SEMITOOL INC, 10-K, 1999-12-23

SEMITOOL INC
10-K, 1999-12-23
SPECIAL INDUSTRY MACHINERY, NEC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the Transition Period From ___ to ___

Commission File Number 0-25424

SEMITOOL, INC.
(Exact Name of Registrant as Specified in Its Charter)

MONTANA 81-0384392
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Semitool, Inc.
655 West Reserve Drive, Kalispell, Montana 59901

(406) 752-2107

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par
value

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant on December 6, 1999 (based on the last reported
sale price on the Nasdaq National Market as of such date) was $87,985,927.

The number of shares of the registrant's Common Stock, no par value, outstanding
as of December 6, 1999 was 13,814,498.

DOCUMENTS INCORPORATED BY REFERENCE

There is incorporated by reference in Part III of this Annual Report on Form
10-K the information contained in the registrant's definitive proxy statement
for its annual meeting of shareholders to be held February 8, 2000.

<PAGE>

PART I

Item 1. Business

INTRODUCTION

Statements contained in this Annual Report on Form 10-K which are not purely
historical facts are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, including without
limitation, statements regarding trends in the semiconductor industry, future
product development, strategic business development, pursuit of new and growing
markets, competition, patent filings, results from operations, and the adequacy
of manufacturing facilities, and are subject to the safe harbor provisions
created by that statute. A forward-looking statement may contain words such as
"will continue to be," "will be," "continue to," "expect to," "anticipates
that," "to be" or "can impact."

Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause the Company's actual results to differ materially
from those projected in such forward-looking statements. These risks and
uncertainties include, but are not limited to, the cyclical nature of the
semiconductor industry in general, lack of market acceptance for new products,
decreasing demand for the Company's existing products, impact of competitive
products and pricing, product development, commercialization and technological
difficulties, capacity and supply constraint difficulties and other risks
detailed under the heading "Risk Factors" and elsewhere herein.

The Company's future results will depend on its ability to continue to enhance
its existing products and to develop and manufacture new products and to finance
such activities. There can be no assurance that the Company will be successful
in the introduction, marketing and cost-effective manufacture of any new
products or that the Company will be able to develop and introduce in a timely
manner new products or enhancements to its existing products and processes which
satisfy customer needs or achieve widespread market acceptance.

The Company undertakes no obligation to update forward-looking statements to
reflect subsequent events, changed circumstances, or the occurrence of
unanticipated events. Reference is hereby made to the consolidated financial
statements, in Part IV of this Form 10-K, and the accompanying notes for segment
information as to net sales from external customers, income (loss) from
operations and total assets.

THE COMPANY

Semitool, Inc. ("Semitool" or the "Company") was organized in 1979. We operate
two business segments, Semiconductor Equipment and Software Control Systems. The
Software Control Systems segment resulted from a February 1996 acquisition and
operates under the name Semy Engineering, Inc.

The Semiconductor Equipment segment designs, manufactures, markets and sells
capital equipment and related parts and services primarily for use in
semiconductor manufacturing facilities ("Fabs") for silicon wafer surface
preparation and cleaning and the electrochemical deposition of various metals on
the wafer. Our equipment is also used to manufacture materials and devices
fabricated with similar processes, including thin film heads used for disk
drives, flat panel displays, multichip modules, ink jet print heads, compact
disc masters, solder bumping for advanced device packaging, high speed gallium
arsenide communication devices, micro electromechanical systems, smart cards,
systems on a chip, and hard disk media. The process steps performed by our
products occur repeatedly throughout the semiconductor fabrication cycle, and
constitute an integral part of the front-end manufacturing process for virtually
every semiconductor produced today. This equipment is designed to provide
improved yields through higher process uniformity and reduced contamination,
increased throughput through advanced processes which reduce cycle times, and
lower direct costs through reduced consumables usage and smaller footprints,
thereby providing our customers lower overall costs of ownership.

The Software Control Systems segment develops, markets and sells software
control systems for data collection, equipment monitoring, and advanced process
control for most types of equipment used in a fab's front-end manufacturing
process. These systems provide the user with the capability to use real-time
process data to adjust processes and plan equipment maintenance to maximize
product yield and tool uptime, thereby reducing unit costs.

The products of both segments are marketed and sold worldwide through our own
sales force and manufacturer's representatives.

INDUSTRY BACKGROUND

The fabrication of semiconductor devices is a complex process involving several
distinct phases repeated numerous times during the fabrication process. Each
production phase requires different processing technology and equipment, and the
Company believes no one semiconductor equipment supplier currently produces an
entire state-of-the-art fabrication system. Rather, semiconductor device
manufacturers typically construct fabrication facilities by combining
manufacturing equipment produced by several different suppliers, each of which
performs specific functions in the manufacturing process.

Industries that use semiconductors are demanding increasingly complex, higher
performance devices. Fabrication of these devices requires increasing the number
of process steps and reducing feature sizes, necessitating narrower process
tolerances. These factors, together with the industry's history of migration to
larger wafer sizes and a greater number of semiconductor devices on wafers have
led to a substantial increase in wafer value at each step in the process.

The semiconductor industry is characterized by continuing change and evolving
technologies. Traditionally, semiconductor devices have used aluminum alloys to
connect the millions of transistors that make up each device. As these
interconnects become increasingly smaller, an electrical conductor with superior
conductivity is needed and copper is evolving as a replacement for aluminum as
the wiring for advanced devices. This major interconnect technology development
requires specialized production equipment using an electrochemical deposition
process.

Because of the increasing cost of equipping fabrication facilities and the
greater number of devices manufactured on each wafer, the Company believes
semiconductor manufacturers are placing greater importance on the overall cost
of ownership of each piece of process equipment. The principal elements of cost
of ownership are yield, throughput, and direct costs. Yield, or the percentage
of good devices per wafer, is primarily determined by operating contamination
levels and process uniformity. Achieving high yields becomes more critical to
manufacturers as their per wafer investment increases. Throughput, or the number
of wafers processed by a particular tool in a given period, is primarily a
function of the time required to complete a process cycle and the handling time
between process steps. Major components of direct operating cost include the
amount of consumables used in the manufacturing process, the cost of the clean
room space occupied by the equipment (i.e., the "footprint"), the purchase price
of the equipment, and other operating costs such as repairs and maintenance.

The Company believes that semiconductor device manufacturers are asking
equipment suppliers to take an increasingly active role in meeting the
manufacturers' technology requirements and cost constraints by researching,
developing, and supporting the products and processes required to fabricate
advanced products. Certain manufacturers are seeking strategic relationships
with equipment suppliers for specific process steps on existing and new
products. As a result, equipment companies are being asked to provide equipment
with integrated processes, advanced process expertise, superior product
performance, reduced overall cost of ownership, and worldwide customer support
to meet the needs of device manufacturers.

THE SEMITOOL STRATEGY

The key elements of the Company's business strategy are as follows:

Develop Innovative Solutions. The Company is committed to developing
new products and processes, new applications for existing products, and
enhancing existing products to address evolving process requirements.
Accordingly, the Company devotes substantial resources to product innovation and
collaborative development efforts.

Offer a Broad Range of Products to Customers in Diverse Markets. The
Company focuses on offering a broad range of products including surface
preparation and cleaning tools, electrochemical deposition equipment, thermal
processing equipment, and software control systems to semiconductor
manufacturers for use in diverse process applications. The Company leverages its
technology and expertise to provide solutions to manufacturers of other products
that are fabricated using similar processes, such as thin film heads used for
disk drives, flat panel displays, multichip modules, ink jet print heads,
compact disc masters, solder bump bonding, and hard disk media. Some of these
other applications involve substrates with surfaces larger than the current
typical semiconductor substrates.

Capitalize on Manufacturing Expertise. The Company's manufacturing
strategy is to identify and perform internally those manufacturing functions
which add value to the Company's products. The Company believes it achieves a
number of competitive advantages from its selective vertical manufacturing
integration, including the ability to achieve cost and quality benefits, and to
bring quickly new products and product enhancements to market.

Focus on Low Overall Cost of Equipment Ownership. The Company designs
and manufactures process equipment and develops processes with a focus on
providing its customers with a low overall cost of ownership. Additionally, the
Company sells software control systems that have the ability to monitor and
control multiple tools used in the fab's front-end manufacturing processes.

Address Worldwide Markets. We market and sell our products worldwide
with emphasis on Europe and Asia as our principal international markets. We
believe the strength of our international sales and service organization is
important to our continued success in these markets. To facilitate our worldwide
marketing strategy, we have dedicated international sales and support
organizations in England, France, Germany, Italy, Japan, Korea, Singapore, and
Taiwan.

SEMITOOL'S PRODUCTS AND SOLUTIONS

Semiconductor Equipment Segment

Surface Preparation and Cleaning

Our surface preparation and cleaning equipment uses centrifugal spray technology
to process wafers and substrates by exposing them to a user-programmable,
sequenced spray of chemicals inside an enclosed chamber. Spray technology avoids
non-uniformity of process by applying the process chemicals via spray. This
technique enhances chemical reaction on the substrate surface, which increases
process reliability and shortens process cycle times. The enclosed process
chamber technology also allows for more efficient use and disposal of process
chemicals through recirculation, reclamation, and filtration as well as
increased operator safety. We sell both manually loaded and fully automated
wafer-handling batch platforms that cluster multiple chemical processing modules
for silicon wafers and other substrates, thereby increasing yield and
throughput, and providing a complete process solution in a single unit. Our
surface preparation equipment is used to apply our proprietary HydrOzone process
which provides a cost-effective, environmentally friendly solution to wafer
cleaning.

Batch Processing Tools

Batch tools process multiple wafers, usually 25 or 50, in a carrier which is
rotated on axis inside the process chamber. The process chamber is sealed and
chemicals are sequentially dispensed into the chamber via spray manifolds in a
closed-loop system. Chemical spray is applied to the wafer surfaces as they
spin. This technique enhances chemical reaction on the substrate surface, which
increases process reliability and shortens process cycle times. After
application of the process chemicals, deionized ("DI") water is sprayed into the
chamber to stop the chemical reaction and to remove chemical residues. The
wafers, carrier, and chamber are then dried by centrifugal spinning coupled with
convection of warm nitrogen, either in the same process chamber or in an
adjacent rinser/dryer module. These batch tools use acids and solvents to
address applications such as photoresist stripping, pre-diffusion cleaning,
oxide etching, polymer removal, and chemical milling. We believe our batch spray
chemical processing and cleaning tools offer significant advantages over
conventional wet-benches. Advantages include higher yields by providing better
process uniformity and lower particulate contamination, increased throughput by
providing shorter process cycle times, and reduced direct costs by providing
more effective use of chemicals and smaller footprints, thereby lowering overall
cost of ownership.

Spectrum and Magnum are Semitool's automated batch multi-module surface
processing products. These tools cluster the Company's solvent, acid and spin
rinser/dryer capabilities into a single automated unit. They offer standard
mechanical interface ("SMIF") loading capabilities and a touch screen computer
interface customized for ease of operation. Spectrum represents a more compact
version of Semitool's automated spray technology which through advanced design
has retained high productivity and performance standards and is easier to
retrofit into existing semiconductor fabs. Both of these multi-module batch
tools provide customers with the flexibility to mix and match process modules,
including immersion modules as appropriate, thereby providing them with a
complete surface processing solution to meet their particular process
requirements. The Spectrum and Magnum possess significant competitive advantages
over both stand-alone tools and other automated products. This includes the
ability to replace two or more wet-benches with a single, smaller footprint tool
and thereby provide increased yields and increased throughput per square foot of
clean room space. Each product comes bundled with the Company's software control
system client package. Selling price ranges from $900,000 to $3.0 million.

Our manually loaded batch spray chemical processing and cleaning products
include the Spray Acid Tool and the Spray Solvent Tool. The Spray Acid Tool is
used in applications using acids and all of its areas exposed to chemicals are
made entirely of teflon and other acid-proof materials. Spray Solvent Tools
dissolve and strip the lithographic media from substrate surfaces, remove
polymer residues, or develop lithographic images on substrate surfaces. The
purchase price of the Company's manual batch chemical processing tools range
from $225,000 to $850,000, depending on configuration.

Our manually loaded Spin Rinser/Dryer is a batch tool used primarily for
removing chemical residue from substrate surface with "DI" water, and utilizes
the same enclosed chamber, spray processing and centrifugal drying technologies
employed in the Company's other batch tools. The Spin Rinser/Dryer incorporates
a "DI" water resistivity monitor to ensure the required level of cleanliness.
The purchase price of the Spin Rinser/Dryer ranges from $15,000 to $100,000,
depending on configuration.

Single Substrate Processing Tools

Single substrate processing equipment employs chemical spray and allows multiple
chemistries to be used within a self-cleaning, enclosed process chamber. These
tools enable customers to conduct sequential surface processing steps, and then
within the same chamber, rinse and centrifugally dry substrates with heat
assistance, thereby reducing contamination during and between process steps. The
tool can be configured with up to 10 process chambers and includes the Company's
software control system.

Our Equinox tool addresses the needs of customers employing single substrate
processing for critical applications. The Equinox provides a variety of
processes, including immersion, spray, vapor and infrared heating, to address
cleaning, stripping, etching, developing, micro-machining and plating. All of
these processes are performed with the substrate suspended device side down in
an enclosed process chamber. This face down positioning allows for enhanced
liquid, vapor, or gas delivery of the process to the substrate, resulting in
greater process uniformity and reduced contamination. The Equinox is a flexible
platform allowing customers to cluster multiple process technologies into a
single tool to perform sequential processes. The Equinox has been used to
process ceramic substrates, thin film heads and photo masks in addition to its
customary silicon and gallium arsenide wafer applications. The price of the
Equinox ranges from $300,000 to $1.3 million, depending on configuration.

The Millennium single wafer processor complements the Equinox product and
provides a revolutionary approach to single wafer surface preparation through a
unique Capsule process chamber. This chamber provides process control to
specific areas on either or both surfaces of the wafer for critical clean
applications. Wafer backside cleaning for copper interconnect is a primary
application and the capsule heads can be included in the configuration of the
Company's electrochemical deposition tools. The Millennium is based on the
Company's proven linear platform which is designed for high throughput
manufacturing. The Capsule takes advantage of a spin-assisted surface tension
effect to tightly control surface processing and provide clean, dry wafers for
further fabrication steps. The price range for Millennium will be from $1.0
million to $1.3 million depending on the configuration. The Company expects to
begin shipping the Millennium in the first half of fiscal 2000.

Wafer Carrier Cleaning Systems

Our Storm wafer carrier cleaning system cleans and dries the wafer carriers in a
unique rinsing/drying process. A solution is sprayed inside the process chamber,
cleaning wafer boxes or cassettes and is then followed by a "DI" water rinse.
The boxes and cassettes are then dried using centrifugal force and warm filtered
air. Storm monitors the humidity inside the process chamber to ensure consistent
drying results. We believe Storm removes particles more effectively than
conventional technology and has a low cost of ownership. Storm also has a
patented loading feature that allows through-the-wall installation whereby
unwashed boxes and cassettes can be loaded into the chamber from outside the
clean room and then unloaded directly into the clean room after the cleaning
cycle has been completed. This feature enables customers to avoid bringing
contaminated boxes and cassettes into clean areas. The price of a Storm ranges
from $150,000 to $400,000, depending on configuration.

Electrochemical Deposition

Semitool introduced its first electrochemical deposition (ECD) tool in 1993. Our
ECD tools are being used in production for gold, platinum, solder, and copper
deposition and for research and development applications with other metals.
Semitool developed the first high throughput copper plating tool, the LT-210,
for the semiconductor industry.

Copper has many advantages over aluminum alloys that have traditionally been
used for device interconnects. Copper will significantly minimize the number of
metal layers required, reduce heat dissipation, reduce manufacturing cost, and
increase chip speed. Copper has lower electrical resistance than aluminum so
much smaller lines of copper have the same current-carrying capability as
today's aluminum interconnects. A limited number of semiconductor device
manufacturers have begun delivering devices with copper interconnects. The
Company believes the emerging copper interconnect market will be a high-growth
market when the semiconductor industry begins widespread production of
semiconductor copper interconnect based devices.

Other applications for electrochemical deposition have emerged such as the
deposition of gold interconnects on gallium arsenide in the manufacture of high
speed communication devices and solder bump application to semiconductors for
flip chip attachment. Flip chip attachment makes the die attach operation much
more efficient than conventional wire bonding processes, may become increasingly
necessary as the number of inputs and outputs per chip increase, and provides a
higher level of performance than is otherwise available. ECD provides technical
capability while maintaining low cost solder application. The manufacture of
thin film heads and ink jet print heads also utilizes electrochemical
deposition.

Semitool offers two models of fully automated single wafer processing tools that
are designed for electrochemical deposition. The Equinox platform, a radial
tool, is designed for flexibility to handle process development or production
applications. Its versatility in configuration allows multiple chemistries and
processes to be performed in the same tool. The LT-210c uses a small footprint,
linear configuration designed for high throughput and high productivity
manufacturing. The LT-210c employs two track robots to feed process chambers and
has optional automatic on-line electrolyte analysis and control systems to
ensure constant solution concentration for repeatability of deposition, and
various proprietary systems to ensure uniformity of plating across the wafer.
The LT-210c consistently deposits films with superior step coverage, lower
electrical resistance, at a lower cost and at a rate faster than is possible
with conventional vacuum deposition systems. The Company's ECD tools range in
price from $575,000 to $2.2 million.

Thermal

Thermal processing generally addresses the oxidation/diffusion and low pressure
chemical vapor deposition (LPCVD) steps of the semiconductor fabrication
process. The Company's VTP 1500 and EXPRESS vertical furnaces address this
market and provide a process chamber with a high degree of thermal uniformity to
achieve excellent process results.

Spare Parts and Services

The Company supports its Semiconductor Equipment products through the sale of
product upgrade kits, spare part kits and spare part components from
strategically located warehouses around the world. Customer service and process
engineers assist and train our customers in performing preventive maintenance
and service on Semitool equipment and developing process applications. The
Company currently provides one, two or three year warranty on new equipment and
a 90-day warranty on parts. In addition, we offer a variety of process, service,
and maintenance programs that may be purchased. A number of customers have
purchased maintenance contracts whereby the Company's service employees work
full-time at the customer's facility.

Software Control Systems Segment

Software Control Systems

In February 1996, the Company acquired Semy Engineering, Inc., a manufacturer of
software control systems.

A state-of-the art semiconductor fab contains numerous pieces of complex
equipment used in its front-end manufacturing process and each one performs a
complicated process. Monitoring and controlling the processes to avoid operating
outside of prescribed parameters are critical to achieving high product yields,
high quality devices, and high machine uptime through preventive maintenance
scheduling. The segment's software control products address these needs through
a communication software interface coupled with equipment specific software
modules to link most types of manufacturing equipment used in the front-end
manufacturing process for integrated circuits. The Unix based software system,
utilizing specially equipped computer workstations, performs data collection,
statistical process analysis and control, preventive maintenance scheduling, and
process recipe management for either a single tool or multiple, networked tools.
The system can be interfaced with a semiconductor manufacturer's computer
integrated manufacturing system. Spare parts, service and maintenance contracts
are also provided.

CUSTOMERS, SALES AND MARKETING

Our customers include leading worldwide semiconductor manufacturers. The
following is a representative list of the Company's largest United States and
international customers, which had purchases of approximately $2.0 million or
more in fiscal 1999:

<S> <C> <C> <C>
Advanced Micro Devices Lucent Technologies Seagate
Conexant Systems Maxim Integrated Products Sony
Fujitsu Motorola STMicroelectronics
IBM Nan Ya Technologies Tokyo Electron, Limited
Infineon NEC United Microelectronics
Integrated Device Technologies Philips Semiconductor Unitive Electronics
Intel Samsung Whiteoak Semiconductor

</TABLE>

We believe that our worldwide sales, service and customer support organizations
are important to the long-term success of our customer relationships.

International sales, primarily in Europe and Asia accounted for approximately
53%, 38% and 36% of total sales for fiscal years 1999, 1998 and 1997,
respectively. The Company markets and sells its products in the United States
through its sales organization which includes direct sales personnel and a
limited number of independent sales representatives. The Company currently has
sales and service offices located throughout the United States and Europe. Also,
the Company has a direct sales and customer support organization located in
Japan, Singapore and Korea with independent manufacturing representatives
serving Taiwan.

To enhance our sales capabilities, we maintain demonstration and process
development laboratories at our Kalispell, Montana facility and a demonstration
laboratory in Japan.

Field service personnel and application engineers service customers in the
United States, Europe, Japan and Asia, directly providing warranty service,
post-warranty service, and equipment installations. Field service engineers are
located in nine sites throughout the United States, including dedicated
site-specific engineers at certain customer locations pursuant to customer
agreements. To further ensure customer satisfaction, the Company also provides
service and maintenance training as well as process application training for its
customers' personnel on a fee basis. The Company maintains an extensive
inventory of spare parts strategically located throughout the world, which
allows the Company to provide same day or overnight delivery in most instances.

BACKLOG

Consolidated orders backlog increased 86.7% to $57.5 million at September 30,
1999, from approximately $30.8 million at September 30, 1998, which had
decreased 51.7% from $63.8 million at September 30, 1997. At September 30, 1999
and 1998, Semiconductor Equipment segment orders backlog represented 97.6% and
94.1%, respectively, of consolidated orders backlog.

We include in backlog those customer orders for which we have written
authorization and for which shipment is scheduled within the next twelve months.
Orders are generally subject to cancellation or rescheduling by customers with
limited or no penalty. As the result of systems ordered and shipped in the same
quarter, possible changes in customer delivery, cancellations, and shipment
delays, the backlog at any particular date and the new orders bookings for any
particular period are not necessarily indicative of actual sales for any
succeeding period.

MANUFACTURING

Most of the Semiconductor Equipment manufacturing is conducted at our facilities
located in Kalispell, Montana. Our vertically integrated manufacturing
operations include metals and plastics fabrication and finishing capabilities;
component parts and final product assembly; and extensive product testing
capabilities. Manufacturing personnel work closely with product development
engineers to ensure that products are engineered for manufacturability,
affording a smooth transition from prototype to full scale production. Component
and product prototyping is performed internally, and design engineers often
receive prototypes of newly designed parts from manufacturing within 24 hours.
Software Control Systems operations are conducted at our Phoenix, Arizona
facility.

RESEARCH AND DEVELOPMENT

The market for semiconductor equipment and software control systems are
characterized by rapid technological change and product innovation. We believe
that continued timely development of products for both existing and new markets
is necessary to remain competitive. Therefore, we devote significant resources
to programs directed at developing new and enhanced products, as well as new
applications for existing products. We maintain extensive demonstration and
process development laboratories at our facilities in Montana, including a clean
room for testing and developing products. Research and development (R&D)
personnel work directly with customers to provide process solutions, develop new
processes and to design and evaluate new equipment.

Expenditures for R&D, which are expensed as incurred, during fiscal 1999, 1998
and 1997 were approximately $20.9 million, $24.5 million and $21.2 million and
represented 17.0%, 13.6% and 10.9% of net sales, respectively.

COMPETITION

The primary competition to our Semiconductor Equipment segment's batch chemical
spray products is currently from wet-bench chemical processing equipment. We are
also aware of at least two other competing manufacturers of spray chemical
processors. As the demand for more precise and reliable chemical processing
increases, we anticipate greater competition in the centrifugal spray technology
area. We are also aware of vertical furnaces produced by at least four other
manufacturers which compete with our thermal processing equipment. The single
substrate processing market in which our Equinox competes and the wafer carrier
cleaning market in which our Storm competes are highly fragmented markets.
Semitool is competing in the electrochemical deposition market with Applied
Materials, Inc. and Novellus Systems, Inc., both larger than the Company, and
with several smaller companies. Our Software Control Systems segment has one
major competitor for its products.

We expect our competitors to continue to improve the design and performance of
their products. There can be no assurance that our competitors will not develop
enhancements to, or future generations of, competitive products that will offer
superior price or performance features, or that new processes or technologies
will not emerge that render our products less competitive or obsolete. As a
result of the substantial investment required to integrate capital equipment
into a production line, we believe that once a manufacturer has selected certain
capital equipment from a particular vendor, the manufacturer generally relies
upon that vendor to provide equipment for the specific production line
application and may seek to rely upon that vendor to meet other capital
equipment requirements. Accordingly, we may be at a competitive disadvantage
with respect to a particular customer if that customer utilizes a competitor's
manufacturing equipment. Increased competitive pressure could lead to lower
prices for our products, thereby adversely affecting our business, financial
condition, results of operations or cash flows. There can be no assurance that
we will be able to compete successfully in the future.

PATENTS AND OTHER INTELLECTUAL PROPERTY

Our success depends in significant part on the technically innovative features
of our products. We currently hold numerous United States patents, some with
pending foreign counterparts, have several United States patent applications
pending and intend to file additional patent applications as we deem
appropriate. There can be no assurance that patents will be issued from any of
our pending applications or that existing or future patents will be sufficiently
broad to protect our technology. While we attempt to protect our intellectual
property rights through patents, copyrights and non-disclosure agreements, there
can be no assurance that we will be able to protect our technology, or that
competitors will not be able to develop similar technology independently. In
addition, the laws of certain foreign countries may not protect our intellectual
property to the same extent as the laws of the United States. Moreover, there
can be no assurance that our existing or future patents will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
meaningful competitive advantages to us. In any of such events, our business,
financial condition, results of operations or cash flows could be adversely
affected.

There has been substantial litigation regarding patent and other intellectual
property rights in semiconductor-related industries. Although we are not aware
of any infringement by our products of any patents or proprietary rights of
others, further commercialization of our products could provoke claims of
infringement from third parties. In August, 1998, we filed suit against Novellus
Systems, Inc. in the United States District Court for the Northern District of
California (Case No. C-98-3089DLJ), alleging infringement of two of our patents
relating to single substrate processing tools used in electrochemical deposition
of copper onto semiconductor wafers. We are seeking damages for past
infringement, a permanent injunction, treble damages for willful infringement,
pre-judgment interest and attorneys fees. Novellus answered the complaint by
denying all allegations, counterclaiming for declaratory judgment of invalidity
and non-infringement. Discovery is continuing and no trial date has been set.

In the future, litigation may be necessary to enforce patents issued to us, to
protect trade secrets or know-how owned by us or to defend us against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of others. Any such litigation could result in
substantial cost and diversion of effort by us, which by itself could have a
material adverse effect on our business, financial condition, results of
operations or cash flows. Further, adverse determinations in such litigation
could result in our loss of proprietary rights, subject us to significant
liabilities to third parties, require us to seek licenses from third parties or
prevent us from manufacturing or selling our products, any of which could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.

EMPLOYEES

At September 30, 1999, the Company had 978 full time employees and 93 temporary
contract employees worldwide. This includes 487 in manufacturing, 361 in
marketing, sales and field service, 140 in research and development, and 83 in
general administration. The Company's worldwide employment has remained nearly
constant since the end of the last fiscal year. None of the Company's employees
are represented by a labor union and the Company has never experienced a work
stoppage or strike. The Company considers its employee relations to be good.

RISK FACTORS

Introduction

The risks detailed in this section as well as risks and uncertainties discussed
elsewhere in this annual report on Form 10-K and in our other SEC filings
constitute some of the risks common in the semiconductor equipment industry or
risks specific to Semitool. Shareholders or potential shareholders should read
these risks carefully to better understand the potential volatility of our
results and volatility in our share price. The fact that some of the risk
factors may be the same or similar to our past filings means only that the risks
are present in multiple periods. We believe that many of the risks detailed are
part of doing business in the semiconductor equipment industry and will likely
be present in all periods reported. The fact that certain risks are endemic to
the industry does not lessen the significance of the risk.

Cyclical Nature of the Semiconductor Industry

Our business depends primarily on the capital expenditures of semiconductor
manufacturers, who correspondingly depend on the demand for final products or
systems that use such devices. The semiconductor industry is cyclical and has
historically experienced periodic downturns characterized by oversupply and weak
demand, which often have had a material adverse effect on capital expenditures
by semiconductor manufacturers. These downturns generally have adversely
affected the business and operating results of semiconductor equipment
suppliers, including our own. In addition, the need for continued investment in
research and development, marketing and customer support may limit our ability
to reduce expenses in response to future downturns in the semiconductor
industry. The semiconductor device industry is presently experiencing an
apparent recovery in terms of product demand and volatility in terms of product
pricing.

Fluctuations in Future Operating Results

Our business and results of operations have fluctuated significantly in the past
and we expect them to fluctuate significantly on a quarterly and annual basis in
the future. During a particular quarter, a significant portion of our revenues
are often derived from the sale of a relatively small number of high selling
price systems. The number of such systems sold in, and the results for a
particular quarter or year can vary significantly due to a variety of factors,
including the timing of significant orders, the timing of new product
announcements by us or our competitors, patterns of capital spending by
customers, market acceptance of new and enhanced versions of our products,
changes in pricing by us, our competitors or suppliers, the mix of products sold
and cyclicality in the semiconductor industry and other industries served by us.
In addition, the cancellation or rescheduling of customer orders or any
production difficulty could adversely impact shipments which would negatively
impact our business and results of operations for the period or periods in which
such cancellation or rescheduling occurs. In light of these factors and the
cyclical nature of the semiconductor industry, we expect to continue to
experience significant fluctuations in quarterly and annual operating results.
Moreover, many of our expenses are fixed in the short-term which, combined with
the need for continued investment in research and development, marketing and
customer support, limits our ability to reduce expenses quickly. As a result,
declines in net revenues could have a material adverse effect on our business,
financial condition, results of operations or cash flows.

Dependence on Product Development

Our Semiconductor Equipment and Software Control Systems segments are subject to
rapid technological change as well as evolving industry standards. We believe
that our future success will depend in part upon our ability to continue to
enhance our existing products and process capabilities, to continue to decrease
the overall cost of ownership of our products, and to continue to develop and
manufacture new products with improved process capabilities which conform to
evolving industry standards. As a result, we expect to continue to make
significant investments in research and development. Although historically we
have had adequate funds from operations to devote to research and development,
there can be no assurance that such funds will be available in the future or, if
available, that they will be adequate. Also, we must manage product transitions
successfully, since announcements or introductions of new products by us or our
competitors could adversely affect sales of our existing products. There can be
no assurance that we will be able to develop and introduce new products or
enhancements to our existing products on a timely basis or in a manner which
satisfies customer needs or achieves widespread market acceptance. The failure
to do so could adversely affect our business, financial condition, results of
operations or cash flows.

Market Acceptance of New Products

We believe that our growth prospects depend in large part upon our ability to
gain customer acceptance of our products and technology. Market acceptance of
new products depends upon numerous factors, including compatibility with
existing manufacturing processes and products, perceived advantages over
competing products and the level of customer service available to support such
products. Moreover, manufacturers often rely on a limited number of equipment
vendors to meet their manufacturing equipment needs. As a result, market
acceptance of our new products may be adversely affected to the extent potential
customers utilize a competitor's manufacturing equipment. There can be no
assurance that growth in sales of new products will continue or that we will be
successful in obtaining broad market acceptance of our systems and technology.

Competition

The markets in which we compete are highly competitive. We face substantial
competition from established competitors, certain of which have greater
financial, marketing, technical and other resources, broader product lines, more
extensive customer support capabilities, and larger sales organizations and
customer bases. We may also face competition from new domestic and overseas
market entrants. Significant competitive factors in the semiconductor equipment
market and other markets in which we compete include system performance and
flexibility, cost of ownership, the size of each manufacturer's installed
customer base, customer service and support, and breadth of product line. We
believe that we compete favorably on the basis of these factors. In order to
remain competitive, we must maintain a high level of investment in research and
development, marketing, and customer service while controlling operating
expenses. There can be no assurance that we will have sufficient resources to
continue to make such investments or that our products will continue to be
viewed as competitive as a result of technological advances by competitors or
changes in semiconductor processing technology. Our competitors may also
increase their efforts to gain and retain market share through competitive
pricing. Such competitive pressures may necessitate significant price reductions
by us or result in lost orders which could adversely affect our business,
financial condition, results of operations or cash flows.

We expect our competitors to continue to improve the design and performance of
their products. There can be no assurance that our competitors will not develop
enhancements to, or future generations of, competitive products that will offer
superior price or performance features, or that new processes, or technologies
will not emerge that render our products less competitive or obsolete. As a
result of the substantial investment required to integrate capital equipment
into a production line, we believe that once a manufacturer has selected certain
capital equipment from a particular vendor, the manufacturer generally relies
upon that vendor to provide equipment for the specific production line
application and may seek to rely upon that vendor to meet other capital
equipment requirements. Accordingly, we may be at a competitive disadvantage
with respect to a particular customer if that customer utilizes a competitor's
manufacturing equipment. There can be no assurance that we will be able to
compete successfully in the future.

Environmental Regulations

We are subject to a variety of governmental regulations related to the discharge
or disposal of toxic, volatile or otherwise hazardous chemicals used on our
premises. We believe that we are in material compliance with these regulations
and that we have obtained all necessary environmental permits to conduct our
business. Nevertheless, current or future regulations could require us to
purchase expensive equipment or to incur other substantial expenses to comply
with environmental regulations. Any failure by us to control the use of, or
adequately restrict the discharge or disposal of, hazardous substances could
subject us to future liabilities, result in fines being imposed on us, or result
in the suspension of production or cessation of our manufacturing operations.

International Business

Approximately 53%, 38% and 36% of our sales for fiscal 1999, 1998 and 1997,
respectively, were attributable to customers outside the United States. We
expect sales outside the United States to continue to represent a significant
portion of future sales. Sales to customers outside the United States are
subject to various risks, including exposure to currency fluctuations, the
imposition of governmental controls, the need to comply with a wide variety of
foreign and United States export laws, political and economic instability, trade
restrictions, changes in tariffs and taxes, and longer payment cycles typically
associated with international sales. Our international sales activities are also
subject to the difficulties of managing foreign subsidiary operations and
managing overseas distributors or representatives, and difficulties of staffing.
In addition, because a majority of our international sales are denominated in
United States Dollars, our ability to compete overseas could be adversely
affected by a strengthening United States Dollar. Moreover, although we endeavor
to meet technical standards established by foreign standards setting
organizations, there can be no assurance that we will be able to comply with
changes in foreign standards in the future. Our inability to design products to
comply with foreign standards or any significant or prolonged decline in our
international sales could have a material adverse effect on Semitool's business,
financial condition, results of operations or cash flows.

Patents and Other Intellectual Property

Our success depends in significant part on the technically innovative features
of our products. We currently hold numerous United States patents, some with
pending foreign counterparts, have several United States patent applications
pending and intend to file additional patent applications as we deem
appropriate. There can be no assurance that patents will issue from any of our
pending applications or that existing or future patents will be sufficiently
broad to protect our technology. While we attempt to protect our intellectual
property rights through patents, copyrights and non-disclosure agreements, there
can be no assurance that we will be able to protect our technology, or that
competitors will not be able to develop similar technology independently. In
addition, the laws of certain foreign countries may not protect our intellectual
property to the same extent as the laws of the United States. Moreover, there
can be no assurance that our existing or future patents will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
meaningful competitive advantages to us. In any of such events, our business,
financial condition, results of operations or cash flows could be adversely
affected.

There has been substantial litigation regarding patent and other intellectual
property rights in semiconductor-related industries. Although we are not aware
of any infringement by our products of any patents or proprietary rights of
others, further commercialization of our products could provoke claims of
infringement from third parties. In the future, litigation may be necessary to
enforce patents issued to us, to protect trade secrets or know-how owned by us
or to defend us against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. Any such
litigation could result in substantial cost and diversion of effort by us, which
by itself could have a material adverse effect on our financial condition,
results of operations or cash flows. Further, adverse determinations in such
litigation could result in our loss of proprietary rights, subject us to
significant liabilities to third parties, require us to seek licenses from third
parties or prevent us from manufacturing or selling our products, any of which
could have a material adverse effect on our business, financial condition,
results of operations or cash flows.

Dependence on Key Personnel

Our success depends to a significant extent upon the efforts of certain senior
management and technical personnel, particularly Raymon F. Thompson our
Chairman. Our future success will depend in large part upon our ability to
attract and retain highly skilled technical, managerial, and marketing
personnel. Competition for such personnel is high and, while to date we do not
believe that our geographic location has hindered us in recruiting qualified
personnel, no assurance can be given that our location will not adversely affect
future recruiting of key personnel. The loss of the services of Mr. Thompson or
of one or more other key management or technical personnel, or the inability to
attract and retain additional qualified personnel, could adversely affect our
business, financial condition, results of operations or cash flows. We do not
carry key man life insurance on Mr. Thompson.

Dependence on Key Customers

Semitool's ten largest customers accounted for 51%, 55% and 52% of our net sales
in fiscal 1999, 1998 and 1997, respectively. Although the composition of our
largest customers has changed from year to year, the loss of, or a significant
curtailment of purchases by one or more of our key customers could adversely
affect our business, financial condition, results of operations or cash flows.

Dependence on Key Suppliers

Certain components and subassemblies included in our products are obtained from
a single source or a limited group of suppliers. Although we have selectively
vertically integrated our manufacturing operations, the loss of, or disruption
in shipments from, certain sole or limited source suppliers could in the
short-term adversely affect our business and results of operations. We believe
that we could either manufacture components or secure an alternate supplier with
no long-term material adverse effect on our business or operations. Further, a
significant increase in the price of one or more of these components could
adversely affect our business, financial condition, results of operations or
cash flows.

Effect of Certain Anti-Takeover Provisions

Our Articles of Incorporation authorize our Board of Directors to issue
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
shares of Preferred Stock and to fix the number of shares constituting any
series and the designations of such series, without further vote or action by
the shareholders. Although we have no present plans to issue any Preferred
Stock, we view the authorized Preferred Stock as a potential financing vehicle.
The Board of Directors may issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock. Any issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of Semitool.

Volatility of Stock Price

Our Common Stock has experienced in the past, and could experience in the
future, substantial price volatility as a result of a number of factors,
including quarter to quarter variations in the actual or anticipated financial
results, announcements by us, our competitors or our customers, government
regulations, developments in the industry and general market conditions. In
addition, the stock market has experienced extreme price and volume fluctuations
which have affected the market price of many technology companies in particular
and which have at times been unrelated to the operating performance of the
specific companies whose stock is traded. Broad market fluctuations, as well as
economic conditions generally and in the semiconductor industry specifically,
may adversely affect the market price of Semitool's Common Stock.

Year 2000

Our Year 2000 (Y2K) readiness project is complete. The project consisted of six
major phases: planning, assessment, testing, repairs/reinstallations, and
contingency planning.

The following areas went through each of the above phases:

Products. Other than some spare parts, many of our products include
software both internally developed and purchased from vendors. Some
equipment also includes numerous sub-systems with embedded software. Much
of this software is customized to meet customers' specific needs.

IT System. These systems include our business and manufacturing systems,
computer-aided design, e-mail and others. The majority of these systems
were developed by software vendors, are not highly customized, and have
been updated to Y2K compliant revisions per the vendor. We performed
end-to-end testing where we deemed such testing necessary and found no
compliance issues.

Non-IT Systems. These systems include but are not limited to controllers
on machinery used in production, the heating and air conditioning systems,
communication systems, and electronic security devices.

Customers/Suppliers. We worked with our customers and suppliers to
determine Y2K readiness and insure that goods and services will be
delivered timely and that transaction processing is proper. We do have
electronic data interface (EDI) transactions with some customers; however,
these EDI transactions are provided by third parties who have certified
their Y2K readiness.

Contingency plans have been formulated in the event that significant Y2K
compliance issues remain undetected. These plans make the assumption that our
major facilities continue to receive essential services such as electricity,
natural gas, communications, sewer and water. Such assumptions are based on our
vendor's assurances that these services will not be interrupted. The plans do
attempt to minimize damage to property in the event any of these services are
unavailable.

The cost incurred thus far with regard to Y2K consists mainly of personnel costs
for IT, non-IT, product software and customers/suppliers issues. We do not track
Y2K costs as a separate cost. Total estimated costs are not anticipated to
exceed $250,000.

All mission critical IT systems have been tested and are believed to be Y2K
ready, however, due to the inherent uncertainty surrounding the Y2K issue, we
cannot anticipate all of the possible problems that may occur. Adverse
consequences from Y2K issues may materially effect our warranty liability, the
value of our capitalized software and the carrying value of our inventory as
well as our financial condition, results of operations or cash flows. The Y2K
problems could also subject us to litigation which may include consequential
damages.

Item 2. Properties

We own a number of facilities around the world. We have two facilities located
on sites in Kalispell, Montana. The building and land for our European sales and
customer service headquarters is located in Cambridge, England and is owned by
us. Also, we own the building and land located in Coopersburg, Pennsylvania,
which serves as a manufacturing facility for our Rhetech, Inc. subsidiary. In
early fiscal 1999, we purchased a building and land in Phoenix, Arizona to house
our Semy Engineering, Inc. (Semy) subsidiary. During the year, we sold the land
in Scottsdale, Arizona, which had been purchased in fiscal 1998 with the intent
to build a facility to house Semy. We believe that our existing manufacturing
facilities will be adequate to meet our requirements for the foreseeable future
and that suitable additional or substitute space will be available as needed. We
also lease various other smaller facilities worldwide which are used as sales
and customer service centers.

We are subject to a variety of governmental regulations related to the discharge
or disposal of toxic, volatile, or otherwise hazardous chemicals used on
Semitool's premises. We believe that we are in material compliance with these
regulations and that we have obtained all necessary environmental permits to
conduct our business. Nevertheless, current or future regulations could require
us to purchase expensive equipment or to incur other substantial expenses to
comply with environmental regulations. Any failure by us to control the use of,
or adequately restrict the discharge or disposal of, hazardous substances could
subject us to future liabilities, result in fines being imposed on us, or result
in the suspension of production or cessation of our manufacturing operations.

Item 3. Legal Proceedings

In August, 1998, we filed suit against Novellus Systems, Inc. in the United
States District Court for the Northern District of California (Case No.
C-98-3089DLJ), alleging infringement of two of our patents relating to single
substrate processing tools used in electrochemical deposition of copper onto
semiconductor wafers. We seek damages for past infringement, a permanent
injunction, treble damages for willful infringement, pre-judgment interest and
attorneys fees. Novellus answered the complaint by denying all allegations,
counterclaiming for declaratory judgment of invalidity and non-infringement.
Discovery is continuing and no trial date has been set.

A lawsuit brought by Mitsubishi Silicon America Corporation, successor to Siltec
Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the United
States Federal District Court for the District of Oregon against us. The lawsuit
alleges breach of warranties and seeks damages and attorney's fees in excess of
$5 million. We believe the lawsuit to be without merit and are contesting the
action vigorously. However, given the inherent uncertainty of litigation and the
stage of discovery, there can be no assurance that the ultimate outcome will be
in our favor. Further, regardless of the ultimate outcome, there can be no
assurance that the diversion of management's attention, and any costs associated
with the lawsuit, will not have a material adverse effect on our financial
condition, results of operations or cash flows.

We are subject to other legal proceedings and claims which have arisen in the
ordinary course of our business and have not been finally adjudicated. Although
there can be no assurance as to the ultimate disposition of these matters, it is
the opinion of our management, based upon the information available at this
time, that the currently expected outcome of these matters, individually or in
the aggregate, will not have a material adverse effect on our results of
operations, financial condition or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to the shareholders for a vote during the fourth
quarter of the fiscal year.

<PAGE>

Part II

Item 5. Market for Semitool's Common Stock and Related Shareholder Matters

The Company's Common Stock is traded under the symbol "SMTL" principally on the
Nasdaq National Market. The approximate number of shareholders of record at
December 6, 1999 was 208 and the reported last sale price of the Company's
common stock on the Nasdaq National Market was $11.75. The high and low sales
prices for the Company's common stock reported by the Nasdaq National Market are
shown below.

Common Stock Price Range
Fiscal Year
Ended September 30,
1999 1998
High Low High Low

First Quarter $8.50 $4.25 $26.25 $12.00
Second Quarter $9.38 $6.00 $14.75 $11.63
Third Quarter $10.00 $6.00 $14.50 $7.88
Fourth Quarter $13.88 $8.38 $9.63 $5.13

Since the Company's initial public offering of Common Stock in February of 1995,
it has never declared or paid any cash dividend nor has any intent to do so in
the near future.

Item 6. Selected Financial Data

This summary should be read in conjunction with the consolidated financial
statements and related notes included elsewhere herein.

Summary Consolidated Financial Information
(in thousands, except per share data)

Year Ended September 30,
1999 1998 1997 1996 1995

<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $122,528 $180,501 $193,952 $174,204 $128,326
Gross profit 57,648 90,979 91,090 84,631 65,858
Income (loss) from operations (12,741) 8,087 20,432 24,182 20,927
Net income (loss) (6,745) 4,805 12,523 15,136 14,885

Pro forma Statement of Operations Data:
Income (loss) from operations (1) (12,741) 8,087 20,432 24,182 22,599
Net income (loss) (2) (6,745) 4,805 12,523 15,136 14,403
Basic earnings (loss) per share (0.49) 0.35 0.92 1.11 1.19
Diluted earnings (loss) per share (0.49) 0.35 0.91 1.09 1.15
Average number of basic common shares 13,797 13,783 13,676 13,651 12,080
Average number of diluted common shares 13,797 13,904 13,833 13,858 12,563

Balance Sheet Data:
Working capital 52,308 52,408 50,047 43,797 37,209
Total assets 131,884 127,990 131,725 114,954 88,067
Short-term debt 10,541 3,596 4,393 4,374 924
Long-term debt and capital leases 3,911 3,836 3,364 3,637 4,011
Shareholders' equity (3) 81,025 86,694 81,580 68,003 52,813

</TABLE>

(1) Pro forma income from operations has been determined by eliminating for 1995
payments for technology rights that ceased in February 1995, upon closing of the
initial public offering of the Company's common stock.

(2) Between October 1, 1986 and February 1, 1995, the Company elected to be
taxed under the provisions of Subchapter S of the Code. Under those provisions,
the Company had not been subject to federal corporate income taxation. In
connection with the closing of the Company's initial public offering, the
Company terminated its S corporation status. Pro forma net income has been
determined by assuming that the Company had been taxed as a C corporation for
federal income tax purposes for 1995. The pro forma provision for income taxes
has been calculated by using statutory rates for federal and state taxes applied
to pro forma income before income taxes, net of actual research and development
credits generated. The pro forma effective tax rate in fiscal 1995 was 37.1%.

(3) Prior to the termination of S corporation status, dividends were paid by the
Company only in amounts sufficient to cover shareholders' tax liabilities other
than the final distribution of prior accumulated S Corporation earnings. The per
share dividend information has therefore not been presented.

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

CAUTION - FORWARD LOOKING STATEMENTS

Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Annual Report on Form
10-K which are not purely historical facts are forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including without limitation, statements regarding use of sales, service and
support organizations, the contribution of international sales to net sales,
fiscal year 2000 sales, gross margins, research and development, costs of
manufacturing, interest expense, future balances, the sufficiency of funds, and
effects of new accounting standards, and are subject to the safe harbor
provisions created by that statute. A forward-looking statement may contain
words such as "will continue to be," "will be," "continue to," "expect to,"
"anticipates that," "to be" or "can impact."

The Company undertakes no obligation to update forward-looking statements to
reflect subsequent events, changed circumstances, or the occurrence of
unanticipated events.

OVERVIEW

The following discussion and analysis should be read in conjunction with the
Company's financial statements and related notes, included elsewhere in this
document. References to fiscal years are to years ended September 30.

The Company adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" (SFAS 131)
for fiscal 1999. The Company's reportable segments have been determined based on
the nature of its operations, products offered to customers and information used
by the chief operating decision maker as defined by SFAS 131. For fiscal 1999,
the Company's two reportable segments are Semiconductor Equipment and Software
Control Systems.

The Semiconductor Equipment segment is the Company's largest segment and its
primary products are capital equipment for semiconductor wafer surface
preparation and cleaning, and electrochemical deposition of various metals on a
wafer surface. The manufacturing process for integrated circuits may include
over several hundred steps and following many of those steps the silicon wafer
surface must be cleaned, a deposited film stripped off the surface or the
surface etched. The Semiconductor Equipment segment's largest product line,
surface preparation and cleaning equipment, can perform many of these steps. The
segment's electrochemical deposition products are used to deposit various types
of metals on the surface of a wafer for varied applications including copper for
interconnect. The unit selling prices for this segment's products range from
$15,000 to approximately $3.0 million with some predominance of selling prices
in the upper portion of the price range. Due to this predominance of relatively
high unit selling prices, a significant portion of the Company's revenue in any
given period is often derived from the sale of a relatively small number of
units.

The Software Control Systems segment's primary product is a software control
system comprised of a communication software interface coupled with equipment
specific software modules to link most types of manufacturing equipment used in
a semiconductor manufacturing facility ("fab") front-end process. The Unix based
software system utilizing specially equipped computer workstations performs data
collection, statistical process analysis and control, preventive maintenance
scheduling, and process recipe management for either a single tool or multiple,
networked tools. The system can be integrated with a semiconductor
manufacturer's computer integrated manufacturing system.

Both of Semitool's segments sell their products to semiconductor manufacturers
worldwide and believe their sales, service and support organizations are
important to the long-term success of their customer relationships, particularly
as customers increasingly demand equipment and integrated process solutions.
Worldwide sales, service and support are primarily provided through Company
employees in the United States, Europe, Japan, Korea, Singapore, and Taiwan with
some limited use of independent sales representatives and distributors. In
fiscal 1999, the Company's sales distribution by geographical area was United
States, 47.2%, Europe, 24.0%, Japan, 18.7%, and Asia, including all others,
10.1% compared to 61.7%, 26.5%, 8.6% and 3.2%, respectively, for the prior year.
The Company anticipates that international sales will continue to account for a
significant portion of net sales, although the percentage of international sales
and the geographical distribution may fluctuate from period to period.

From time to time, the Company has experienced, and expects to continue to
experience, significant fluctuations in its results of operations, particularly
on a quarterly basis. The Company's expense levels are based in part on
expectations of future sales. If sales levels in a particular period do not meet
expectations, operating results will be adversely affected. A variety of factors
have an influence on the Company's operating results in a particular period.
These factors include specific economic conditions in the semiconductor
industry, the timing of the receipt of orders from major customers, customer
cancellations or delays of shipments, specific feature requests by customers,
production delays or manufacturing inefficiencies, management decisions to
commence or discontinue product lines, the Company's ability to design,
introduce and manufacture products on a cost-effective and timely basis, the
introduction of new products by the Company or its competition, the selection of
the Company's or its competitors' products by semiconductor manufacturers for
new generations of facilities or expansions, the timing of research and
development expenditures, exchange rate fluctuations, and expenses attendant to
acquisitions, strategic alliances and further development of marketing and
service capabilities.

RESULTS OF OPERATIONS

The following table sets forth the Company's consolidated results of operations
for the periods indicated expressed as a percentage of net sales:

YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------

<S> <C> <C> <C>
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Cost of Sales 53.0 49.6 53.0
------------- ------------- -------------
Gross Profit 47.0 50.4 47.0
------------- ------------- -------------

Operating expenses:
Selling, general and administrative 40.4 32.3 25.5
Research and development 17.0 13.6 10.9
------------- ------------- -------------
Total operating expenses 57.4 45.9 36.4
------------- ------------- -------------
Income (loss) from operations (10.4) 4.5 10.6
Other income (expense), net 1.5 (0.5) (0.1)
------------- ------------- -------------
Income (loss) before income taxes (8.9) 4.0 10.5
Income taxes (3.4) 1.4 4.0
------------- ------------- -------------
Net income (loss) (5.5) 2.6% 6.5%
============= ============= =============

</TABLE>

Net Sales. Fiscal 1999 consolidated sales declined 32.1% to $122.5 million from
last year's $180.5 million and compares to $194.0 million in fiscal 1997. The
overall net sales decline in each of the past two years is primarily
attributable to the reduction of capital equipment spending by the Company's
customers in response to excess manufacturing capacity in the semiconductor
industry, the Asian economic decline and, to a lesser extent, the effect of a
shift of marketing and sales resources from the Company's Thermal products to
other product lines with expected higher potential. Partially offsetting the
sales decline from these factors in both years was a small increase in Software
Control Systems segment sales.

Semiconductor Equipment segment sales fell 35.1% to $109.6 million in fiscal
1999 from $168.9 million in fiscal 1998, and that year was 8.4% below fiscal
1997. The Semiconductor Equipment segment's product lines relative contribution
to consolidated net sales for fiscal 1999 and 1998, respectively, are Surface
Preparation and Cleaning, 53.5% and 58.2%, Electrochemical Deposition, 16.7% and
13.7%, and Parts, Service and Other, 19.4% and 21.7%. The fiscal 1999 segment
sales decline is due to lower sales in all product lines which was primarily the
result of the semiconductor industry downturn. However, the sales decline in the
Company's Thermal products, which is included in Other, was greater due to a
shift of marketing and sales resources away from that product line. In fiscal
1998, segment net sales were $15.5 million below the prior year's sales. That
year's decrease was primarily attributable to the Surface Preparation and
Cleaning and Thermal product lines sales decrease which was partially offset by
increased sales of Electrochemical Deposition products and Spare Parts and
Service.

Fiscal 1999 Electrochemical Deposition product sales for all metal types
declined $4.2 million from the prior year, but the percentage decline for this
product line was significantly lower than the percentage decline of all other
product lines in this segment. Electrochemical deposition sales for fiscal 1998
were $24.6 million, up from $6.4 million in fiscal 1997. Essentially all of the
fiscal 1998 sales increase was from sales of tools for copper plating
applications.

Software Control Systems segment sales for fiscal 1999 were $13.3 million
including intersegment sales of $413,000. Fiscal 1999 segment sales, excluding
intersegment sales, increased 11.1% compared to the previous year's comparable
sales increase of 21.7%, which included a fab-wide, front-end system
installation for one customer. This year's sales increase is attributable to
growing product acceptance and increasing market activity.

There is some industry expectation that foundries, manufacturers that produce
semiconductors for companies that need additional manufacturing capacity or do
not have fabs, will make significant capital investment in the next several
years. Likewise, there is a similar industry expectation, that as the Asia
Pacific economic conditions improve, capital investment will increase in that
geographic area. Both of these market expectations, if they develop, may support
a recovery in the semiconductor industry. Based on the current semiconductor
market outlook, management expects fiscal year 2000 sales to exceed fiscal year
1999's sales and that profitability will improve, although, there can be no
assurance that this will be the case.

Consolidated orders backlog increased 86.7% to approximately $57.5 million at
September 30, 1999, from approximately $30.8 million at September 30, 1998,
which had decreased 51.7% from $63.8 million at September 30, 1997. New order
bookings were similar in total amount for both fiscal 1999 and 1998, however,
the timing of orders booked was reversed. Fiscal 1999 second half new order
bookings were approximately $94.5 million compared to $54.8 million for the same
period in the prior year. At September 30, 1999 and 1998, Semiconductor
Equipment segment orders backlog represented 97.6% and 94.1%, respectively, of
consolidated orders backlog.

The Company includes in its backlog those customer orders for which it has
written authorization and for which shipment is scheduled within the next twelve
months. Orders are generally subject to cancellation or rescheduling by
customers with limited or no penalty. As the result of systems ordered and
shipped in the same quarter, possible changes in customer delivery schedule,
cancellations, and shipment delays, the backlog at any particular date and the
new orders bookings for any particular period are not necessarily indicative of
actual sales for any succeeding period.

Gross Profit. Consolidated gross profit as a percentage of net sales in fiscal
1999 was 47.0%, down from 50.4% in fiscal 1998 and nearly unchanged from fiscal
1997. The decrease in gross margin in the current year is attributable to a
number of factors, including the effect of lower operating levels and higher
obsolete inventory write-offs in the Semiconductor Equipment segment, and sales
mix in both segments. The fiscal 1998 increase in gross margin is attributable
to a number of factors including the effect of efficiencies earlier in that year
which were partially offset later in the year by excess capacity costs, lower
material costs in the semiconductor equipment segment, and sales mix in both
segments.

The Company's gross margin has been, and will continue to be, affected by a
variety of factors, including the costs to manufacture, service, and support new
and enhanced products, as well as the mix and average selling prices of products
sold. The Company anticipates that the cost to manufacture and support new
products will improve over time, but it also expects to continue to design and
sell additional models of its existing products and new products, which may
adversely affect the anticipated improvement.

Selling, General and Administrative. Consolidated selling, general and
administrative (SG&A) expenses were $49.5 million, or 40.4% of net sales in
fiscal 1999, down $8.8 million in absolute dollars but up as a percent of sales
from fiscal 1998's $58.4 million, or 32.3% of net sales. This absolute decline
in SG&A expense is the net result of overall lower Semiconductor Equipment
segment SG&A costs resulting from cost reductions and lower sales volumes which
decreases were partially offset by higher legal expenses related to current
litigation, and an increase in Software Control Systems SG&A costs due to higher
sales and an expanded sales and support organization.

The fiscal 1998 $8.9 million consolidated SG&A expense increase from fiscal 1997
reflects primarily the full-year effect of the Company's 1997 decision to
transition to a company-staffed sales and customer support organization in most
of the Asian marketplace, the larger domestic and European customer service
organization, and a fourth quarter $1.3 million bad debt provision for an
international receivable, all associated with the Semiconductor Equipment
segment.

A substantial portion of the Company's SG&A expense is fixed in the short-term.

Research and Development. Research and development (R&D) expenses consist of
salaries, project materials, laboratory costs, consulting fees, depreciation and
other costs associated with the Company's research and development efforts. The
Company's consolidated research and development expenses in absolute dollars and
as a percent of net sales for fiscal years 1999, 1998 and 1997 were $20.9
million, or 17.0%, $24.5 million or 13.6%, and $21.2 million or 10.9%,
respectively. R&D expense for fiscal 1999 was 14.9% below fiscal 1998's expense
level which had increased 15.9% from fiscal 1997. During these periods, projects
in the Semiconductor Equipment segment included the development of the LT-210c
linear copper plating tool, the development of the high throughput fully
automated Spectrum, the Millennium platform with its unique Capsule processing
chamber, and the HydrOzone cleaning process, among others. Additionally, the
Software Control Systems segment undertook a major product upgrade and expansion
in fiscal 1998, which is ongoing. The Semiconductor Equipment segment's R&D
activities are focused on the Surface Preparation and Cleaning and
Electrochemical Deposition product lines.

The Company is committed to technology leadership in the semiconductor equipment
industry and expects to continue to fund research and development expenditures
with a multiyear perspective. Such funding has resulted in fluctuations in R&D
expenses from period to period in the past. The Company expects such
fluctuations to continue in the future, both in absolute dollars and as a
percentage of net sales, primarily due to the timing of expenditures, changes in
the level of net sales and the number of projects.

Other Income (Expense). Interest income on short-term investment of cash
balances was $243,000 in fiscal 1999 compared to $64,000 and $97,000 in fiscal
years 1998 and 1997, respectively. Interest expense in fiscal 1999 was $401,000
compared to $559,000 in fiscal 1998. The decline in interest expense in fiscal
1999 was due to lower average borrowings during the year in response to reduced
operating levels. Interest expense is expected to increase in fiscal year 2000.
In fiscal 1999, Other, net includes $468,000 from gains on sales of property and
foreign currency exchange gains of $1.2 million. The foreign exchange gain
consists of net gains and losses resulting from the re-measurement of our
accounts denominated in non-U.S. currencies into U.S. Dollars, which is our
functional currency, and net gains and losses on forward contracts. The net
exchange gain was due primarily to fluctuations of the U.S. Dollar against the
Japanese Yen. Other expense in fiscal 1998 includes a $483,000 write-off of
capitalized costs associated with a canceled building project.

Income Taxes. The fiscal 1999 income tax benefit, as a result of this year's
loss, was $4.2 million compared to the $2.5 million provision for income taxes
in fiscal 1998. The effective tax rates for fiscal years 1999, 1998 and 1997
were 38.4%, 34% and 38% respectively. The Company expects its effective tax rate
to be 33% for fiscal year 2000.

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating activities in fiscal 1999 was $9.8 million as compared to
$15.0 million generated by operations in fiscal 1998. In fiscal 1999, cash was
used in operations because of substantial increases in inventory, accounts
receivable, income tax refund receivable, and a decrease in accrued warranty and
installation partially offset by an increase in accounts payable and other
accrued liabilities.

As of September 30, 1999, the Company had $38.4 million of accounts receivable
and $41.7 million of inventory, compared to $34.9 million of accounts receivable
and $36.4 million of inventory at September 30, 1998. The Company expects future
accounts receivable and inventory balances to fluctuate with net sales. As is
customary in the semiconductor manufacturing equipment industry, products are
generally built to fill specific customer orders, with typical order fulfillment
times ranging from four to six weeks for certain products to six months or more
for more complex products. Accordingly, while the Company's finished goods
inventory accounts for slightly over 14% of total inventory, overall inventory
levels tend to fluctuate with the level and type of orders received. Currently,
the tools with the longest average cycle times are the Semiconductor Equipment
segment's automated batch tools and single substrate processor.

Cash provided by investing activities in fiscal 1999 was $739,000 compared to
$12.5 million used in fiscal 1998. The sale of property provided cash of $3.4
million in fiscal 1999 and cash used to purchase plant, property and equipment
declined from $9.8 million in 1998 to $2.0 million in 1999. Major purchases of
plant, property and equipment during 1999 include the purchase of a building for
the Software Control Systems segment operations. Investments in intangible
assets used cash of $654,000 in fiscal 1999 compared to $2.8 million cash used
in fiscal 1998 which includes $2.2 million for Software Control Systems segment
software development costs, which were capitalized once technological
feasibility was reached, and $600,000 for patents and trademarks.

Financing activities in fiscal 1999 consisted primarily of $7.2 million of
additional net borrowings under the Company's line of credit to fund operations.

As of September 30, 1999, the Company's principal sources of liquidity consisted
of approximately $4.8 million of cash and cash equivalents, $14.8 million
available under the Company's $25 million revolving line of credit, which was
amended during the fourth quarter of fiscal 1999. The credit facility is with
Bank of America and bears interest at the bank's prime lending rate or LIBOR
plus 1.5%. The revolving line of credit expires on April 1, 2001 and all
principal amounts owing are due by April 1, 2004. The credit agreement has
various restrictive covenants, including a prohibition against pledging or in
any way encumbering current or operating assets during the term of the agreement
and the maintenance of various financial ratios.

The Company believes that cash and cash equivalents, funds generated from
operations, and funds available under its bank lines will be sufficient to meet
the Company's planned capital requirements during the next twelve months
including the spending of approximately $5.0 million to purchase property, plant
and equipment. The Company believes that success in its industry requires
substantial capital in order to maintain the flexibility to take advantage of
opportunities as they arise. The Company may, from time to time, as market and
business conditions warrant, invest in or acquire complementary businesses,
products or technologies. The Company may effect additional equity or debt
financings to fund such activities or to fund greater than anticipated growth.
The sale of additional equity securities or the issuance of equity securities in
a business combination could result in dilution to the Company's shareholders.

LITIGATION

NEW ACCOUNTING PRONOUNCEMENTS

In fiscal 1999, the Company adopted SFAS No. 130 (SFAS 130), "Reporting
Comprehensive Income." This statement requires the Company to disclose
accumulated other comprehensive income or loss as a separate component of
shareholders' equity. Prior period financial statements have been reclassified
to reflect application of this statement.

In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for the Company in fiscal 2001. The
Company has not yet determined the effect the adoption of this standard will
have on the financial condition or results of operations of the Company.

In March 1998, the AICPA issued Statement of Position 98-1 (SOP 98-1),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires companies to capitalize certain costs of
computer software developed or obtained for internal use. SOP 98-1 is effective
for the Company in fiscal 2000. The Company does not believe the application of
this standard will have a material effect on the results of operations or
financial condition of the Company.

YEAR 2000

Our Year 2000 (Y2K) readiness project is complete. The project consisted of six
major phases: planning, assessment, testing, repairs/reinstallations, and
contingency planning.

The following areas went through each of the above phases:

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Market Risks

Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign currency exchange rates.

Interest Rate Sensitivity

The Company as of September 30, 1999 has approximately $4.3 million in long term
debt and approximately $10.2 million in short-term debt. The Company's long-term
debt bears interest at a fixed rate. As a result, changes in the fixed rate
interest market would change the estimated fair value of its fixed rate
long-term debt. The Company believes that a 10% change in the long term interest
rate would not have a material effect on the Company's financial condition,
results of operations or cash flows. The Company's short-term debt bears
interest at a variable rate. Based on the $10.2 million of short-term debt
outstanding as of September 30, 1999, a 10% change in interest rates would not
have a material affect on the Company's financial condition, results of
operations or cash flows.

Foreign Currency Exchange Rate Sensitivity

All of our non-U.S. operations are subject to inherent risks in conducting
business abroad, including fluctuation in the relative value of currencies. We
manage this risk and attempt to reduce such exposure through an economic hedge
by entering into short-term forward exchange contracts. At September 30, 1999 we
held forward contracts to purchase Japanese Yen with a face value of $10.6
million, a market value of $11.2 million and an unrealized loss of approximately
$600,000. The impact of movements in currency exchange rates on forward foreign
exchange contracts generally offsets the impact on related transactions
denominated in yen. The effect of a 10% change in foreign exchange rates on
hedged transactions involving Japanese Yen forward exchange contracts and the
underlying transactions would not be material to the Company's financial
condition, results of operations or cash flows. The Company does not hold or
issue derivative financial instruments for trading or speculative purposes.

<PAGE>

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary data listed in Item 14(a)(1) and
14(a)(2) of this Form 10-K are incorporated into this Item 8 of Part II of this
Form 10-K.

Unaudited Quarterly Consolidated Financial Data
Amounts In Thousands, Except Per Share Data

Quarter
First Second Third Fourth
<S> <C> <C> <C> <C>
1999
Net sales $ 30,422 $ 25,816 $ 29,838 $ 36,452
Gross profit 14,737 11,927 14,622 16,362
Net income (loss) (1,141) (2,967) (2,735) 98
Basic and diluted earnings (loss) per share (0.08) (0.22) (0.20) 0.01

1998
Net sales $ 47,002 $ 45,241 $ 46,572 $ 41,686
Gross profit 23,904 23,842 24,109 19,124
Net income (loss) 2,604 1,415 1,489 (703)
Basic and diluted earnings per share 0.19 0.10 0.11 (0.05)

</TABLE>

The fourth quarter fiscal year 1998 results were significantly impacted by
pretax charges totaling $2.8 million, or $0.13 per diluted share relating to a
provision for the loss on an international customer receivable, a customer
return, costs associated with a canceled building project, and severance costs,
partially offset by a reduction of the Company's effective income tax rate that
increased net income by $263,000, or $0.02 per diluted share.

The fourth quarter results include a reduction in the Company's effective income
tax rate that increased net income by $479,000, or $0.03 per diluted share.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

None.

<PAGE>

PART III

Item 10. Executive Officers and Directors

The following table sets forth certain information with respect to the executive
officers and directors of the Company:

Name Age Position
---- --- --------
Raymon F. Thompson 58 Chairman of the Board
Fabio Gualandris 40 President and Chief Executive Officer
Timothy C. Dodkin 50 Senior Vice President
Managing Director, Semitool Europe, Ltd.
William A. Freeman 56 Senior Vice President and Chief Financial
Officer
Gary L. Spray 53 Vice President, Worldwide Sales
Kazuyo N. Heinink 49 Vice President, Marketing
Gregory L. Perkins 56 Vice President, Operations
Larry A. Viano 45 Treasurer, Principal Accounting Officer and
Controller
Howard E. Bateman (1) 65 Director
Richard A. Dasen (2) 57 Director
Daniel J. Eigeman (2) 65 Director
Calvin S. Robinson (1)(2) 79 Director and Secretary
- -----------

(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Audit Committee.

The following sets forth the background of each of the Company's executive
officers and directors, including the principal occupation of those individuals
for the past five years:

Raymon F. Thompson founded the Company in 1979 and has served as Chairman since
the Company's inception. Mr. Thompson previously served as Chief Executive
Officer and President. In 1979, Mr. Thompson designed, patented and introduced
the first on-axis rinser/dryer for the semiconductor industry.

Fabio Gualandris has served as the Company's President and Chief Executive
Officer since joining the Company in 1998. Since 1984, Mr. Gualandris has served
in various positions with SGS Thompson and STMicroelectronics, the world's
leading supplier of analog integrated circuits and one of the top ten worldwide
semiconductor suppliers. Most recently, from 1996 to 1998, he was Director of
the Automotive Business Unit of the Dedicated Products Group. From 1991 to 1996,
he served as Director of Operations for a submicron semiconductor fabrication
facility. Mr. Gualandris has a doctorate in physics from Milan University,
Milan, Italy, and has authored several papers on semiconductor technology and
research and development and production management. He also holds four patents.

Timothy C. Dodkin joined the Company in 1985 and served as the Company's
European Sales Manager from 1985 to 1986. Since 1986, Mr. Dodkin has served as
Managing Director of Semitool Europe, Ltd. Prior to joining the Company, Mr.
Dodkin worked at Cambridge Instruments, a semiconductor equipment manufacturer,
for ten years in national and international sales.

William A. Freeman joined the Company in 1998, and is Senior Vice President and
Chief Financial Officer. Prior to joining the Company and since 1995, Mr.
Freeman was an independent management consultant. Prior to 1995, he worked for
22 years at Zurn Industries, Inc., a diversified manufacturing, engineering, and
construction company. At Zurn, Mr. Freeman served in division management
positions before being appointed Senior Vice President - Chief Financial Officer
in 1986, and President in 1991. Mr. Freeman also serves on the Board of
Directors of NPC International, Inc., a Nasdaq-listed company.

Gary Spray has served as the Company's Vice President of Worldwide Sales since
joining the Company in July 1999. Prior to joining the Company and since 1995,
Mr. Spray served as Vice President of Sales and Marketing for IPEC Planar (now
Speedfam-IPEC) located in Phoenix, Arizona. From 1992 to 1995, he served as
Worldwide Director of Sales and Marketing and then Director of U.S. Sales for
General Signal Corporation, where he provided leadership in worldwide marketing
and sales for their semiconductor equipment division.

Kazuyo N. Heinink joined the Company in August 1999 and serves as the Company's
Vice President of Marketing. Prior to joining the Company and since 1998, Ms.
Heinink served as Director of Marketing for IPEC Planar (now Speedfam-IPEC)
before being appointed Vice President of Global Account Management for
Speedfam-IPEC in 1999. From 1990 to 1998, she served in various positions with
MEMC Electronic Materials, Inc., including Vice President of Marketing,
Commercial Director for North America and Worldwide Manager for their expitaxial
products.

Gregory L. Perkins joined the Company in 1990 as Vice President, Manufacturing
and, since 1994, has served as the Company's Vice President, Operations. Prior
to joining the Company, Mr. Perkins served as General Manager for Modulair,
Inc., a manufacturer of clean rooms, from 1987 to 1990.

Larry A. Viano joined the Company in 1985 and serves as the Company's treasurer,
principal accounting officer and controller. Mr. Viano serves on the Board of
Directors of Semitool Europe, Ltd. and Semitool Japan KK. Mr. Viano is a
Certified Public Accountant.

Howard E. Bateman has served on the Company's Board of Directors since 1990. Mr.
Bateman formerly owned and operated Entech, a Pennsylvania company that was an
independent sales representative for the Company's products from 1979 to 1996.

Richard A. Dasen has served on the Company's Board of Directors since 1984. From
1974 to 1992, Mr. Dasen owned and managed Evergreen Bancorporation, a multi-bank
holding company. Since 1992, Mr. Dasen has been an independent businessman.

Daniel J. Eigeman has served on the Company's Board of Directors since 1985.
From 1971 to 1993, Mr. Eigeman was President of Eigeman, Hanson & Co., P.C., an
accounting firm, and since 1993 has been a shareholder of Junkermier, Clark,
Campanella, Stevens, P.C., CPAs. Mr. Eigeman currently serves as director of CPA
Mutual Insurance of America, Inc.

Calvin S. Robinson has served as a director of the Company since 1982 and since
February of 1996 has served as the Company's Secretary. Mr. Robinson has been of
counsel to Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P. since 1989. This
firm has provided legal services to the Company since 1979. Mr. Robinson is also
a director of Winter Sports, Inc.

The executive officers are elected each year by the Board of Directors to serve
for a one-year term of office.

The information concerning compliance with Section 16(a) of the Securities and
Exchange Act of 1934, as amended, required under this item is contained in the
Company's Proxy Statement to be filed in connection with its 2000 Annual Meeting
of Shareholders under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.

Item 11. Executive Compensation

The information concerning compensation of executive officers and directors
required under this item is contained in the Company's Proxy Statement to be
filed in connection with its 2000 Annual Meeting of Shareholders under the
caption "Executive Compensation," and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information concerning certain principal holders of securities and security
ownership of executive officers and directors required under this item is
contained in the Company's Proxy Statement to be filed in connection with its
2000 Annual Meeting of Shareholders under the caption "Security Ownership of
Certain Beneficial Owners and Management" and is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

The information concerning certain relationships and related transactions
required under this item is contained in the Company's Proxy Statement to be
filed in connection with its 2000 Annual Meeting of Shareholders under the
caption "Certain Transactions," and is incorporated herein by reference.

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as a part of this report:

1. Financial Statements:

Report of Independent Accountants

Consolidated Balance Sheets at September 30, 1999 and
September 30, 1998

Consolidated Statements of Operations for the Years Ended
September 30, 1999, September 30, 1998, and
September 30, 1997

Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended September 30, 1999, September 30, 1998
and September 30, 1997

Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, September 30, 1998 and
September 30, 1997

Consolidated Statements of Comprehensive Income (Loss) for the
Years Ended September 30, 1999, September 30, 1998, and
September 30, 1997

Notes to Consolidated Financial Statements

2. Financial Statement Schedules:

Schedule II - Valuation and Qualifying Accounts

3. EXHIBITS:

(a) The exhibits listed below are filed as part of this Annual Report on Form
10-K or are incorporated herein by reference:

EXHIBIT NO. DESCRIPTION
- ----------- -----------

3.1 Restated Articles of Incorporation of the Company (1)
3.5 Amended Bylaws of Semitool, Inc. (4)
3.6 Amended Bylaws of Semitool, Inc. (5)
3.7 Amended Bylaws of Semitool, Inc. (8)
10.12 Agreement between the Company and the Semitool European Companies
(1)
10.13 Aircraft Lease Agreement, dated April 1, 1996, between the Company
and Mr. Thompson (2)
10.16 Business Loan Agreement, dated September 30, 1997, between the
Company and the Bank of America NT & SA doing business as Seafirst
Bank (3)
10.17 Promissory Note, dated September 29, 1997, between the Company and
the Bank of America National Trust and Savings Association doing
business as Seafirst Bank (3)
10.18 Loan Modification Agreement, dated September 29, 1997 between the
Company and The Bank of America National Trust And Savings
Association doing business as Seafirst Bank (3)
10.19 Loan Modification Agreement, dated October 2, 1997 between the
Company and the Bank of America National Trust And Savings
Association doing business as Seafirst Bank (3)
10.20 Loan Modification Agreement, dated October 2, 1997 between the
Company and the Bank of America National Trust And Savings
Association doing business as Seafirst Bank (3)
10.21 Promissory Note, dated March 26, 1998 between Rhetech, Inc. and
CoreStates Bank, N.A. (4)
10.22 Mortgage, Assignment of Leases and Security Agreement, dated
March 26, 1998 between Rhetech, Inc. and CoreStates Bank, N.A. (4)
10.23 Promissory Note, dated March 26, 1998 between Rhetech, Inc. and
CoreStates Bank, N.A. (4)
10.24 Mortgage, Assignment of Leases and Security Agreement, dated
March 26, 1998 between Rhetech, Inc. and CoreStates Bank, N.A. (4)
10.25 Employment Agreement between William A. Freeman and
Semitool, Inc. dated February 20, 1998. (4)
10.26 Employment Agreement between Fabio Gualandris and
Semitool, Inc. dated April 21, 1998. (6)
10.27 Business Loan Agreement, dated September 30, 1998, between the
Company and the Bank of America NT & SA doing business as Seafirst
Bank (6)
10.28 Promissory Note, dated September 30, 1998, between the Company and
the Bank of America National Trust and Savings Association doing
business as Seafirst Bank (6)
10.29 First Amendment to Business Loan Agreement between Bank of America
NT&SA doing business as Seafirst Bank and Semitool, Inc. (7)
10.30 Employment Agreement between Gary Spray and Semitool, Inc. dated
May 5, 1999. (7)
10.31 Employment Agreement between Kazuyo N. Heinink and Semitool, Inc.
dated July 29, 1999. (8)
21.1 Subsidiaries of Registrant (8)
27 Financial data schedule (8)
99.2 Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4)

(1) Incorporated herein by reference to the identically numbered exhibits to the
Company's Registration Statement on Form S-1 (File No. 33-87548), which became
effective on February 2, 1995.

(2) Incorporated herein by reference to the identically numbered exhibits to the
Company's Annual Report on Form 10-K, date of report September 30, 1996.

(3) Incorporated herein by reference to the identically numbered exhibits to the
Company's Annual Report on Form 10-K, date of report September 30, 1997.

(4) Incorporated herein by reference to the identically numbered exhibit to the
Company's Quarterly Report on form 10-Q, date of report March 31, 1998.

(5) Incorporated herein by reference to the identically numbered exhibit to the
Company's Quarterly Report on form 10-Q, date of report June 30, 1998.

(6) Incorporated herein by reference to the identically numbered exhibit to the
Company's Annual Report on Form 10-K, date of report September 30, 1998.

(7) Incorporated herein by reference to the identically numbered exhibit to the
Company's Quarterly Report of Form 10-Q, date of report June 30, 1999.

(8) Filed herewith.

(B) Reports on Form 8-K. During the fourth quarter of fiscal 1999, there were no
Form 8-K's filed by the Company.

(C) Exhibits. The Exhibits listed in Item 14(a)(3)(a) hereof are filed as part
of this Annual Report on Form 10-K or incorporated herein by reference.

(D) Financial Statement Schedules. See Item 14(a)(2) above.

<PAGE>

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated: December 17, 1999 SEMITOOL, INC.

By: /s/Fabio Gualandris
----------------------------------
Fabio Gualandris
President and Chief Executive Officer

<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:

Signature Title Date

/s/Fabio Gualandris
- -------------------------
Fabio Gualandris President and Chief Executive December 17, 1999
Officer
(Principal Executive Officer)

/s/William A. Freeman
- -------------------------
William A. Freeman Senior Vice President December 23, 1999
and Chief Financial Officer

/s/Larry A. Viano
- -------------------------
Larry A. Viano Controller, Treasurer and December 17, 1999
Principal Accounting Officer

/s/Raymon F. Thompson
- -------------------------
Raymon F. Thompson Chairman of the Board December 17, 1999

/s/Howard E. Bateman
- -------------------------
Howard E. Bateman Director December 22, 1999

/s/Richard A. Dasen
- -------------------------
Richard A. Dasen Director December 22, 1999

/s/Timothy C. Dodkin
- -------------------------
Timothy C. Dodkin Director and December 22, 1999
Senior Vice President

/s/Daniel J. Eigeman
- -------------------------
Daniel J. Eigeman Director December 22, 1999

/s/Calvin S. Robinson
- -------------------------
Calvin S. Robinson Director and Secretary December 22, 1999

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Shareholders
Semitool, Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Semitool, Inc. and its subsidiaries at September 30, 1999
and September 30, 1998, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 1999 in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/PricewaterhouseCoopers LLP

Boise, Idaho
November 3, 1999

<PAGE>

SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and 1998
(Amounts in Thousands)

ASSETS

1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,789 $ 7,287
Trade receivables, less allowance for doubtful accounts
of $271 and $1,542 38,366 34,855
Inventories 41,667 36,435
Income tax refund receivable 3,944 --
Prepaid expenses and other current assets 2,607 2,052
Deferred income taxes 5,928 6,379
----------- -----------
Total current assets 97,301 87,008
Property, plant and equipment, net 30,336 36,302
Intangibles, less accumulated amortization of $3,574 and $2,399 3,406 3,965
Other assets, net 841 715
----------- -----------
Total assets $ 131,884 $ 127,990
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Note payable to bank $ 10,160 $ 3,000
Accounts payable 14,602 8,987
Accrued commissions 1,018 935
Accrued warranty and installation 9,045 11,970
Accrued payroll and related benefits 3,691 4,240
Other accrued liabilities 3,974 2,414
Customer advances 2,119 2,380
Long-term debt and capital leases, due within one year 381 596
Payable to shareholder 3 78
----------- -----------
Total current liabilities 44,993 34,600
Long-term debt and capital leases, due after one year 3,911 3,836
Deferred income taxes 1,955 2,860
----------- -----------
Total Liabilities 50,859 41,296
----------- -----------

Commitments and contingencies (Note 9)

Shareholders' equity:
Preferred stock, no par value, 5,000 shares authorized, no
shares issued and outstanding -- --
Common stock, no par value, 30,000 shares authorized,
13,814 and 13,792 shares issued and outstanding
in 1999 and 1998 41,464 41,248
Retained earnings 39,009 45,754
Accumulated other comprehensive income (loss) 552 (308)
----------- -----------
Total shareholders' equity 81,025 86,694
----------- -----------
Totalliabilities and shareholders' equity $ 131,884 $ 127,990
=========== ===========

The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

<PAGE>

SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30, 1999, 1998 and 1997
(Amounts in Thousands, Except for Per Share Amounts)

1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 122,528 $ 180,501 $ 193,952
Cost of sales 64,880 89,522 102,862
----------- ----------- -----------

Gross profit 57,648 90,979 91,090
----------- ----------- -----------

Operating expenses:
Selling, general and administrative 49,515 58,356 49,479
Research and development 20,874 24,536 21,179
----------- ----------- -----------
Total operating expenses 70,389 82,892 70,658
----------- ----------- -----------

Income (loss) from operations (12,741) 8,087 20,432
----------- ----------- -----------

Other income (expense):
Interest income 243 64 97
Interest expense (401) (559) (499)
Other, net 1,954 (312) 168
----------- ----------- -----------
1,796 (807) (234)
----------- ----------- -----------
Income (loss) before income taxes (10,945) 7,280 20,198
Income taxes (4,200) 2,475 7,675
----------- ----------- -----------

Net income (loss) $ (6,745) $ 4,805 $ 12,523
=========== =========== ===========

Earnings (loss) per share:
Basic $ (0.49) $ 0.35 $ 0.92
Diluted $ (0.49) $ 0.35 $ 0.91

Weighted average common shares:
Basic 13,797 13,783 13,676
Diluted 13,797 13,904 13,833

The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

<PAGE>

SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended September 30, 1999, 1998 and 1997
(Amounts in Thousands)

COMMON STOCK
-----------------------
Accumulated
Number Other
of Retained Comprehensive
Shares Amount Earnings Income (loss) Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance October 1, 1996 13,656 $ 39,577 $ 28,426 $ -- $ 68,003
Net income -- -- 12,523 -- 12,523
Exercise of stock options 100 1,013 -- -- 1,013
Other comprehensive income -- -- -- 41 41
---------- ---------- ---------- ---------- ----------

Balance September 30, 1997 13,756 40,590 40,949 41 81,580
Net income -- -- 4,805 -- 4,805
Exercise of stock options 36 342 -- -- 342
Income tax effect of nonqualified
stock options -- 316 -- -- 316
Other comprehensive loss -- -- -- (349) (349)
---------- ---------- ---------- ---------- ----------

Balance September 30, 1998 13,792 41,248 45,754 (308) 86,694
Net income -- -- (6,745) -- (6,745)
Exercise of stock options 22 216 -- -- 216
Other comprehensive income -- -- -- 860 860
---------- ---------- ---------- ---------- ----------

Balance September 30, 1999 13,814 $ 41,464 $ 39,009 $ 552 $ 81,025
========== ========== ========== ========== ==========

The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

<PAGE>

SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1999, 1998 and 1997
(Amounts in Thousands)

1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (6,745) $ 4,805 $ 12,523
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
(Gain) loss on disposition of assets (157) 623 6
Depreciation and amortization 10,351 10,423 6,077
Provisions for losses on accounts receivable 51 1,318 (9)
Deferred income tax (454) 308 (719)
Change in:
Trade receivables (1,902) 3,993 (1,653)
Inventories (7,995) 2,593 (10,649)
Income tax refund receivable (3,944) -- --
Prepaid expenses and other current assets (353) (282) 552
Shareholder payable (75) 71 (26)
Other assets, net (422) 113 (262)
Accounts payable 3,760 (7,234) (442)
Accrued commissions 83 (915) 99
Accrued warranty and installation (2,939) 2,150 1,823
Accrued payroll and related benefits (589) (1,924) 1,132
Other accrued liabilities 1,788 972 435
Customer advances (264) 660 (2,035)
Income taxes payable -- (2,670) 1,652
--------- --------- ---------
Net cash provided by (used in) operating
activities (9,806) 15,004 8,504
--------- --------- ---------

Investing activities:
Purchases of property, plant and equipment (1,988) (9,759) (6,174)
Increase in intangible assets (654) (2,826) (1,122)
Proceeds from sale of property 3,381 63 42
--------- --------- ---------
Net cash provided by (used in) investing
activities 739 (12,522) (7,254)
--------- --------- ---------

Financing activities:
Proceeds from exercise of stock options 216 342 1,013
Borrowings under line of credit 15,845 75,440 61,835
Repayments under line of credit (8,685) (76,440) (61,835)
Proceeds from long-term debt -- 1,100 131
Repayments of long-term debt and capital leases (636) (410) (385)
Repayments of short-term debt (413) (255) --
--------- --------- ---------
Net cash provided by (used in) financing
activities 6,327 (223) 759
--------- --------- ---------

Effect of exchange rate changes on cash and cash equivalnets 242 (32) (7)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (2,498) 2,227 2,002
Cash and cash equivalents at beginning of year 7,287 5,060 3,058
--------- --------- ---------
Cash and cash equivalents at end of year $ 4,789 $ 7,287 $ 5,060
========= ========= =========

</TABLE>

<PAGE>

SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the years ended September 30, 1999, 1998 and 1997
(Amounts in Thousands)

1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $ 370 $ 569 $ 497
Income taxes (431) 5,263 6,748

Supplemental disclosures of non-cash financing and
investing activity:
Inventory transferred to equipment $ 3,367 $ 2,033 $ 6,434
Assets acquired by incurring debt and capital leases 501 668 --
Income tax effect of nonqualified stock options -- 316 --

The accompanying notes are an integral part of the consolidated financial statements

</TABLE>

SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended September 30, 1999, 1998 and 1997
(Amounts in Thousands)

1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) $ (6,745) $ 4,805 $ 12,523
Foreign currency translation adjustment 860 (349) 41
----------- ----------- -----------
Total comprehensive income (loss) $ (5,885) $ 4,456 $ 12,564
=========== =========== ===========

The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

<PAGE>

SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. COMPANY ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Semitool, Inc. (Semitool) and subsidiaries (the Company) designs,
manufactures, markets and services equipment and software control products
used in the manufacture of semiconductors as well as other products
requiring similar processes including thin film heads, compact disc
masters, flat panel displays and hard disk media. The Company has two
reportable segments, Semiconductor Equipment and Software Control Systems.
Semitool has various subsidiaries which operate various sales and service
offices in certain geographic areas.

Significant accounting policies followed by the Company are:

Principles of Consolidation

The consolidated financial statements include the accounts of Semitool
and its wholly-owned subsidiaries: Semitool Europe Ltd., (United
Kingdom); Semitool Halbleitertechnik Vertriebs GmbH, (Germany);
Semitool France SARL; Semitool Italia SRL; Semitool Japan KK; Semitool
Korea, Inc.; Semitool (Asia) Pte Ltd., (Singapore); Semitool FSC, Inc.;
Semy Engineering, Inc. (Semy) and Rhetech, Inc. (Rhetech).

All significant intercompany accounts and transactions are eliminated
in consolidation.

Estimates

The preparation 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 disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results inevitably
will differ from those estimates, and such differences may be material
to the consolidated financial statements.

Cash Equivalents

The Company considers cash equivalents to consist of short-term, highly
liquid investments with remaining maturities at time of purchase of
three months or less. Substantially all of its cash and cash
equivalents are held by major financial institutions. At times such
balances may be in excess of the federal insurance limit.

Inventories

Inventories are carried at the lower of first-in, first-out (FIFO) cost
or market. The Company periodically reviews its inventories to identify
slow moving and obsolete inventories to record such inventories at net
realizable values. It is reasonably possible that the Company's
estimates of net realizable values could change in the near term due to
technological and other changes.

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation and
amortization is provided using the straight-line method with estimated
useful lives as follows:

Buildings and improvements 10-40 years
Machinery and equipment 2-5 years
Furniture, fixtures and leasehold improvements 3-7 years
Vehicles and aircraft 5-10 years

Major additions and betterments are capitalized. Costs of maintenance
and repairs which do not improve or extend the lives of the respective
assets are expensed currently. When items are disposed of, the related
costs and accumulated depreciation are removed from the accounts and
any gain or loss is recognized.

Intangible Assets

Intangible assets include, among other things, the cost of internally
developed software and legal costs associated with obtaining patents.

Costs incurred for internally developed software products and
enhancements after technological feasibility and marketability have
been established for the related product are capitalized and are stated
at the lower of cost or net realizable value. Amortization is provided
based on the greater of the amount computed using (a) the ratio that
current gross revenues for a product bears to the total of current and
anticipated future gross revenues for that product, or (b) the
straight-line method over the remaining economic life of the product,
estimated at three years. Net capitalized software costs were $1.3
million and $2.4 million as of September 30, 1999 and 1998 and
amortization of such costs was $1,105,000, $877,000 and $491,000 for
the years ended September 30, 1999, 1998 and 1997, respectively.

The cost of patents is amortized on a straight-line basis over the
lesser of 17 years or the estimated product life.

It is reasonably possible that estimates of future gross revenues for
software products, the estimated remaining product life, or both could
change in the near term due to technological and other changes which
would result in a reduction in the carrying value of capitalized
software development costs and patents.

Revenue Recognition

Revenue from sales of products is generally recognized at the time the
product is shipped. Service contract revenue is recognized ratably over
the period of the related contract. Software revenue is recognized when
there is persuasive evidence of an arrangement, the software has been
delivered, the price is fixed, and determinable and collectibility is
probable in accordance with the AICPA's Statement of Position 97-2
"Software Revenue Recognition".

Accrued Warranty and Installation

The Company's obligations at time of shipment for installation and
warranty are accrued concurrently with the revenue recognized. The
Company has made a provision for its warranty and installation
obligations based upon historical costs incurred for such obligations
adjusted, as necessary, for current conditions and factors. Due to the
significant uncertainties and judgments involved in estimating the
Company's warranty and installation obligations, including changing
product designs and specifications, the ultimate amount incurred for
warranty and installation costs could change in the near term from the
Company's current estimate.

Foreign Currency

Except for Semitool Japan KK, where the functional currency was changed
to the yen during the fourth quarter of 1997, the functional currency
for the Company's foreign operations is the U.S. Dollar, in which most
of the sales and purchases are denominated. For these foreign
operations, realized gains and losses from foreign currency
transactions and unrealized gains and losses from re-measurement of the
financial statements of the foreign operations into the functional
currency are included in the consolidated statements of operations.

In July 1997, Semitool Japan KK, commenced invoicing its customers in
yen, and therefore, the Company changed the functional currency from
the U.S. Dollar to the yen. The change in the functional currency has
been accounted for prospectively commencing in the fourth quarter of
1997. Gains and (losses) of $1.2 million, $(44,000) and $(3,600) in
1999, 1998, and 1997 are included in Other Income (Expense) in the
Consolidated Statements of Operations and unrealized gains and losses
from re-measurement of the financial statements are reflected as a
component of Other Comprehensive Income (Loss).

Foreign Currency Exchange Contracts

The Company uses foreign currency exchange contracts, which typically
mature within one year, as part of an overall risk-management strategy.
These instruments are used as an economic hedge of receivables
denominated in yen. Transaction gains and losses on these contracts and
the related receivables are recognized in the consolidated statements
of operations. The impact of movements in currency exchange rates on
forward foreign exchange contracts generally offsets the related impact
on the underlying items being hedged, and therefore net foreign
currency gains and losses on these transactions historically have not
been material. However, during fiscal 1999, significant receivables
were not hedged which resulted in net foreign currency gains of $1.2
million. In entering into these contracts, the Company has assumed the
risk that might arise from the possible inability of counterparties to
meet the terms of their contracts. The Company does not expect any
losses as a result of counterparty defaults. The Company does not hold
or issue derivative financial instruments for trading or speculative
purposes.

As of September 30, 1999 and 1998, the Company had foreign currency
exchange contracts to sell 1,191.6 million yen (US $11.2 million) and
571.0 million yen (US $4.2 million), respectively, at contracted
forward rates maturing at various dates in fiscal years 2000 and 1999.

Research and Development Costs

Costs of research and development are expensed as incurred.

Earnings Per Share

Basic earnings per share is computed using the weighted average number
of common shares outstanding. Diluted earnings per share is computed
using the weighted average number of common shares outstanding and
common share equivalents. Common equivalent shares result from the
assumed exercise of outstanding stock options. Diluted earnings per
share excludes the effects of antidilutive stock options of 889,450,
173,000 and 135,500 in fiscal 1999, 1998 and 1997, respectively.

The following table sets forth the computation of basic and diluted
earnings (loss) per common share for the years ended September 30,
1999, 1998 and 1997 (in thousands):

1999 1998 1997
<S> <C> <C> <C>
Numerator:
Net income (loss) used for basic and diluted
earnings (loss) per share $ (6,745) $ 4,805 $ 12,523
========= ========= =========

Denominator:
Average common shares used for basic
earnings (loss) per share 13,797 13,783 13,676
Effects of dilutive stock options -- 121 157
--------- --------- ---------

Denominator for diluted earnings (loss) per share 13,797 13,904 13,833
========= ========= =========

</TABLE>

Comprehensive Income

In fiscal 1999, the Company adopted SFAS No. 130 (SFAS 130), "Reporting
Comprehensive Income." This statement requires the Company to disclose
accumulated other comprehensive income or loss as a separate component
of shareholders' equity. Prior period financial statements have been
reclassified to reflect application of this statement.

New Accounting Pronouncements

In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities"
was issued. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives),
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS
No. 133 is effective for the Company in fiscal 2001. The Company has
not yet determined the effect the adoption of this standard will have
on the financial condition or results of operations of the Company.

In March 1998, the AICPA issued Statement of Position 98-1 (SOP 98-1),
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 requires companies to capitalize certain
costs of computer software developed or obtained for internal use. SOP
98-1 is effective for the Company in fiscal 2000. The Company does not
believe the application of this standard will have a material effect on
the results of operations or financial condition of the Company.

2. INVENTORIES:

Inventories at September 30, 1999 and 1998 are summarized as follows (in
thousands):

1999 1998

Parts and raw materials $ 23,930 $ 22,334
Work-in-process 11,852 8,344
Finished goods 5,885 5,757
---------- ----------

$ 41,667 $ 36,435
========== ==========

3. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at September 30, 1999 and 1998 is summarized
as follows (in thousands):
<TABLE>
<CAPTION>

1999 1998
<S> <C> <C>
Buildings and improvements $ 16,340 $ 15,337
Machinery and equipment 23,396 20,955
Furniture, fixtures and leasehold improvements 10,812 11,534
Vehicles and aircraft 5,406 6,702
--------- ---------
55,954 54,528
Less accumulated depreciation and amortization (29,849) (24,240)
--------- ---------
26,105 30,288
Land and land improvements 4,231 6,014
--------- ---------
$ 30,336 $ 36,302
========= =========

</TABLE>

Equipment under capital leases and accumulated amortization thereon were
approximately $501,000 and $51,000, respectively, as of September 30,
1999.

4. NOTE PAYABLE TO BANK:

The Company has an uncollateralized line of credit totaling $25 million
under an agreement with Bank of America. Borrowings under the line of
credit bear interest at the bank's prime lending rate (8.25% at September
30, 1999) or at LIBOR plus 1.5% with the line of credit expiring on April
1, 2001. The line of credit requires monthly interest payments only, until
April 1, 2001 with the then outstanding balance repayable in monthly
principal and interest payments over a three-year period ending April 1,
2004. At September 30, 1999, there were $10.2 million of advances
outstanding on the line of credit. The line of credit agreement provides
for a quarterly commitment fee on any unused portion. Additionally, the
agreement has various restrictive covenants, including a prohibition
against pledging or in any way encumbering current or operating assets
during the term of the agreement and the maintenance of various financial
ratios.

<PAGE>

5. LONG-TERM DEBT AND CAPITAL LEASES:

Long-term debt and capital leases at September 30, 1999 are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
Mortgage term note payable in monthly installments of
$23 including interest at a blended rate of 5.5%, maturing on
September 1, 2014 (A) $ 2,762
Mortgage term note payable in monthly installments of
$25 including interest at a blended rate of 4.7%, maturing on
December 1, 1999 (A) 71
Mortgage term note payable to First Union National Bank in monthly
installments of $6, including interest at 7.5% until
March 30, 2005 and thereafter at the Bank's national commercial
rate plus 1.0% per annum, maturing on March 30, 2008. (B) 483
Mortgage term note payable to the Pennsylvania Industrial
Development Authority (PIDA) in monthly installments of $6,
including interest at 4.25%, maturing on December 1, 2008. (B) 522
Capitalized lease obligation payable in monthly installments of
779 yen (US $7), including interest at 3.2% and property taxes at
1.4%, maturing on April 1, 2004. Collateralized by equipment. 361
Capitalized lease obligation payable in monthly installments of
215 yen (US $2), including interest at 2.2% and property taxes at
1.4%, maturing on November 1, 2003. Collateralized by equipment. 93
----------
4,292
Less current portion 381
----------
$ 3,911
==========

</TABLE>

(A) The mortgage term notes payable are collateralized by a first lien
deed of trust on the Kalispell office and manufacturing facility and
by all fixtures and personal property of the Company necessary for
the operation of the facility. The Montana State Board of
Investments provided 80% of the financing with Bank of America
providing the remaining 20%. The notes are personally guaranteed by
Raymon F. Thompson, the Company's chairman, and are subject to the
restrictive covenants described in Note 4.

(B) The mortgage term note payable to First Union National Bank is
collateralized by a first lien deed of trust on the Coopersburg,
Pennsylvania office and manufacturing facility and by all fixtures
and personal property of Rhetech, Inc. necessary for the operation
of the facility. The mortgage term note payable to PIDA is
collateralized by a second lien upon the premises in Coopersburg,
Pennsylvania upon which the Rhetech, Inc. office and manufacturing
facility resides, and is subordinate only to the $540,000 mortgage,
dated March 26, 1998, between Rhetech, Inc. and First Union National
Bank. The net book value of assets pledged under the agreements was
$2.3 million at September 30, 1999.

Principal maturities for long-term debt and capital leases at September
30, 1999, are summarized as follows (in thousands):

Year Ending Notes Capital
September 30, Payable Leases
-----------------------------------------------------------------
2000 $ 287 $ 112
2001 224 112
2002 242 112
2003 256 112
2004 271 55
Thereafter 2,558 --
Less interest and property taxes -- (49)
------------- -------------
$ 3,838 $ 454
============= =============

<PAGE>

6. EMPLOYEE BENEFIT AND STOCK OPTION PLANS:

Semitool maintains a profit-sharing plan and trust under Section 401(k) of
the Internal Revenue Code. Under the terms of the plan, U.S. employees may
make voluntary contributions to the plan. Semitool contributes a matching
amount equal to 50% of the employee's voluntary contribution up to 5% of
the employee's compensation. Semitool may also make non-matching
contributions to the plan, which are determined annually by the Board of
Directors. Total profit sharing contribution cost for this plan was
approximately $1,216,000, $1,080,000 and $1,115,000 for the years ended
September 30, 1999, 1998 and 1997, respectively.

Semitool Europe Ltd. maintains a defined contribution pension agreement.
This pension agreement is open to all employees with more than three
months of service. The employer and employee contributions are invested in
each individual member's personal pension plan with a United Kingdom
insurance company. The employer has an obligation to make contributions at
one-half of the contribution rate paid by the employee, subject to a rate
between 2.5% and 5.0% of the employee's salary. The total pension cost for
this plan for the years ended September 30, 1999, 1998 and 1997
approximated $23,000, $59,000 and $37,000, respectively.

The Company's other foreign subsidiaries do not operate their own pension
plans, but retirement benefits are generally provided to employees through
government plans operated in their respective countries.

In December 1994, the Board of Directors adopted and the shareholders
approved the Semitool, Inc. 1994 Stock Option Plan (the Option Plan). A
total of 900,000 shares of common stock were reserved for issuance under
the Option Plan. In February 1997 and again in 1998 and 1999, the Option
Plan was amended to increase the number of shares of common stock
available for issuance thereunder by 200,000 shares per amendment for a
total increase of 600,000. The total shares reserved for the Option Plan
is 1,500,000 at September 30, 1999. Options granted under the Option Plan
generally become exercisable at a rate of 5% per quarter commencing three
months after the grant date. Semitool may grant options that qualify as
incentive stock options to employees and nonqualified stock options to
employees, officers, directors, independent contractors and consultants.
The Option Plan also provides for automatic grants of nonqualified stock
options to independent directors. The Option Plan will terminate in
December 2004 unless terminated earlier at the discretion of the Board of
Directors. At September 30, 1999, 387,239 shares were available for future
issuance under the Option Plan. Options are granted at an exercise price
equal to the market price of the common stock and no compensation expense
has been recognized in 1999, 1998 or 1997 under the Option Plan.

The following summary shows stock option activity for the three years
ended September 30, 1999:

Weighted-
Average
Number of Exercise Price
Stock Option Activity Shares per Share
------------------------ ----------------- -----------------
October 1, 1996 635,810 $10.12
Granted 163,000 $10.54
Exercised (99,937) $10.14
Forfeited (100,550) $10.66
----------------- -----------------

September 30, 1997 598,323 $10.14
Granted 429,500 $11.28
Exercised (36,509) $9.36
Forfeited (125,640) $11.73
----------------- -----------------

September 30, 1998 865,674 $10.51
Granted 145,500 $9.17
Exercised (22,475) $9.61
Forfeited (99,249) $11.50
----------------- -----------------

September 30, 1999 889,450 $10.20
================= =================

<PAGE>

The following tables summarize information about stock options outstanding
at September 30, 1999:

Options Outstanding
---------------------------------------------------
Weighted-
Average Weighted-
Remaining Average
Number Contractual Exercise
Range of Outstanding at Life Price
Exercise Prices September 30, 1999 (in years) per Share
--------------------- ------------------ --------------- ------------

$6.31 - $9.25 410,675 6.6 $8.42
$9.75 - $14.63 458,775 8.4 $11.58
$15.00 - $16.25 20,000 7.2 $15.11
------------------ --------------- ------------
889,450 7.5 $10.20
================== =============== ============

Options Exercisable
---------------------------------------------------
Weighted-
Average Weighted-
Remaining Average
Number Contractual Exercise
Range of Exercisable at Life Price
Exercise Prices September 30, 1999 (in years) per Share
--------------------- ------------------ --------------- -------------

$6.31 - $9.25 264,318 6.6 $8.61
$9.75 - $14.63 142,450 8.4 $12.07
$15.00 - $16.25 13,150 7.2 $15.15
------------------ --------------- ------------
419,918 7.5 $9.99
================== =============== ============

The number and weighted-average exercise prices of options exercisable
at September 30, 1999, 1998 and 1997 are summarized as follows:

1999 1998 1997

Number exercisable 419,918 299,467 196,637

Weighted-average exercise price per share $9.99 $10.07 $9.72

The exercise and sale of certain qualified options resulted in the
treatment of those options as nonqualified options for tax purposes. As a
result, the Company received a tax benefit associated with those options
of $316,000 in 1998 which has been recorded as additional capital.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for
Stock-Based Compensation." Had compensation cost for the Option Plan been
determined based on the fair value consistent with the provisions of SFAS
No. 123, the Company's net income (loss) and earnings (loss) per share
would have been changed to the pro forma amounts shown below (in
thousands, except for per share amounts):

1999 1998 1997

Net income (loss):
As reported $ (6,745) $ 4,805 $ 12,523
Pro forma $ (7,199) $ 4,526 $ 12,275

Diluted earnings (loss) per share:
As reported $ (0.49) $ 0.35 $ 0.91
Pro forma $ (0.52) $ 0.33 $ 0.89

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997,
respectively: dividend yield of 0% for all years; expected volatility of
70.0%, 66.0% and 67.8%; risk-free interest rates of 5.44%, 5.49% and
6.31%; and expected lives of 4.6, 4.9 and 4.6 years. The weighted-average
fair value of stock options granted during the years ended September 30,
1999, 1998 and 1997, was $5.53, $6.69 and $6.31, respectively.

7. INCOME TAXES:

The provision for income taxes for the years ended September 30, 1999,
1998 and 1997 consists of the following (in thousands):

1999 1998 1997

Federal:
Current $ (3,973) $ 1,487 $ 7,643
Deferred (446) 231 (643)
State:
Current (374) 489 899
Deferred (483) 77 (76)
Foreign:
Current 601 191 (148)
Deferred 475 -- --
---------- ---------- ----------
$ (4,200) $ 2,475 $ 7,675
========== ========== ==========

Domestic and foreign components of income (loss) before income taxes for
the years ended September 30, 1999, 1998 and 1997 are as follows
(in thousands):

1999 1998 1997

Domestic $ (12,074) $ 6,897 $ 22,245
Foreign 1,129 383 (2,047)
----------- ----------- ------------
$ (10,945) $ 7,280 $ 20,198
=========== =========== ============

The components of the deferred tax assets and liabilities as of September
30, 1999 and 1998 are as follows (in thousands):

1999 1998
<S> <C> <C>
Deferred tax assets:
Accrued warranty and installation $ 2,786 $ 3,900
Net operating loss carryforwards 1,451 708
Research and experimentation credit carryforward 626 --
Other accrued liabilities 596 700
Inventory 991 939
Covenant not to compete 300 216
Other 125 149
--------- ---------
Total deferred tax assets 6,875 6,612
Less valuation allowance (947) (233)
--------- ---------
Net deferred tax assets 5,928 6,379
--------- ---------

Deferred tax liabilities:
Depreciation and amortization (1,547) (2,820)
Other (408) (40)
--------- ---------
Total deferred tax liabilities (1,955) (2,860)
--------- ---------
Net deferred tax asset $ 3,973 $ 3,519
========= =========

</TABLE>

The Company has established a valuation allowance of $947,000 at September
30, 1999 and $233,000 at September 30, 1998 to reduce the deferred tax
asset related to the net operating loss carryforwards in its Japanese &
Asian subsidiaries.

The Company has net operating loss carryforwards of $1,397,000 in Japan
that expire in fiscal years 2001 and 2002, $1,388,000 in Singapore that
have no expiration, and $7,302,000 in various states that expire between
2004 and 2019. The Company has a research and experimentation credit
carryforward of $626,000 that expires in 2019.

Cumulative undistributed earnings of foreign subsidiaries, for which no
U.S. income or foreign withholding taxes have been recorded, was
approximately $1,748,000 at September 30, 1999. Such earnings are expected
to be reinvested indefinitely. Determination of the amount of unrecognized
deferred tax liability with respect to such earnings is not practicable.
The additional taxes payable on the earnings of foreign subsidiaries, if
remitted, would be substantially offset by U.S. tax credits for foreign
taxes already paid.

The differences between the consolidated provision for income taxes and
income taxes computed using income before income taxes and the U.S.
federal income tax rate for the years ended September 30, 1999, 1998 and
1997 are as follows (in thousands):

1999 1998 1997
<S> <C> <C> <C>
Amount computed using the statutory rate $ (3,721) $ 2,475 $ 7,069
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit (747) 374 959
Effect of foreign taxes 196 73 569
Research and experimentation credit (626) (790) (863)
Foreign sales corporation benefit (97) (272) (822)
Increase in valuation allowance 714 233 --
Other, net 81 382 763
-------- -------- --------
$ (4,200) $ 2,475 $ 7,675
======== ======== ========

</TABLE>

8. Related Party Transactions:

Semitool has agreements with Mr. Raymon F. Thompson, the Company's
chairman and a shareholder, to lease aircraft. Under these agreements,
rent expense was approximately $474,000, $1,273,200 and $1,276,600 for the
years ended September 30, 1999, 1998 and 1997, respectively. The rental
rate for fiscal 2000 will be $57,000 per month, and the lease term is
month-to-month.

Periodically, Semitool advances funds to Mr. Thompson and pays certain
expenses for the benefit of Mr. Thompson. These advances are offset by
amounts payable to Mr. Thompson under the agreements described in the
preceding paragraph. Net advances to (from) Mr. Thompson are charged
interest at the Company's borrowing rate for short-term funds. Associated
with these advances, Mr.

Thompson paid the Company interest of $3,932 in 1998.

Semitool purchased raw materials approximating $441,000 and $720,000
for the years ended September 30, 1998 and 1997, respectively, from a
company previously owned by Mr. Thompson. Mr. Thompson sold his holdings
of this company in December of 1997.

<PAGE>

9. Commitments and Contingencies:

The Company has various operating lease agreements for equipment and
office space that expire through the year 2004. Total rent expense for the
years ended September 30, 1999, 1998 and 1997, exclusive of amounts paid
to a related party as described in Note 8, was approximately $1,632,000,
$2,099,000, and $2,011,000, respectively. At September 30, 1999, future
rental payments under these agreements are as follows (in thousands):

Year Ending
September 30, Total
------------- -----
2000 $ 1,258
2001 824
2002 596
2003 421
2004 75
-------
$ 3,174
=======

In August, 1998, we filed suit against Novellus Systems, Inc. in the
United States District Court for the Northern District of California (Case
No. C-98-3089DLJ), alleging infringement of two of our patents relating to
single substrate processing tools used in electrochemical deposition of
copper onto semiconductor wafers. We seek damages for past infringement, a
permanent injunction, treble damages for willful infringement,
pre-judgment interest and attorneys fees. Novellus answered the complaint
by denying all allegations, counterclaiming for declaratory judgment of
invalidity and non-infringement. Discovery is continuing and no trial date
has been set.

A lawsuit brought by Mitsubishi Silicon America Corporation, successor to
Siltec Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the
United States Federal District Court for the District of Oregon against
us. The lawsuit alleges breach of warranties and seeks damages and
attorney's fees in excess of $5 million. We believe the lawsuit to be
without merit and are contesting the action vigorously. However, given the
inherent uncertainty of litigation and the stage of discovery, there can
be no assurance that the ultimate outcome will be in our favor. Further,
regardless of the ultimate outcome, there can be no assurance that the
diversion of management's attention, and any costs associated with the
lawsuit, will not have a material adverse effect on our financial
condition, results of operations or cash flows.

We are subject to other legal proceedings and claims which have arisen in
the ordinary course of our business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of our management, based upon the information
available at this time, that the currently expected outcome of these
matters, individually or in the aggregate, will not have a material
adverse effect on our results of operations, financial condition or cash
flows.

10. Preferred Stock:

The Board of Directors has the authority to issue preferred stock of
Semitool in one or more series and to fix the rights, privileges,
preferences and restrictions granted to or imposed upon any unissued
shares of preferred stock, without further vote or action by the common
shareholders.

11. Financial Instruments and Certain Concentrations:

The Company has estimated the fair value of its financial instruments
including cash and cash equivalents, payable to shareholder, note payable
to bank and long-term debt. The fair value estimates are made at a
discrete point in time based on relevant market information and
information about the financial instruments. Fair value estimates are
based on judgments regarding current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates. Accordingly, the estimates are not necessarily indicative of
what the Company could realize in a current market exchange.

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at September 30, 1999 and 1998 for
which it is practicable to estimate that value:

Cash and Cash Equivalents - The carrying value of cash and cash
equivalents approximates fair value due to the nature of the cash
investments.

Payable to Shareholder - The carrying value of the shareholder payable
approximates fair value due to the fact that the note carries a
variable interest rate.

Note Payable to Bank - The carrying value of the note payable to bank
approximates fair value due to the fact that the note bears a
negotiated variable interest rate.

Long-Term Debt - The fair value of notes payable is based on the
discounted value of contractual cash flows using an estimated discount
rate of 8.25% which the Company could currently obtain for debt with
similar remaining maturities.

The estimated fair value of financial instruments at September 30, 1999
and 1998, consisted of the following (in thousands):

1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------ ------------------
Cash and cash equivalents $ 4,789 $ 4,789 $ 7,287 $ 7,287
Payable to shareholder 3 3 78 78
Note payable to bank 10,160 10,160 3,000 3,000
Long-term debt 3,838 3,321 4,432 3,927

At September 30, 1999 and 1998, trade receivables of the Company were
primarily from companies in the semiconductor industry, and included
approximately $24.5 million and $15.9 million, respectively, of foreign
receivables. Accordingly, the Company is exposed to concentrations of
credit risk. The Company routinely assesses the financial strength of its
customers.

12. Operating Segment and Geographic Information:

The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information" in 1999. SFAS 131 supersedes SFAS 14, "Financial Reporting
for Segments of a Business Enterprise," replacing the "industry segment"
approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about
product and services, geographic areas and major customers.

The Company's reportable segments have been determined based on the nature
of its operations, products offered to customers and information used by
the chief operating decision maker as defined by SFAS 131. The Company's
two reportable segments are Semiconductor Equipment and Software Control
Systems.

The Semiconductor Equipment segment's primary products perform cleaning
and electroplating processes. The Software Control Systems segment's
primary products are designed to provide a communication interface to
monitor and control most of the front-end process equipment in a fab. The
Semiconductor Equipment's current product offerings qualify for
aggregation under SFAS 131 as the products are manufactured and
distributed in the same manner, have similar economic characteristics and
are sold to the same customer base.

Consolidated sales to one major customer of the Company's Semiconductor
Equipment segment represented 10.9% of total consolidated net sales for
the year ended September 30, 1997. No other customer represented more than
10% of total consolidated net sales for any period presented.

The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies" note. Segment operating
results are measured based on income (loss) from operations. Intersegment
sales are based on internal transfer prices. Intersegment sales reflect
sales of products from the Software Control Systems segment to the
Semiconductor Equipment segment. Segment assets consist of assets that are
identified to reportable segments.

Financial information by operating segment for 1999, 1998 and 1997 is summarized
as follows (amounts in thousands):

Total
Equipment Software Software
Segment Segment Segment Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C>
Net Sales External External Internal
1999 $109,646 $12,882 $413 $13,295 $(413) $122,528
1998 168,902 11,599 181 11,780 (181) 180,501
1997 184,421 9,531 984 10,515 (984) 193,952

Income (Loss) from
Operations
1999 (12,996) 572 (317) (12,741)
1998 8,587 (381) (119) 8,087
1997 18,346 2,736 (650) 20,432

Segment Assets
1999 125,162 8,767 (2,045) 131,884
1998 120,082 9,986 (2,078) 127,990
1997 128,030 5,501 (1,806) 131,725

Capital Expenditures
for Long-Lived Assets
1999 5,404 1,106 6,510
1998 10,171 5,115 15,286
1997 12,395 1,335 13,730

Depreciation and
Amortization Expense
1999 8,657 1,694 10,351
1998 9,010 1,413 10,423
1997 5,215 862 6,077

</TABLE>

Financial information by geographic location for 1999, 1998 and 1997 is
summarized as follows (amounts in thousands):

United Asia &
States Europe Japan Other Consolidated
<S> <C> <C> <C> <C> <C>
Net Sales, by
customer location
1999 $ 57,784 $29,346 $22,963 $12,435 $122,528
1998 111,282 47,788 15,529 5,902 180,501
1997 124,378 39,564 14,028 15,982 193,952

Property, Plant and
Equipment, Net
1999 24,742 3,640 1,695 259 30,336
1998 31,512 4,275 198 317 36,302
1997 30,054 3,370 221 40 33,685

</TABLE>

<PAGE>

Exhibit Index

Exhibit No. Description
- ----------- -----------

3.1 Restated Articles of Incorporation of the Company (1)
3.5 Amended Bylaws of Semitool, Inc. (4)
3.6 Amended Bylaws of Semitool, Inc. (5)
3.7 Amended Bylaws of Semitool, Inc. (8)
10.12 Agreement between the Company and the Semitool European
Companies (1)
10.13 Aircraft Lease Agreement, dated April, 1996, between the Company and
Mr. Thompson (2)
10.16 Business Loan Agreement, dated September 30, 1997, between the Company
and the Bank of America NT & SA doing business as Seafirst Bank (3)
10.17 Promissory Note, dated September 29, 1997, between the Company and the
Bank of America National Trust and Savings Association doing business
as Seafirst Bank (3)
10.18 Loan Modification Agreement, dated September 29, 1997 between the
Company and the Bank of America National Trust And Savings Association
doing business as Seafirst Bank (3)
10.19 Loan Modification Agreement, dated October 2, 1997 between the Company
and the Bank of America National Trust And Savings Association doing
business as Seafirst Bank (3)
10.20 Loan Modification Agreement, dated October 2, 1997 between the Company
and the Bank of America National Trust And Savings Association doing
business as Seafirst Bank (3)
10.21 Promissory Note, dated March 26, 1998 between Rhetech, Inc. and
CoreStates Bank, N.A. (4)
10.22 Mortgage Assignment of Leases and Security Agreement, dated March 26,
1998 between Rhetech, Inc. and CoreStates Bank, N.A. (4)
10.23 Promissory Note, dated March 26, 1998 between Rhetech, Inc. and
CoreStates Bank, N.A. (4)
10.24 Mortgage Assignment of Leases and Securities Agreement, dated
March 26, 1998 between Rhetech, Inc. and CoreStates Bank, N.A. (4)
10.25 Employment Agreement between William A. Freeman and Semitool, Inc.
dated February 20, 1998. (4)
10.26 Employment Agreement between Fabio Gualandris and Semitool, Inc.
dated April 21, 1998. (6)
10.27 Business Loan Agreement, dated September 30, 1998, between the
Company and the Bank of America NT & SA doing business as
Seafirst Bank (6)
10.28 Promissory Note, dated September 30, 1998, between the Company and the
Bank of America National Trust and Savings Association doing business
as Seafirst Bank (6)
10.29 First Amendment to Business Loan Agreement between Bank of America
NT&SA doing business as Seafirst Bank and Semitool, Inc. (7)
10.30 Employment Agreement between Gary Spray and Semitool, Inc. dated
May 5, 1999 (7)
10.31 Employment Agreement between Kazuyo N. Heinink and Semitool, Inc.
dated July 29, 1999. (8)
21.1 Subsidiaries of Registrant (8)
27 Financial data schedule (8)
99.2 Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4)

(1) Incorporated herein by reference to the identically
numbered exhibits to the Company's Registration Statement on
Form S-1 (File No. 33-87548), which became effective on
February 2, 1995.

(2) Incorporated herein by reference to the identically
numbered exhibits to the Company's Annual Report on Form 10-K,
date of report September 30, 1996.

(3) Incorporated herein by reference to the identically
numbered exhibits to the Company's Annual Report on Form 10-K,
date of report September 30, 1997.

(4) Incorporated herein by reference to the identically
numbered exhibit to the Company's Quarterly Report on Form
10-Q, dated of report March 31, 1998.

(5) Incorporated herein by reference to the identically
numbered exhibit to the Company's Quarterly Report on form
10-Q, date of report June 30, 1998.

(6) Incorporated herein by reference to the identically
numbered exhibit to the Company's Annual Report on Form 10-K,
date of report September 30, 1998.

(7) Incorporated herein by reference to the identically
numbered exhibit to the Company's Quarterly Report on Form
10-Q, date of report June 30, 1999.

(8) Filed herewith.

<PAGE>

SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended September 30, 1999
(Amounts in Thousands)

Additions
----------------------
Balance at Charged to Charged Balance
beginning Costs and to Other at end
of Period Expenses Accounts Deductions of Period
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,542 $ 51 $ -- $ 1,322 a $ 271
Allowance for inventory obsolescence 1,000 2,260 -- 2,921 b 339
Allowance for deferred tax asset valuation 233 714 -- -- 947

Year ended September 30, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts 224 1,318 -- -- 1,542
Allowance for inventory obsolescence 876 124 -- -- 1,000
Allowance for deferred tax asset valuation -- 233 -- -- 233

Year ended September 30, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts 233 -- -- 9 a 224
Allowance for inventory obsolescence 548 328 -- -- 876
Allowance for deferred tax asset valuation -- -- -- -- --

a) Reduction of allowance for doubtful accounts and related receivable account
to reflect the write-off of uncollectible receivables.

b) Reduction of allowance for inventory obsolescence and related inventory
account to reflect the write-off of obsolete inventory.

</TABLE>

EXHIBIT 3.7

AMENDED BYLAWS

SEMITOOL, INC.

(February 9, 1999)

ARTICLE I.

Offices
-------

The principal office of the corporation in the State of Montana shall
be located in the City of Kalispell, County of Flathead. The corporation may
have such other offices, either within or without the State of Montana as the
Board of Directors may designate or as the business of the corporation may
require from time to time.

The registered office of the corporation required by the Montana
Business Corporation Act to be maintained in the State of Montana may be, but
need not be, identical with the principal office in the State of Montana, and
the registered agent and the address of the registered office may be changed
from time to time by the Board of Directors.

ARTICLE II.

Shareholders
------------

Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held in the month of February, beginning with the year 1996, and at such
date, and at such hour, and at such place as shall be determined by the Board of
Directors, and such meeting shall be held for the purpose of electing directors
and for the transaction of such other business as may come before the meeting.
If the election of directors shall not be held on the date designated by the
action of the Board of Directors at the annual meeting of the shareholders, or
at any adjournment thereof, the Board of Directors shall cause the election to
be held at a special annual meeting of the shareholders as soon thereafter as
conveniently may be and as determined by the Board of Directors in accordance
with the statutes of the State of Montana.

Section 2. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Chairman of the Board, President, Vice President, Secretary, or by the
Board of Directors, or by the holders of not less than one-fourth of all shares
entitled to vote at the meeting.

Section 3. Place of Meeting. The Board of Directors may designate any
place either within or without the State of Montana, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A Waiver of Notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Montana, as the place
for the holding of such meeting. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be the registered office
of the corporation in the State of Montana.

Section 4. Notice of Meeting. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board,
President, or the Secretary, or the officer or persons calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his or her address as it appears on the stock
transfer books of the corporation, with postage thereon prepaid.

Section 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period, but not to exceed, in any case, sixty (60) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of the shareholders, such books
shall be closed for a period of at least ten (10) days immediately preceding
such meeting and not to exceed sixty (60) days preceding such meeting. In lieu
of closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than sixty (60) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to receive payment of a dividend, the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.

Section 6. Voting Right. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make, at least ten (10)
days before each meeting of the stockholders, a complete list of the
shareholders entitled to vote at such meeting, or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each, which list, for a period of ten (10) days prior to such meeting,
shall be kept on file at the registered office of the corporation and shall be
subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original stock transfer book shall be prima facie
evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.

Section 7. Quoram. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of the shareholders, but in no event shall a
quorum consist of less than one-third (1/3) of the shares entitled to vote at
the meeting. If a meeting cannot be organized because a quorum has not attended,
those present may adjourn the meeting from time to time until a quorum is
present, at which time any business may be transacted that may have been
transacted at the meeting as originally called. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.

Section 8. Voting of Shares. Subject to the provisions of Section 10 of
this Article II, each outstanding share shall be entitled to one vote, and each
fractional share shall be entitled to a corresponding fractional vote, on each
matter submitted to a vote at a meeting of shareholders. Neither treasury shares
nor shares of its own stock held by the corporation in a fiduciary capacity nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of director of such other corporation is held by the
corporation shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.

Shares held by an administrator, executor, guardian or conservator may
be voted by him or her, either in person or by proxy, without a transfer of such
shares into his or her name. Shares standing in the name of the trustee may be
voted by him or her, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him or her without a transfer of such shares
into his or her name.

Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority so
to do be contained in an appropriate order of the court by which such receiver
was appointed.

A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.

Shares of its own stock belonging to the corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.

Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.

Section 10. Cumulative Voting. At each election for directors every
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares and fractional shares owned by him or
her for as many persons as there are directors to be elected and for whose
election he or she has a right to vote, or to cumulate his or her votes by
giving a candidate as many votes as the number of such directors multiplied by
the number of his or her shares including fractional shares shall equal, or by
distributing such votes and fractional votes on the same principal among any
number of candidates.

ARTICLE III.

Board of Directors
------------------

Section 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.

Section 2. Number, Tenure and Qualifications. The number of directors
of the corporation shall be six (6). Each director shall hold office until the
next annual meeting of shareholders and until his or her successor shall have
been elected and qualified. Directors need not be residents of the State of
Montana or shareholders of the corporation.

Section 3. Annual Meeting. The annual meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at the
same place as, the annual meeting of shareholders.

Section 3a. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time as shall be determined by the Chairman of
the Board, President, or by resolution of the Board. No notice need be given of
meetings held pursuant to the determination by the Chairman of the Board,
President, or by resolution of the Board.

Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, President, or
any two directors. The person or persons authorized to call special meetings of
the Board of Directors may fix any place, either within or without the State of
Montana, as the place for holding any special meeting of the Board of Directors
called by them.

Section 5. Notice. Notice of any Special Meeting shall be given at
least two (2) days previously thereto by written notice delivered personally,
mailed or faxed to each director at his or her business address, or by telegram.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage prepaid thereon. If notice is
given by fax, the notice shall be deemed to be delivered when the fax is sent to
the fax number maintained in the records of the corporation for each director.
If notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Any director may waive
notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. The notice is not
required to describe the purpose of the meeting.

Section 6. Quoram. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at the meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.

Section 7. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors.

Section 8. Compensation. By resolution of the Board of Directors,
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and non-employee directors may be paid an annual
retainer plus a fixed sum for attendance at each meeting of the Board of
Directors. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.

ARTICLE IV.

Officers
--------

Section 1. Number. The officers of the corporation shall be the
Chairman of the Board, a President, and such Vice Presidents (the number,
qualification and titles thereof to be determined by the Board of Directors from
time to time, and who may or may not be directors), as in the opinion of the
Board the business of the corporation requires, a Secretary, and a Treasurer.
Such other officers, assistant officers, and agents as may be necessary may be
elected or appointed from time to time by the Board of Directors. Any two or
more offices may be held by the same person, except for the offices of President
and Secretary.

Section 2. Election and Term of Office. The officers of the corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his or her successor
shall have been duly elected and shall have qualified or until his or her death
or until he or she shall resign or shall have been removed in the manner
hereinafter provided.

Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not in itself
create contract rights.

Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.

Section 5. Chairman of the Board. If the Chairman of the Board is in
office, he or she shall preside at all meetings of the shareholders and the
Board of Directors. During the absence or disability of the Chairman of the
Board, or during a vacancy in the office of the Chairman of the Board, the
President shall preside at all meetings of the stockholders and the Board of
Directors, and shall perform such other duties as may be prescribed from time to
time by the Board of Directors or the Bylaws.

Section 6. President. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of Directors
shall, in general, supervise and control all of the business and affairs of the
corporation. He or she shall, in the absence or disability of the Chairman of
the Board, preside at all meetings of the shareholders and of the Board of
Directors. He or she may sign, with the Secretary or any other proper officer of
the corporation thereunto authorized by the Board of Directors, certificates for
shares of the corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or executed;
and, in general, shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time.

Section 7. Vice President. In the absence of the President or in the
event of his or her death, inability or refusal to act, the Vice President (or
in the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.

Section 8. Secretary. The Secretary shall: (a) keep the minutes of the
shareholders and the Board of Directors' meetings in one or more books provided
for that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents, the execution of which on behalf of
the corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President, or a Vice President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the corporation; and (g) in general, perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him or her by the President or by the Board of
Directors.

Section 9. Treasurer. The Treasurer shall have charge and supervision
and be responsible for all funds and securities of the corporation and shall
have charge and supervision of the deposits of all monies due and payable to the
corporation from any source whatsoever in such banks or depositories as shall be
selected by the Board of Directors, and shall, in general, perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him or her by the President or by the Board of
Directors.

Section 10. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries shall exercise the duties of the Secretary and those
duties incident to the office of the Secretary when the Secretary is absent or
not available and such other duties as shall be assigned by the President or by
the Board of Directors. The Assistant Treasurers shall perform those duties
incident to the office of Treasurer and those assigned to the Treasurer in the
absence or unavailability of the Treasurer and such other duties as from time to
time may be assigned to him or her by the President or by the Board of
Directors.

Section 11. Exercise of Rights as Stockholders. Unless otherwise
ordered by the Board of Directors, the President or a Vice President thereunto
duly authorized by the President, shall have full power and authority on behalf
of the corporation to attend and to vote at any meeting of stockholders of any
corporation in which this corporation may hold stock, and may exercise on behalf
of this corporation any and all of the rights and powers incident to the
ownership of such stock at any such meeting, and shall have power and authority
to execute and deliver proxies and consents on behalf of this corporation in
connection with the exercise by this corporation of the rights and powers
incident to the ownership of such stock. The Board of Directors, from time to
time, may confer like powers upon any other person or persons.

ARTICLE V.

Certificates for Shares and Their Transfer
------------------------------------------

Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary. The names and
addresses of the persons to whom the shares represented thereby are issued, with
the number of shares and dates of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors may prescribe.

Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his or her legal representative, who shall furnish
proper evidence of authority to transfer, or by his or her attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.

ARTICLE VI.

Fiscal Year
-----------

The fiscal year of the corporation shall begin on the 1st day of
October and end on the 30th day of September in each year.

ARTICLE VII.

Dividends
---------

The Board of Directors may from time to time declare, and the
corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law.

ARTICLE VIII.

Seal
----

The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "Corporate Seal".

ARTICLE IX.

Waiver of Notice
----------------

Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of these Bylaws or under the
provisions of the Montana Business Corporation Act, a waiver therefor in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.

ARTICLE X.

Action Without a Meeting
------------------------

Any action required to be taken at a meeting of the shareholders or
directors of the corporation or any action which may be taken at a meeting of
the shareholders or directors, may be taken without a meeting if a consent, in
writing, setting forth the action so taken, shall be signed by all the
shareholders or directors entitled to vote with respect to the subject matter
thereof. Such consent shall have the same effect as a unanimous vote and may be
stated in any articles or documents filed with the Secretary of State under the
Montana Business Corporation Act.

ARTICLE XI.

Amendments
----------

These Amended Bylaws may be altered, amended or repealed and new Bylaws
may be adopted by the Board of Directors at any regular or special meeting of
the Board of Directors.

<PAGE>

We, the undersigned, being all of the directors of SEMITOOL, INC., do
hereby formally and regularly adopt, ratify and sign the foregoing Amended
Bylaws as the Bylaws of this corporation for the guidance of the corporation and
regulation of its business and as evidence of such adoption and ratification, we
do hereby set our hands this 9th day of February, 1999.

/s/R. Thompson /s/C.S. Robinson
- ------------------------------ ------------------------------
Raymon F. Thompson C.S. Robinson

/s/Daniel Eigeman /s/Richard Dasen
- ------------------------------ ------------------------------
Daniel Eigeman Richard Dasen

/s/Howard Bateman /s/Timothy C. Dodkin
- ------------------------------ ------------------------------
Howard Bateman Timothy C. Dodkin

EXHIBIT 10.31

One of two

July 29, 1999

Ms. Kazuyo N. Heinink
9863 E. Gelding Drive
Scottsdale, AZ 85260

Dear Kazi,

It is my pleasure to offer you the position of Vice President of Marketing for
Semitool, Inc. reporting to me. The terms of this offer are as follows:

1. Your start date will be as soon as possible, but no later than
August 23, 1999.

2. Your base salary will be $150k per year, paid semi-monthly.

3. Considering specific goals and objectives we jointly compose,
you will be able to earn up to 30% of your base salary as a
bonus.

4. The company will provide company housing or a $1000.00 a month
housing allowance for the first six months you are in
Kalispell. After this period, we will determine the
appropriate location for this position. If it requires that
you move, Semitool will assist in the move of your household
goods by providing a company sponsored move, this item not to
exceed $15,000.00.

During the first six months, you will be afforded one trip per
month to Phoenix when it can be combined with other Semitool
business, booking in advance for the best possible rates.

The company will provide a company car or leased car for your
use in Kalispell, and at the end of the first six months a
decision will be made regarding a company car, based on the
location of the position.

5. As part of your incentive package you will receive 40,000
stock options. Following Board approval, they will be issued
and vested according to the current distribution plan. The
value of the stock option will be set the day it is
distributed.

6. You will be entitled to three weeks vacation within the first
year of employment, with scheduling subject to company
approval, until you reach ten years of employment when you
will be eligible for four weeks.

7. You will be entitled to all standard benefits offered to
Semitool employees, some of which have waiting periods. They
include life, medical and dental insurance (eligibility the
first of the month following employment).

You will be eligible for the 401(k) Profit Sharing plan on
October 1, 1999. However, if you have funds currently in a
qualified plan, you may roll those funds over into the
Semitool 401(k) Plan prior to that date.

8. As a condition of your employment you will be required to sign
a Confidentiality/conflict of interest agreement.

<PAGE>

Two of two
K. Heinink

9. None of the above terms of this offer represents an agreement
by you or Semitool, Inc. for any specific length of
employment. Either you or Semitool may, at any time,
terminate the employment relationship upon notice to the other
party. As with all Semitool employment positions, there is a
90 day probationary period.

Any controversy or claim arising out of termination of
employment after your probationary period has expired shall be
settled by arbitration as provided in Montana's Uniform
Arbitration Act, 27-5-211 et seq., MCA.
The laws of Montana shall apply.

10. In the unlikely event you or Semitool determines this working
relationship is not to continue, we will provide a six month
severance package to defray the cost of your finding a new
position.

Sincerely, Acceptance: I have read and understand
all of the above and accept the terms
SEMITOOL, INC. of employment with Semitool, Inc.

/s/Kazuyo N. Heinink
--------------------------------------
Kazuyo N. Heinink
Fabio Gualandris
President Date 7/31/99
---------------------------------

/s/Fabio Gualandris
- ----------------------------

EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

NAME JURISDICTION OF INCORPORATION
- ------------------------------------------- -----------------------------
Semitool Europe Ltd. United Kingdom
Semitool Halbleitertechnik Vertriebs GmbH Germany
Semitool France SARL France
Semitool Italia SRL Italy
Semitool Japan KK Japan
Semitool, Inc., Korea Korea
Semitool FSC, Inc. Barbados
Semitool (Asia) Pte Ltd. Singapore
Semy Engineering, Inc. Delaware
Rhetech, Inc. Delaware

<ARTICLE> 5
<LEGEND>
Exhibit 27

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-K AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.

</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,789
<SECURITIES> 0
<RECEIVABLES> 38,637
<ALLOWANCES> 271
<INVENTORY> 41,667
<CURRENT-ASSETS> 97,301
<PP&E> 60,185
<DEPRECIATION> 29,849
<TOTAL-ASSETS> 131,884
<CURRENT-LIABILITIES> 44,993
<BONDS> 3,911
0
0
<COMMON> 41,464
<OTHER-SE> 39,561
<TOTAL-LIABILITY-AND-EQUITY> 131,884
<SALES> 116,065
<TOTAL-REVENUES> 122,528
<CGS> 63,808
<TOTAL-COSTS> 64,880
<OTHER-EXPENSES> 20,874
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 401
<INCOME-PRETAX> (10,945)
<INCOME-TAX> (4,200)
<INCOME-CONTINUING> (6,745)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,745)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)

</TABLE>