.54
Shares used in computing net income per share:
Basic	23,292	22,734	23,289	22,597
Diluted	23,710	23,482	23,893	23,528

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Segment Information

6 Months Ended

Jun. 29, 2012

Segment Information [Abstract]

Segment Information

7. Segment Information

The Company operates in one reportable segment and is engaged in the development, manufacture and supply of critical subsystems for the semiconductor capital equipment, flat panel, medical, energy and research industries. The nature of the Company’s products and production processes as well as type of customers and distribution methods is consistent among all of the Company’s products. The Company’s foreign operations are conducted primarily through its wholly-owned subsidiary in China. The Company’s principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.

All information on sales by geographic area is based upon the location to which the products were shipped. The following table sets forth revenue by geographic area (in thousands):

	Three months ended				Six months ended
	June 29, 2012		July 1, 2011		June 29, 2012		July 1, 2011
United States	$	73,291	$	103,633	$	155,279	$	213,442
Asia		26,658		26,086		57,142		41,985
Europe		—		4,022		93		5,033
	$	101,949	$	133,741	$	212,514	$	260,460

At June 29, 2012 and July 1, 2011, approximately $4.4 million and $4.3 million, respectively, of the Company’s long-lived assets were located in Asia, and the remaining balances were located in the United States.

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Commitments and Contingencies

6 Months Ended

Jun. 29, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

6. Commitments and Contingencies

The Company had commitments to purchase inventory totaling approximately $26.0 million at June 29, 2012.

The Company leases properties domestically in Hayward, California, Austin, Texas and South San Francisco, California and internationally in China and Singapore. The Company’s total remaining future minimum lease payments as of June 29, 2012, over the remaining terms of these leases will be approximately $10.6 million.

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 cannot be predicted with certainty, the Company has not had a history of outcomes to date that have been material to the statement of operations and does not believe that any of these proceedings or other claims will have a material adverse effect on its consolidated financial condition or results of operations.

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Organization, Basis of Presentation and Significant Accounting Policies (Details 3)	6 Months Ended
	Jun. 29, 2012
Summary of information with respect to options granted, exercised and canceled
Options outstanding at December 30, 2011, Number of shares	1,654,691
Granted, Number of Shares
Exercised, Number of Shares	(72,725)
Canceled, Number of Shares	(4,722)
Options outstanding at June 29, 2012, Number of Shares	1,577,244

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Segment Information (Tables)

6 Months Ended

Jun. 29, 2012

Commitments and Contingencies [Abstract]

Revenue by geographic area

	Three months ended				Six months ended
	June 29, 2012		July 1, 2011		June 29, 2012		July 1, 2011
United States	$	73,291	$	103,633	$	155,279	$	213,442
Asia		26,658		26,086		57,142		41,985
Europe		—		4,022		93		5,033
	$	101,949	$	133,741	$	212,514	$	260,460

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Organization, Basis of Presentation and Significant Accounting Policies (Tables)

6 Months Ended

Jun. 29, 2012

Organization, Basis of Presentation and Significant Accounting Policies [Abstract]

Customers as a percentage of total sales

	Six months ended
	June 29, 2012			July 1, 2011
Applied Materials, Inc. (1)		44.5	%		38.5	%
Lam Research Corporation (2)		37.7	%		33.8	%
Total		82.2	%		72.3	%

(1) In November 2011, Applied Materials Inc. completed the acquisition of Varian Semiconductor Equipment Associates, Inc., one of the Company’s customers. The sales percentages for Applied Materials, Inc. for the six months ended June 29, 2012 include sales to Varian Semiconductor Equipment Associates, Inc. The sales percentages for Applied Materials, Inc. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Varian Semiconductor Equipment Associates, Inc., for comparison purposes.

(2) In June 2012, Lam Research Corp. completed the acquisition of Novellus Systems, Inc., one of the Company’s customers. The sales percentages for Lam Research Corp. for the six months ended June 29, 2012 include sales to Novellus Systems, Inc. The sales percentages for Lam Research Corp. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Novellus Systems, Inc., for comparison purposes.

Components of the reserve for warranty costs

	Six months ended
	June 29, 2012			July 1, 2011
Beginning balance	$	350		$	204
Additions related to sales		58			447
Warranty claims		(83	)		(328	)
Ending balance	$	325		$	323

Summary of information with respect to options granted, exercised and canceled

	Number of Shares
Options outstanding at December 30, 2011		1,654,691
Granted		—
Exercised		(72,725	)
Canceled		(4,722	)
Options outstanding at June 29, 2012		1,577,244

Restricted stock unit and restricted stock award activity

	Number of Shares
Unvested restricted stock units and restricted stock awards at December 30, 2011		1,167
Granted		583
Vested		(335	)
Forfeited		(37	)
Unvested restricted stock units and restricted stock awards at June 29, 2012		1,378

Stock-based compensation expense included in the condensed consolidated statements of operations

	Three months ended						Six months ended
	June 29, 2012			July 1, 2011			June 29, 2012			July 1, 2011
Cost of sales	$	422		$	329		$	815		$	650
Research and development		86			79			165			158
Sales and marketing		112			93			206			214
General and administrative		777			663			1,463			1,144
Total stock-based compensation expense		1,397			1,164			2,649			2,166
Income tax benefit		(279	)		(277	)		(585	)		(534	)
Total stock-based compensation expense, net of income tax benefit	$	1,118		$	887		$	2,064		$	1,632

(1) As of June 29, 2012 and July 1, 2010, there were no stock-based compensation expenses capitalized in inventory.

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Subsequent Events

6 Months Ended

Jun. 29, 2012

Subsequent Events [Abstract]

Subsequent Events

8. Subsequent Events

On July 3, 2012, The Company completed the acquisition of American Integration Technologies LLC (“AIT”), a supplier of critical subsystems to the semiconductor capital equipment, medical, energy, industrial and aerospace industries, for approximately $74.4 million in cash (excluding net working capital adjustments) and 4.5 million shares of newly issued common stock. The Company’s primary reasons for this acquisition was to immediately add to its existing customer base in both the semiconductor and medical spaces and to provide additional manufacturing capabilities. The Company financed the cash portion of the merger, and repaid existing indebtedness, by borrowing a total of $79.8 million under a new senior secured credit facility, of which $40.0 million represents borrowings under a term loan and $39.8 million represents borrowings under a revolving credit facility. Following the acquisition of AIT, the Company’s cash totaled approximately $45.3 million and total debt was approximately $79.8 million. See further discussion of the new borrowing arrangements in Note 3. Borrowing Arrangements in Notes to Condensed Consolidated Financial Statements. Due to the limited time since the acquisition date and limitations on access to AIT’s information prior to the acquisition date, the initial accounting for the business combination is incomplete at this time. As a result, we are unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired and resulting from the transaction, including the information required for indemnification assets, contingencies, non-controlling interests and goodwill. Also, because the initial accounting for the transaction is incomplete, we are unable to provide the supplemental pro forma revenue and earnings of the combined entity. We will include this information in our Quarterly Report on Form 10-Q for the three months ended September 28, 2012.

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Organization, Basis of Presentation and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 29, 2012

Organization, Basis of Presentation and Significant Accounting Policies [Abstract]

Organization

Organization — Ultra Clean Holdings, Inc. (the “Company”) is a leading developer and supplier of critical subsystems, primarily for the semiconductor capital equipment industry. The Company also leverages the specialized skill sets required to support semiconductor capital equipment to serve the technologically similar markets in the flat panel, medical, energy and research industries, collectively referred to as “Other Addressed Industries”. The Company develops, designs, prototypes, engineers, manufactures and tests subsystems which are highly specialized and tailored to specific steps in the semiconductor manufacturing process as well as the manufacturing processes in Other Addressed Industries. Revenue is derived from the sale of gas delivery systems and other critical subsystems including chemical mechanical planarization (CMP) subsystems, chemical delivery modules, top-plate assemblies, frame assemblies, process modules and other high level assemblies.

The Company’s customers are primarily original equipment manufacturers (OEMs) in industries it supports, providing customers complete subsystem solutions that combine the Company’s expertise in design, test, component characterization and highly flexible manufacturing operations with quality control and financial stability. This combination helps the Company to drive down total manufacturing costs, reduce design-to-delivery cycle times and maintain high quality standards for our customers. The Company believes these characteristics, as well as the Company’s standing as a leading supplier of gas delivery systems and other critical subsystems, place the Company in a strong position to benefit from the demand for subsystem outsourcing.

Basis of Presentation

Basis of Presentation — The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). This financial information reflects all adjustments which are, in the opinion of the Company, normal, recurring and necessary to present fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The Company’s December 30, 2011, balance sheet data was derived from audited financial statements as of that date.

The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended December 30, 2011, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2012. The Company’s results of operations for the three months and six months ended June 29, 2012, are not necessarily indicative of the results to be expected for any future periods.

Principles of Consolidation

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 in consolidation.

Foreign Currency Translation

Foreign Currency Translation — The Company has reviewed its non-U.S. subsidiaries (of which all of its non-U.S. asset base resides in Asia) that operate in a local currency environment to determine their functional currency by examining how and in what currency each subsidiary generates cash through billings and cash receipts and how and in what currency the subsidiary expends cash through payment of its vendors and payment of its workforce. Also, these subsidiaries’ individual assets and liabilities that are primarily denominated in the local foreign currency are examined for their impact on the Company’s cash flows. All have been determined to have the U.S. dollar as its functional currency. All balance sheet accounts of these local functional currency subsidiaries are translated at the fiscal period-end exchange rate, and income and expense accounts are translated using average rates in effect for the period, except for costs related to those balance sheet items that are translated using historical exchange rates. The resulting translation adjustments are recorded as cumulative translation adjustments, and are a component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense), net.

Use of Accounting Estimates

Use of Accounting Estimates — The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment. Actual amounts may differ from those estimates.

Certain Significant Risks and Uncertainties

Certain Significant Risks and Uncertainties — The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, any of the following areas could have a negative effect on the Company in terms of its future financial position, results of operations or cash flows: the general state of the U.S. and world economies, the highly cyclical nature of the industries the Company serves; the loss of any of a small number of customers; ability to obtain additional financing; failure to successfully integrate completed acquisitions; pursuing acquisition opportunities; regulatory changes; fundamental changes in the technology underlying semiconductor, flat panel, solar and medical device manufacturing processes or manufacturing equipment; the hiring, training and retention of key employees; successful and timely completion of product design efforts; and new product design introductions by competitors.

Concentration of Credit Risk

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

Significant sales to customers

Significant sales to customers — The Company had significant sales to two customers- Applied Materials, Inc. and Lam Research Corporation, each of which accounted for 10% or more of sales for the six months ended June 29, 2012 and July 1, 2011. Sales to each of these customers as a percentage of total sales were as follows:

	Six months ended
	June 29, 2012			July 1, 2011
Applied Materials, Inc. (1)		44.5	%		38.5	%
Lam Research Corporation (2)		37.7	%		33.8	%
Total		82.2	%		72.3	%

(1) In November 2011, Applied Materials Inc. completed the acquisition of Varian Semiconductor Equipment Associates, Inc., one of the Company’s customers. The sales percentages for Applied Materials, Inc. for the six months ended June 29, 2012 include sales to Varian Semiconductor Equipment Associates, Inc. The sales percentages for Applied Materials, Inc. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Varian Semiconductor Equipment Associates, Inc., for comparison purposes.

(2) In June 2012, Lam Research Corp. completed the acquisition of Novellus Systems, Inc., one of the Company’s customers. The sales percentages for Lam Research Corp. for the six months ended June 29, 2012 include sales to Novellus Systems, Inc. The sales percentages for Lam Research Corp. for the six months ended July 1, 2011 have been updated to reflect the inclusion of sales to Novellus Systems, Inc., for comparison purposes.

These two customers’ accounts receivable balances were individually greater than 10% of accounts receivable and, in the aggregate, represented approximately 86% and 72% of accounts receivable as of June 29, 2012 and December 30, 2011, respectively.

Fair Value of Financial Instruments

Fair Value of Financial Instruments — The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and bank borrowings. The carrying value of these instruments approximates their fair value because of their short-term nature.

The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value in the following hierarchy:

Level 1 — Observable inputs, such as quoted prices in active markets,

Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly,

Level 3 — Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The Company’s only financial asset or liability measured at fair value on a recurring basis is an overnight sweep account invested in money market funds with a carrying value and fair value of $26.6 million at June 29, 2012, each valued based on Level 2 inputs.

Fiscal Year

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.

Income Taxes

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. 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. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of income as income tax expense.

The determination of the Company’s tax provision is subject to judgments and estimates. The carrying value of the Company’s net deferred tax assets, which is made up primarily of tax deductions, assumes it will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, the Company makes judgments with respect to whether it is likely to generate sufficient future taxable income to realize these assets. The Company has a valuation allowance on the deferred tax assets of one of its China subsidiaries in the amount of $441,000 as of June 29, 2012.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position. Management believes that it has adequately provided for any adjustments that may result from these examinations, however, the outcome of tax audits cannot be predicted with certainty.

Product Warranty

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

	Six months ended
	June 29, 2012			July 1, 2011
Beginning balance	$	350		$	204
Additions related to sales		58			447
Warranty claims		(83	)		(328	)
Ending balance	$	325		$	323

Revenue Recognition

Revenue Recognition — Product revenue is generally recorded upon shipment. In arrangements which specify title transfer upon delivery, revenue is not recognized until the product is delivered. The Company recognizes revenue when persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability is reasonably assured. If the Company has not substantially completed a product or fulfilled the terms of a sales agreement at the time of shipment, revenue recognition is deferred until fulfillment. The Company’s standard arrangement for its customers includes a signed purchase order or contract, no right of return of delivered products and no customer acceptance provisions.

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

Research and Development Costs

Research and Development Costs — Research and development costs are expensed as incurred.

Net Income per Share

Net Income (loss) per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options and restricted stock using the treasury stock method, except when such shares are anti-dilutive (see Note 5 to Condensed Consolidated Financial Statements).

Comprehensive Income

Comprehensive Income (Loss) — The Company reports by major components and as a single total, the change in its net assets during the period from non-owner sources. Comprehensive income (loss) for all periods presented was the same as net income (loss).

Segments

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 considered to be the Chief Executive Officer. The Company operates in one reporting segment.

Stock-Based Compensation Expense

Stock-Based Compensation Expense

The Company maintains stock-based compensation plans which allow for the issuance of equity-based awards to executives and certain employees. These equity-based awards include stock options, restricted stock awards and restricted stock units which can be either time-based or performance-based. The Company also maintains an employee stock purchase plan that provides for the issuance of shares to all eligible employees of the Company at a discounted price.

Stock-based compensation expense includes compensation costs related to estimated fair values of stock options and awards granted. The estimated fair value of the Company’s equity-based awards, net of expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis over a weighted average period of four years for stock options three years for restricted stock awards and will be adjusted for subsequent changes in estimated forfeitures and future option grants.

The Company applies the fair value recognition provisions based on the FASB’s guidance regarding stock-based compensation. The exercise price of each stock option equals the market price of the Company’s stock on the date of grant. The estimated fair value of the Company’s equity-based awards, less expected forfeitures, is amortized over the awards’ vesting periods on a straight-line basis over a weighted average period of four years and will be adjusted for subsequent changes in estimated forfeitures and future option grants. Most options are scheduled to vest over four years and expire no later than ten years from the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the expected term of the awards; the Company’s expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company estimates the expected term of share-based awards granted based on the Company’s historical option term experience. The Company estimates the volatility of its common stock based upon the Company’s historical stock price volatility over the length of the expected term of the options. The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining maturities similar to the expected term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest. The Company also considers, each quarter, whether there have been any significant changes in facts and circumstances that would affect its forfeiture rate.

Stock Options

Stock Options

The following table summarizes information with respect to options granted, exercised and canceled in the quarter ended June 29, 2012 and outstanding at June 29, 2012:

	Number of Shares
Options outstanding at December 30, 2011		1,654,691
Granted		—
Exercised		(72,725	)
Canceled		(4,722	)
Options outstanding at June 29, 2012		1,577,244

There were no options granted by the Company during either of the six month periods ended June 29, 2012 or July 1, 2011.

The weighted-average exercise price, aggregate intrinsic value and weighted average remaining contractual life of outstanding options as of June 29, 2012 were $6.78 per share, $2.6 million and 4.5 years, respectively. As of June 29, 2012, 1,433,509 options with a weighted-average exercise price of $7.28 per share, aggregate intrinsic value of $1.9 million and a weighted average remaining contractual life of 4.3 years were exercisable. The total unamortized expense of the Company’s unvested options, net of forfeitures, as of June 29, 2012, was $0.1 million.

Employee Stock Purchase Plan

Employee Stock Purchase Plan

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. Under the ESPP, substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 95 percent of the fair market value of the Company’s stock at the end of each applicable purchase period.

Restricted Stock Units and Restricted Stock Awards

Restricted Stock Units and Restricted Stock Awards

The Company grants Restricted Stock Units (“RSU’s”) to employees and Restricted Stock Awards (“RSA”) to non-employee directors as part of the Company’s long term equity compensation plan.

Restricted Stock Units — RSU’s are granted to employees with a per share or unit purchase price of zero dollars and either have time based or performance based vesting. RSU’s typically vest over three years, subject to the employee’s continued service with the Company. For purposes of determining compensation expense related to these RSU’s, the fair value is determined based on the closing market price of the Company’s common stock on the date of award. The expected cost of the grant is reflected over the service period, and is reduced for estimated forfeitures. The Company granted 548,900 RSU’s (including 110,375 performance stock units) during the quarter ended March 30, 2012, with a weighted average fair value of $8.21 per share and 443,500 RSU’s (including 66,250 performance stock units) during the quarter ended April 1, 2011, with a weighted average fair value of $10.30 per share. The Company granted 4,450 RSU’s during the quarter ended June 29, 2012, with a weighted average fair value of $6.41 and granted 249,550 RSU’s during the quarter ended July 1, 2011, with a weighted average fair value of $11.20 per share. During the six months ended June 29, 2012, 32,420 vested shares were withheld to satisfy withholding tax obligations, resulting in the net issuance of 48,497 shares. As of June 29, 2012, $7.7 million of stock-based compensation cost, net of forfeitures, related to RSU’s remains to be amortized, of which substantially all is expected to be recognized over an estimated period of less than three years. As of June 29, 2012, a total of 1,350,810 RSU’s remain outstanding with an aggregate intrinsic value of $8.7 million and a weighted average remaining contractual term of 1.4 years.

Restricted Stock Awards — During each of the quarters ended June 29, 2012 and July 1, 2011, the Company issued 30,000 shares of restricted stock awards to its non-employee directors. The total unamortized expense of the Company’s unvested restricted stock awards as of June 29, 2012, was approximately $0.2 million.

Recently Issued Accounting Standards

Recently Issued Accounting Standards — In September 2011, the FASB issued authoritative guidance to allow entities to use a qualitative approach to test goodwill for impairment. This authoritative guidance permits an entity to first perform 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 it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The implementation of this authoritative guidance is not anticipated to have an impact on the Company’s financial position or results of operations.

Goodwill and other intangible assets

In September 2011, the FASB issued authoritative guidance to allow entities to use a qualitative approach to test goodwill for impairment. This authoritative guidance permits an entity to first perform 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 it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

Presentation of comprehensive income

In June 2011, the FASB issued authoritative guidance on the presentation of comprehensive income to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the requirement regarding the presentation of reclassification adjustments out of accumulated other comprehensive income was deferred indefinitely. The new guidance, except for the provision deferred, was effective for the Company in the first quarter of fiscal 2012. The implementation of this authoritative guidance changed only the presentation of comprehensive income and had no impact on the Company’s financial position or results of operations.

In May 2011, the FASB issued authoritative guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This authoritative guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. This authoritative guidance also expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance was effective for the Company in the first quarter of fiscal 2012. The implementation of this authoritative guidance did not have a material impact on the Company’s financial position or results of operations.

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Balance Sheet Information (Tables)

6 Months Ended

Jun. 29, 2012

Balance Sheet Information [Abstract]

Summary of Inventory

	June 29, 2012			December 30, 2011
Raw materials	$	38,473		$	42,976
Work in process		8,306			12,953
Finished goods		2,307			3,486
		49,086			59,415
Reserve for excess and obsolete		(4,635	)		(3,942	)
Total	$	44,451		$	55,473

Equipment and leasehold improvements, net

	June 29, 2012			December 30, 2011
Computer equipment and software	$	7,105		$	7,089
Furniture and fixtures		1,584			1,761
Machinery and equipment		8,781			9,282
Leasehold improvements		10,857			10,860
		28,327			28,992
Accumulated depreciation and amortization		(19,565	)		(18,983	)
Total	$	8,762		$	10,009

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011	Jun. 29, 2012	Jul. 01, 2011
Revenue by geographic area
Sales	$ 101,949	$ 133,741	$ 212,514	$ 260,460
United States [Member]
Revenue by geographic area
Sales	73,291	103,633	155,279	213,442
Asia [Member]
Revenue by geographic area
Sales	26,658	26,086	57,142	41,985
Europe [Member]
Revenue by geographic area
Sales		$ 4,022	$ 93	$ 5,033

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Organization, Basis of Presentation and Significant Accounting Policies (Details 1) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011
Components of the reserve for warranty costs
Beginning balance	$ 350	$ 204
Additions related to sales	58	447
Warranty claims	(83)	(328)
Ending balance	$ 325	$ 323

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Balance Sheet Information (Details) (USD $) In Thousands, unless otherwise specified	Jun. 29, 2012	Dec. 30, 2011
Summary of Inventory
Raw materials	$ 3,843	$ 42,976
Work in process	8,306	12,953
Finished goods	2,307	3,486
Inventory, gross	49,086	59,415
Reserve for excess and obsolete	(4,635)	(3,942)
Total	$ 44,451	$ 55,473

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011
Cash flows from operating activities:
Net income	$ 8,583	$ 12,778
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	1,463	1,361
Excess tax benefit from stock-based compensation	(30)	(755)
Stock-based compensation	2,649	2,166
Changes in assets and liabilities:
Accounts receivable, net of allowance	(891)	(3,190)
Inventory	11,022	(10,583)
Prepaid expenses and other	(923)	(599)
Other non-current assets	6	(27)
Accounts payable	(3,777)	2,969
Accrued compensation and related benefits	1,121	1,448
Other liabilities	1,096	842
Net cash provided by (used in) operating activities	20,319	6,410
Cash flows used in investing activities:
Purchases of equipment and leasehold improvements	(216)	(2,656)
Net cash used in investing activities	(216)	(2,656)
Cash flows provided by (used in) financing activities:
Proceeds from revolving credit facility	19,482
Principal payments on revolving credit facility, term debt and capital lease obligations	(40,543)	(2,421)
Excess tax benefit from stock-based compensation	30	755
Employees' taxes paid upon vesting of restricted stock units	(268)
Proceeds from issuance of common stock	178	894
Net cash used in financing activities	(21,121)	(772)
Net increase (decrease) in cash	(1,018)	2,982
Cash and cash equivalents at beginning of period	52,155	34,654
Cash and cash equivalents at end of period	51,137	37,636
Cash paid/refunded during the period:
Income taxes paid	1,716	2,190
Income tax refunds	(649)	(613)
Interest	167	616
Non-cash investing activities:
Restricted stock issued	$ 2,674	$ 2,765

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Net Income Per Share

6 Months Ended

Jun. 29, 2012

Net Income Per Share [Abstract]

Net Income Per Share

5. Net Income Per Share

Basic net income per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share (in thousands, except per share data):

	Three months ended				Six months ended
	June 29, 2012		July 1, 2011		June 29, 2012		July 1, 2011
Numerator:
Net income	$	3,923	$	6,958	$	8,583	$	12,778
Denominator:
Shares used in computation — basic:
Weighted average common shares outstanding		23,292		22,734		23,289		22,597
Shares used in computing basic net income per share		23,292		22,734		23,289		22,597
Shares used in computation — diluted:
Shares used in computing basic net income per share		23,292		22,734		23,289		22,597
Dilutive effect of common shares outstanding subject to repurchase		101		170		239		313
Dilutive effect of options outstanding		317		578		365		618
Shares used in computing diluted net income per share		23,710		23,482		23,893		23,528
Net income per share — basic	$	0.17	$	0.31	$	0.37	$	0.57
Net income per share — diluted	$	0.17	$	0.30	$	0.36	$	0.54

The Company had securities outstanding which could potentially dilute basic earnings per share in the future, but the incremental shares from the assumed exercise of these securities were excluded in the computation of diluted net income per share, as their effect would have been anti-dilutive. Such outstanding securities consisted of 618,156 and 322,091 stock options for the three months ended June 29, 2012 and July 1, 2011, respectively, and 547,473 and 322,683 stock options for the six months ended June 29, 2012 and July 1, 2011, respectively.

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Balance Sheet Information (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 29, 2012	Dec. 30, 2011
Equipment and leasehold improvements, net
Equipment and leasehold improvements, gross	$ 28,327	$ 28,992
Accumulated depreciation and amortization	(19,565)	(18,983)
Total	8,762	10,009
Computer equipment and software [Member]
Equipment and leasehold improvements, net
Equipment and leasehold improvements, gross	7,105	7,089
Furniture and fixtures [Member]
Equipment and leasehold improvements, net
Equipment and leasehold improvements, gross	1,584	1,761
Machinery and equipment [Member]
Equipment and leasehold improvements, net
Equipment and leasehold improvements, gross	8,781	9,282
Leasehold improvements [Member]
Equipment and leasehold improvements, net
Equipment and leasehold improvements, gross	$ 10,857	$ 10,860

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Organization, Basis of Presentation and Significant Accounting Policies (Details)	6 Months Ended
	Jun. 29, 2012	Jul. 01, 2011
Customers as a percentage of total sales
Total	82.20%	72.30%
Applied Materials, Inc [Member]
Customers as a percentage of total sales
Total	44.50%	38.50%
Lam Research Corporation [Member]
Customers as a percentage of total sales
Total	37.70%	33.80%