SPEEDFAM INTERNATIONAL INC, 424A, 1996-06-19

SPEEDFAM INTERNATIONAL INC
424A, 1996-06-19
SPECIAL INDUSTRY MACHINERY, NEC

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<PAGE>

FILED PURSUANT TO RULE 424(a)
REGISTRATION NO. 333-5889

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated June 19, 1996

PROSPECTUS
2,660,000 SHARES

LOGO SPEEDFAM INTERNATIONAL, INC.

COMMON STOCK

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Of the 2,660,000 shares of Common Stock (the "Common Stock") offered hereby,
2,000,000 shares are being sold by SpeedFam International, Inc. ("SpeedFam" or
the "Company") and 660,000 shares are being sold by certain shareholders of the
Company (the "Selling Shareholders"). The Company will not receive any of the
proceeds from the sale of shares by the Selling Shareholders. See "Principal
and Selling Shareholders."

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SFAM." The last sale price for the Common Stock on June 12, 1996, as
reported on the Nasdaq National Market, was $17.50 per share. See "Price Range
of Common Stock and Dividend Policy."

-------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.

-------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
- --------------------------------------------------------------------------------
Total(3)................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the offering of $270,000 payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 399,000 shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See
"Underwriting."

-------------

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about , 1996.

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LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
NEEDHAM & COMPANY, INC.

, 1996
<PAGE>

(ARTWORK TO COME)

SpeedFam's high throughput semiconductor CMP system, the CMP-V, processes five
wafers simultaneously. The CMP-V incorporates up to two polishing tables,
post-CMP rinsing, PVA brush cleaning, full cassette-to-cassette automation,
internal airflow management for Class 1 cleanroom compatibility, and is
available for both oxide and metal CMP applications.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>

SpeedFam is a leading supplier of high throughput surface
processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers,
generalindustrial components and advanced semiconductor
devices. The Company offers abroad range of processing
solutions incorporating equipment, slurries and processes
necessary to perform chemical mechanical polishing,
grinding, lapping, and cleaning ina production setting.

The CMP-V
planarization system
enables one or two
step planarization of
oxide and metal layers
in advanced
semiconductor
fabrication.

The SP silicon
polishing systems
perform a range
of critical
polishing steps
on silicon and
other advanced
semiconductor
wafers.

The EP automated edge
polishing line enables
semiconductor manufacturers
to reduce contamination and
increase yields by
polishing the edge of
thesemiconductor substrate.

A wide variety of polishing
slurries are provided to
create the surface finish
and flatness required in
the polishing process.
<PAGE>

The DSM products are used
to polish thin film
memory disk media,
silicon wafers and other
substrates.

Aqueous cleaning systems
are used for precision
cleaning of thin film
memory disk media,
semiconductor wafers,LCD
glass and other
components in a cleanroom
environment.

The through-feed
grinder and other
general
industrialsystems
process a variety of
industrial
components which
require precision
surface tolerances.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's consolidated financial
statements appearing elsewhere in this Prospectus. Unless the context otherwise
requires, the "Company" and "SpeedFam" refer only to SpeedFam International,
Inc. and its wholly owned subsidiaries.

THE COMPANY

SpeedFam designs, develops, manufactures, markets and services high
throughput precision surface processing systems used in the fabrication of thin
film memory disk media, semiconductor wafers, general industrial components
and, more recently, semiconductor devices through chemical mechanical
polishing, or "CMP." In addition, the Company markets and distributes polishing
liquids (or slurry) and parts and expendables used in its customers'
manufacturing processes. The Company's array of processing systems includes
polishing, grinding, lapping and pre-deposition cleaning equipment. The process
steps performed by the Company's equipment are an integral part of and occur
repeatedly throughout the fabrication cycles of thin film memory disk media,
semiconductor wafers and advanced semiconductors. Major customers of the
Company include AMD, Akashic, Digital Equipment, Hewlett-Packard, HMT, IBM,
Komag, MEMC, Mosel Vitelic, Motorola, Rockwell International, Seagate, Siemens,
Siltec, StorMedia and Wacker Siltronic.

Semiconductor and thin film memory disk manufacturers are rapidly adopting
new technologies in response to increasing demand by end users for improved
system performance and processing capacity and new features in computing and
other electronics applications. Semiconductor device manufacturers are
producing devices with smaller geometries and multi-level metal processes.
Similarly, thin film memory disk media manufacturers are continually increasing
the density of disk media by increasing coercivity (magnetic density) and
reducing head flying heights in order to satisfy end user demand for greater
storage capacity. In order to meet these evolving specifications, both
semiconductor and thin film memory disk manufacturers must tighten tolerances
and improve certain surface characteristics of their products. These tightened
tolerances necessitate improvements in the semiconductor and thin film memory
disk media manufacturing processes in order to increase planarity (flatness)
and provide a number of new surface characteristics.

The Company has recently developed a system for use in the CMP planarization
of semiconductor devices. The Company's multiple head, two polishing table CMP
system is designed to provide high throughput, low cost of ownership and
attractive levels of process flexibility. The objective of CMP is to
reestablish a flat or planar surface that has been degraded by prior deposition
steps to a point where it is not possible or feasible to deposit additional
levels without first restoring the surface to a planar condition.
Reestablishing a planar surface allows semiconductor device manufacturers to
produce denser, more complex devices by allowing the addition of a greater
number of metal levels and can lead to significant yield and reliability
improvements for the device manufacturer. Because of the depth of focus
limitations of existing photolithography equipment, global planarization
becomes particularly important for devices with design geometries of 0.35
micron or less and three or more metal levels. According to Dataquest
Incorporated, the CMP polishing equipment market was estimated at $197 million
in 1995 and it currently projects the market to be approximately $680 million
in the year 2000.

The Company's strategy is to establish and maintain market leadership in high
throughput surface processing of thin film memory disk media, advanced
semiconductors and other high value-added products. The Company employs
dedicated business units focusing on the thin film memory disk media,
semiconductor wafer and semiconductor device markets. The Company provides an
entire processing solution including process expertise, training, cooperative
development, slurry and expendables, along with equipment. During the Company's
fiscal year ended May 31, 1995 and the nine months ended February 29, 1996,
54.5% and 75.0%, respectively, of the Company's total revenue was derived from
the sale of capital equipment, parts and expendables (including commissions)
and 45.5% and 25.0%, respectively, was derived from the sale of slurry and
slurry components.

The Company owns a 50% interest in SpeedFam Co., Ltd., a joint venture that
conducts operations in the Far East (together with its subsidiaries and joint
ventures, the "Far East Joint Venture"). Generally, the Far East Joint Venture
designs, produces and markets in the Far East equipment similar to that
produced by the Company in the U.S. The Far East Joint Venture, which the
Company accounts for on the equity method, has had a substantial influence on
the results of operations of the Company in the past.

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<PAGE>

THE OFFERING
<TABLE>
<C> <S>
Common Stock to be Offered:
By the Company........................... 2,000,000 shares
By the Selling Shareholders.............. 660,000 shares
-----------
2,660,000 shares
Common Stock Outstanding after the Offering. 12,567,008 shares(1)
Use of Proceeds............................. To fund the construction of a new
manufacturing and office
facility; to repay certain
indebtedness; for working capital
and general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol............... SFAM
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION (in thousands, except per share
data)

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------------------ -------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Total revenue.................................. $43,314 $51,381 $59,778 $40,039 $76,394
Gross margin................................... 10,842 12,436 14,284 8,742 24,913
Operating profit............................... 519 1,181 1,596 (653) 5,303
Interest expense............................... (824) (697) (959) (769) (615)
Other income, net.............................. 433(3) 974 6 73 440
Income tax expense (benefit)................... 573 (160)(4) 186 (484) 2,002
Earnings (loss) from consolidated companies.... (445) 1,618 457 (865) 3,126
Equity in net earnings (loss) of affiliates(2). (45) 655 1,187 981 3,563
Net earnings (loss)............................ $ (490) $ 2,351 (5) $ 1,644 $ 116 $ 6,689
Net earnings (loss) per share.................. $ (0.06) $ 0.31 $ 0.20 $ 0.01 $ 0.68
Weighted average common and common equivalent
shares outstanding............................ 7,615 7,619 8,146 8,148 9,790
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 29, 1996
----------------------
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $29,761 $ 60,563
Total assets............................................ 97,556 127,898
Long-term debt, less current maturities................. 2,783 692
Shareholders' equity.................................... 54,339 87,232
</TABLE>
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(1) Based on shares of Common Stock outstanding at May 31, 1996. Includes
52,140 shares issuable upon the exercise of certain stock options which are
being exercised concurrently with this offering. Excludes an aggregate of
2,820,192 shares of Common Stock reserved for issuance under the Company's
employee benefit plans, of which options to acquire 1,215,928 shares of
Common Stock were outstanding at May 31, 1996.
(2) Includes ($285,000), $450,000, $1,100,000, $880,000 and $3,397,000 million
for the 1993 through 1995 fiscal years and the nine months ended February
28, 1995 and February 29, 1996, respectively, attributable to the Company's
share of net earnings (loss) from the Far East Joint Venture, accounted for
on the equity method. See "Joint Venture Arrangements," the consolidated
financial statements of the Far East Joint Venture and the unaudited
interim consolidated financial statements of the Company included elsewhere
herein. The remainder represents the Company's share of net earnings (loss)
from a separate joint venture.
(3) Reflects charges of $300,000 related to the bankruptcy of a subsidiary
operating in Switzerland.
(4) Reflects income tax benefit of $740,000 related to the bankruptcy of a
subsidiary operating in Switzerland.
(5) Includes benefit of cumulative effect of accounting change of $78,000.
(6) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby (assuming a public offering price of $17.50
per share) and the application of the net proceeds therefrom, after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
----------------
Unless otherwise indicated, the information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option and (ii) has been adjusted
to reflect a twenty-for-one split of the Common Stock effective as of July 31,
1995.

Certain statements in this Registration Statement, including without
limitation certain of those contained in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Industry Background, --The SpeedFam CMP Solution, and --SpeedFam
Strategy," constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.

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<PAGE>

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing shares of Common Stock offered hereby.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results have historically and may in the
future vary significantly due to a number of factors. Historically, a
disproportionate share of the Company's revenue and operating profit has been
attributable to the last two quarters of the Company's fiscal year, primarily
the fourth quarter. In particular, the Company typically experiences a decline
in revenues and operating profit from the fourth fiscal quarter to the first
fiscal quarter of the succeeding year. The Company believes that this decline
is primarily due to the seasonal buying patterns of its customers.

Factors that may influence the Company's operating results in a given
quarter include: (i) customer demand, such as economic conditions in the
memory disk and semiconductor industries, market acceptance of products of
both the Company and its customers, changes in product mix, and the timing,
cancellation or delay of customer orders and shipments; (ii) competition, such
as competitive pressures on prices of the Company's products and the
introduction or announcement of new products by competitors; (iii)
manufacturing and operations, such as fluctuations in availability and cost of
raw materials and production capacity; (iv) fluctuations in foreign currency
exchange rates; (v) new product development, such as increased research,
development and engineering, as well as marketing, expenses associated with
new product introductions, including the effect of transitioning to new or
enhanced products, and the Company's ability to introduce new products and
technologies on a timely basis; (vi) sales and marketing, such as
concentrations of customers, and discounts that may be granted to certain
customers; and (vii) the quarterly operating results of the Company's joint
ventures, which the Company accounts for on the equity method; as well as
other factors, such as levels of expenses relative to revenue levels,
personnel changes and generally prevailing economic conditions.

During a given quarter, a significant portion of the Company's revenue may
be derived from the sale of a relatively small number of machines and systems.
Accordingly, a small change in the number of machines and systems actually
shipped may cause significant changes in operating results. Moreover,
customers may cancel or reschedule shipments, and production difficulties
could delay shipments. In addition, because of the significantly different
gross margins attributable to the Company's two segments, changes in product
mix may cause fluctuations in operating results. Further, the lengthy sales
cycle for certain of the Company's capital equipment may result in the Company
incurring significant expenses prior to the receipt of customer orders. In
addition, the introduction of new products has in the past contributed, and
may continue to contribute, to fluctuations in quarterly operating results.
These same factors also could materially and adversely affect annual results
of operations. In addition, the need for continued investment in research and
development, marketing and customer support limits the Company's ability to
reduce expenses in response to downturns in the industries it serves. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."

MARKET ACCEPTANCE OF THE COMPANY'S CMP SYSTEM

Through February 29, 1996, the Company had shipped 17 CMP systems. The
Company believes that its future growth, if any, depends in large part upon
its ability to gain customer acceptance of its CMP system and its technology.
Market acceptance of the Company's CMP system depends upon numerous factors,
including cost of ownership, throughput, process flexibility, performance and
reliability and availability of customer support. The Company intends to
periodically develop and introduce enhanced versions of its CMP system. The
Company currently expects to introduce an enhanced version of the CMP-V, its
current CMP system, in the second half of fiscal 1997. Failure to continually
enhance the Company's CMP system may impact its future market acceptance.
There can be no assurance that the Company will be successful in obtaining
broad market acceptance of its CMP system or any future enhanced version of
the system. The failure of the Company to

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<PAGE>

accomplish these objectives would have a material adverse effect on the
Company. See "--Competition," "--Adoption of CMP Process" and "--Dependence on
New Product Development; Rapid Technological Change."

CYCLICAL NATURE OF THE COMPANY'S BUSINESS

The Company's business depends substantially on the capital expenditures of
thin film memory disk media and semiconductor manufacturers, which, in turn,
depend upon the current and anticipated market demand for memory disks and
semiconductor devices. Sales of capital equipment to these manufacturers are
expected to continue to represent a significant portion of the Company's total
revenue. These industries are highly cyclical and have historically
experienced periodic downturns characterized by oversupply and weak demand,
which often have a material adverse effect on the acquisition of capital
equipment and other products used in the manufacturing process, including
products offered by the Company. These downturns generally have materially
adversely affected the business and operating results of capital equipment
suppliers, including the Company. The semiconductor industry is currently
experiencing a downturn which has led many semiconductor manufacturers to
delay or cancel capital expenditures. This downturn has been reflected in
semiconductor industry book to bill ratios of well below 1.0 in recent
periods. The thin film memory disk market has recently experienced strong
growth; however, there are no assurances that this current growth will
continue or that any growth will have a positive impact on the Company's
future business or results of operations. The Company's business and results
of operations will be materially adversely affected by continued downturns in
the semiconductor market or future downturns in the thin film memory disk
market.

Sales of the Company's capital equipment depend, in large part, upon the
decision of a prospective customer to increase manufacturing capacity or
respond to advances in technology by upgrading or expanding existing
manufacturing facilities or constructing new manufacturing facilities, all of
which typically involve a significant capital commitment. Certain of the
Company's capital equipment have lengthy sales cycles while the customer
evaluates and receives approvals for the purchase of the Company's systems and
completes the upgrading or expansion of existing facilities or the
construction of new facilities. The Company may expend substantial funds and
management effort during the sales cycle. The cyclicality and rapid
technological change present in certain of the industries served by the
Company may also cause prospective customers to postpone decisions regarding
major capital expenditures, including purchases of the Company's equipment.
Recently, certain of the Company's customers have delayed shipments due to a
variety of factors, including the cyclicality of the industries in which the
customers compete. In addition, the need for continued investment in research
and development, marketing and customer support limits the Company's ability
to reduce expenses in response to downturns in the industries it serves.

COMPETITION

The Company's markets are highly competitive. In each of the markets the
Company serves, the Company faces intense competition from established
competitors, some of which have substantially greater financial, engineering,
manufacturing and marketing resources, and, in some markets, greater name
recognition than the Company, as well as long-standing customer relationships.
In the thin film memory disk and semiconductor wafer equipment markets, the
Company competes with a relatively small number of entities. In the CMP
market, the Company faces significant competition from current competitors and
expects other competitors to enter this market in the future. IPEC currently
has the largest installed base of CMP equipment. The Company believes that
other companies are developing CMP machines and are planning to introduce new
products to the CMP market, including Applied Materials, a large semiconductor
capital equipment supplier with significant resources that could present
substantial competition for the Company. Certain competitors, including IPEC
and Applied Materials, have announced and may in the near future begin volume
shipments of multi-head CMP systems. In addition, certain of the Company's
competitors have longer-standing relationships than the Company with
particular customers, including device manufacturers. These longer-standing
relationships may make it more difficult for the Company to sell its CMP
system to such device manufacturers.

In order to remain competitive, the Company will be required to make a high
level of investment in research, development and engineering, marketing and
customer service and support. There can be no assurance

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<PAGE>

that the Company will have sufficient resources to make such investments or,
even if they are made, that the Company's products will be competitive given
technological advances by competitors or changes in processing technology in
the industries the Company serves. In the past, competitors of the Company
have developed and marketed products having similar design and functionality
to the Company's products. The Company's competitors can be expected to
improve the performance of their products and to introduce new products with
competitive price/performance characteristics. The Company's competitors may
also increase their efforts to gain and retain market share through
competitive pricing. These competitive pressures may necessitate price
reductions by the Company or render the Company less competitive.

In the memory disk slurry market, the Company competes primarily with
Praxair, a large chemical company. The Company has experienced intense
competition in the sale of slurry from Praxair, which manufactures and sells
its own products. In response, the Company has in the past reduced its prices.
At the same time, the supplier of substantially all of the Company's slurry,
Fujimi Incorporated, a Japanese company, has raised the prices paid by the
Company for slurry. As a result, in recent years the Company has experienced a
decline in gross margins in the sale of slurry. Slurry has historically
comprised a significant portion of the Company's total revenue and operating
profit, and in fiscal 1995 and the nine months ended February 29, 1996,
accounted for 43.1% and 23.0%, respectively, of total revenue and 38.6% and
13.5%, respectively, of operating profit before general corporate expenses.
The Company expects that competition in the slurry market will remain intense
in the future and that slurry selling prices may decline in the future. In
addition, fluctuations in exchange rates have in the past resulted, and may in
the future result, in increases in the costs of slurry for the Company.
Decreased slurry selling prices or increased slurry costs could have a
material adverse effect on the Company's results of operations. See "--Sole or
Limited Sources of Supply," "Business--Manufacturing and Suppliers,"
"--Competition" and "--International Business."

ADOPTION OF CMP PROCESS

The CMP process is an emerging technology and there can be no assurance that
the process will be utilized on a widespread basis in the manufacture of
semiconductor devices. To date, CMP has been used primarily in the manufacture
of advanced semiconductor logic devices. A small number of CMP process systems
are currently being used in the manufacture of advanced semiconductor memory
devices. There can be no assurance that the process will be widely adopted by
semiconductor memory device manufacturers. Currently, the number of suppliers
for polishing slurry and pads used in the CMP process is limited and an
insufficient supply of those products could impact or impede the adoption of
the CMP process. Further, alternative technologies may be developed that
achieve the results required by semiconductor device manufacturers. There are
a number of patents relating to the CMP process held by third parties.
Accordingly, CMP equipment manufacturers, including the Company, and
semiconductor manufacturers that use the CMP process, may be required to
attempt to obtain licenses from the holders of one or more of such patents,
which may impede the adoption or use of CMP technology by semiconductor
manufacturers. If the CMP process is not adopted on a widespread basis, or if
alternatives to the CMP process emerge, or current non-CMP planarization
technologies are improved to serve the industry's requirements, the Company's
prospects and results of operations would be materially adversely affected.
See "--Market Acceptance of the Company's CMP System," "--Dependence on New
Product Development; Rapid Technological Change," "--Intellectual Property
Rights," "Business--Industry Background" and "--Products."

DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE

The Company believes that its future success will depend, in part, on its
ability to enhance existing products and processes and develop and manufacture
new products and processes. The markets in which the Company and its customers
compete are characterized by evolving industry standards and frequent
improvements in products and services. To compete effectively in such markets,
the Company must continually improve its products and its process technologies
and develop new technologies and products that compete effectively on the
basis of price and performance. The Company expects to continue to make
significant investments in research, development and engineering. There can be
no assurance that the Company will be able to improve its existing products
and its process technologies or develop new products and technologies. The
Company intends

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<PAGE>

to develop and introduce enhanced versions of its CMP system. The Company
currently expects to introduce an enhanced version of its CMP system in the
second half of fiscal 1997. The Company is also currently developing a post-
CMP cleaning system, which is presently expected to be introduced during
fiscal 1997. There can be no assurance that the Company's development of new
or enhanced products, such as the enhanced version of the CMP system or the
post-CMP cleaning system, will be cost-effective or introduced in a timely
manner or accepted in the marketplace. Failure by the Company to develop or
introduce new products and product enhancements in a timely manner would have
a material adverse effect on the Company's business, financial condition and
results of operations.

Due to the complexity of the Company's products, significant delays can
occur between a system's introduction and the commencement of commercial
shipments. The Company has from time to time experienced delays in the
introduction of, and certain technical and manufacturing difficulties with,
certain of its systems and enhancements, and may experience such delays and
technical and manufacturing difficulties in future introductions or volume
production of new systems or enhancements. In addition, the Company may incur
substantial unanticipated costs to ensure the functionality and reliability of
its future product introductions early in the product's life cycle. If new
products experience reliability or quality problems, the Company could
encounter a number of problems, including reduced orders, higher manufacturing
costs, delays in collection of accounts receivable and additional service and
warranty expenses, all of which events could materially adversely affect the
Company's business and results of operations. In addition, in the event the
Company does not manage product transitions successfully, announcements or
introductions, or the perception that such events are likely to occur, by
either the Company or its competitors could adversely affect sales of existing
Company products. See "--Market Acceptance of the Company's CMP System" and
"Business--Research, Development and Engineering."

RELIANCE ON THE PERFORMANCE OF AND RELATIONSHIP WITH FAR EAST JOINT VENTURE

The Company owns a 50% interest in SpeedFam Co., Ltd., a joint venture that
conducts operations in the Far East (together with its subsidiaries and joint
ventures, the "Far East Joint Venture"). During fiscal 1993, 1994, 1995 and
the nine months ended February 29, 1996, the Company's share of the net
earnings (loss) of the Far East Joint Venture was ($285,000), $450,000, $1.1
million and $3.4 million, respectively, representing (58.2%), 19.1%, 66.9% and
50.8%, respectively, of the Company's net earnings (loss). The Company
accounts for the Far East Joint Venture on the equity method. During fiscal
1993, 1994, 1995 and the nine months ended February 29, 1996, 1.6%, 4.0%, 4.5%
and 5.3%, respectively, of the Company's total revenue was attributable to
commissions earned by the Company on the distribution in the U.S. and Europe
of products of the Far East Joint Venture. The Far East Joint Venture has not
paid significant dividends to the Company in the past and is expected to
retain substantially all of its earnings in the foreseeable future. At
February 29, 1996, the Company's equity interest in the Far East Joint Venture
was $16.7 million, representing 17.1% of the Company's total assets and 30.7%
of shareholders' equity. The results of operations of the Company in the past
have been substantially influenced by the results of operations of the Far
East Joint Venture and can be expected to continue to be so influenced in the
future. The term of the joint venture is indefinite. In the event that either
the Company or its joint venture partner desires to sell its interest in the
Far East Joint Venture, it must first offer its interest to the other party.
The Company believes that for a number of reasons, including the fact that the
Company does not own a controlling interest in the Far East Joint Venture, the
Company's ability to effect a sale of its interest is limited and the proceeds
the Company would receive from a sale of its interest in the Far East Joint
Venture may be reduced.

Certain of the equipment produced and sold by the Far East Joint Venture is
similar to that produced in the U.S. by the Company. In addition, the Far East
Joint Venture produces and sells cleaning machines for the thin film memory
disk market and polishing machines for the semiconductor wafer market,
including machines that are distributed by the Company in the U.S. and Europe.
Each of the Company and the Far East Joint Venture generally sell to customers
in the same end markets. Because of the similarity between the business of the
Company and that of the Far East Joint Venture, substantially all of the risks
described herein with respect to the Company's business are also generally
applicable to the business of the Far East Joint Venture. This includes the
economic and political risks associated with conducting international
business, as most sales by the Far East Joint

-8-
<PAGE>

Venture occur outside the U.S. In addition, a material portion of the products
sold by the Far East Joint Venture are shipped across international borders.
Also, the business of the Far East Joint Venture is substantially influenced
by general economic conditions in the regions in which it operates,
particularly Japan. A substantial majority of the net sales of the Far East
Joint Venture are generated in Japan. Periods of weak or declining economic
conditions in Japan, such as those recently experienced, would have a material
adverse effect on the business and operating results of the Far East Joint
Venture and, in turn, the Company.

The Company does not have the legal right or practical ability to control
the Far East Joint Venture. The historic business relationship between the
Company and its joint venture partner has been based to a significant degree
on personal relationships of the individuals involved. If those individuals or
relationships were to change, it could result in a material adverse effect on
the relationship between the Company and the Far East Joint Venture and, in
turn, on the results of operations of the Company. In many instances,
management decisions regarding the relationship between the Company and the
Far East Joint Venture have not been made on the basis of arms-length
negotiations. Instead, the business of the Far East Joint Venture and the
business relationship between the Company and the Far East Joint Venture have
been influenced by personal relationships between members of management of the
two joint venture partners, the previous dealings of the entities and an
underlying business intention to improve the mutual interests of the Company
and the Far East Joint Venture, even if one party in a particular circumstance
could negotiate a transaction with more favorable terms with a third party.
For example, even though the agreements between the parties originally called
for the payment of royalties for licensed technology, the parties amended the
agreements to remove the royalty requirements, and it is not currently
anticipated that either the Company or the Far East Joint Venture will pay
royalties to the other in connection with the transfer of technology in the
foreseeable future, including with respect to the Company's CMP technology.
Makoto Kouzuma, President and Chief Operating Officer of the Company, is the
Executive Vice President and General Manager of SpeedFam Co., Ltd. and is
responsible for its day-to-day operations and therefore spends a significant
portion of his time engaged in its business. These responsibilities have
placed a heavy demand on Mr. Kouzuma's time, and have precluded him from
spending all of his time with either the Company or the Far East Joint
Venture. Both James N. Farley, the Chairman and Chief Executive Officer of the
Company, and Mr. Kouzuma serve as directors of the Far East Joint Venture,
receive compensation therefor, and have management responsibilities in
connection with affiliates of the Far East Joint Venture. As a result of this
relationship between the Company and the Far East Joint Venture, management
decisions in particular instances may tend to favor the Far East Joint Venture
relative to decisions that would be made if the Far East Joint Venture were an
unaffiliated third party.

The Company's partner in the Far East Joint Venture is a privately-held
Japanese corporation that supplies products to the automotive industry. Given
the differences in the companies' ownership structure and products, there can
be no assurance that the Company and its Far East Joint Venture partner will
have similar interests with respect to the financial performance of the Far
East Joint Venture.

Pursuant to the agreement establishing the Far East Joint Venture, each of
the Company and its joint venture partner has agreed not to manufacture or
sell in Japan products similar to those sold by the Far East Joint Venture.
Further, the Company has granted to the Far East Joint Venture the exclusive
right to manufacture and sell products similar to those manufactured and
distributed by the Company in Japan, Korea, Taiwan, Hong Kong, China, India,
the Philippines, Thailand, Vietnam, Malaysia, Singapore and Indonesia and such
other countries as the parties may agree to from time to time. As a result,
the Company does not have the legal right to itself market products, including
its CMP system, in those countries that are served by the Far East Joint
Venture. The Company is therefore dependent upon the Far East Joint Venture to
market its CMP system in the territories served exclusively by the Far East
Joint Venture.

The Company and the Far East Joint Venture share technology and expertise
and each is dependent upon the other to protect any shared proprietary
information. There can be no assurance that the sharing of technology and
trademarks by the Company with the Far East Joint Venture will not result in
the release of proprietary information, which could have a material adverse
effect upon the Company.

The Company believes that, to date, the relationship between the Company and
its joint venture partner has been good. However, no assurance can be given
that the relationship will continue to be satisfactory or that the

-9-
<PAGE>

joint venture will not terminate. In addition, changes in management of the
Company or its joint venture partner could negatively impact the relationship
between the joint venture partners. Any decline in the Far East Joint
Venture's results of operations, termination of the joint venture or
difficulties between the Company and its joint venture partner would have a
material adverse effect on the Company's business, prospects and results of
operations and financial condition. See "Business--Joint Ventures," "Joint
Venture Arrangements--Far East Joint Venture" and the consolidated financial
statements of SpeedFam Co., Ltd.

MANAGEMENT OF GROWTH

The Company has recently experienced a period of rapid growth. The number of
employees of the Company has increased 95.9% from 195 at May 31, 1995 to 382
at May 31, 1996. This growth has resulted in, and is expected to continue to
create, new and increased responsibilities for management personnel, as well
as added
pressures on the Company's operating and financial systems. If the Company is
required to manufacture its systems in larger volumes, it may become more
difficult for the Company to maintain its standards of quality and
reliability, and delivery times for its systems may grow longer. Further, if
the Company were to be unable to expand its manufacturing capacity to meet
demand, orders in backlog may be cancelled and orders lost to competitors. The
Company currently plans to hire a significant number of additional employees
during the first half of fiscal 1997. The Company's ability to manage future
growth effectively and accomplish its overall goals will depend on its ability
to hire additional management, technical and manufacturing personnel, to
integrate its new employees into its overall operations and culture, and to
continue to improve its operational, financial and management systems. If the
Company is unable to manage growth effectively or hire or retain qualified
personnel, the Company's business and results of operations would
be materially adversely affected.

To provide additional manufacturing capacity, the Company is constructing a
manufacturing and office facility, consisting of approximately 135,000 square
feet, in Chandler, Arizona. The new building, located on 13.5 acres recently
purchased by the Company, will also include laboratory facilities and will
serve as the Company's corporate headquarters. Occupancy is currently
scheduled for the fourth quarter of fiscal 1997. As the Company transfers
manufacturing capacity to its new facility, there is a possibility that normal
operations of the Company may be interrupted. Although the Company has planned
to continue manufacturing at its existing facility until its new facility is
fully operational, there can be no assurances that the transfer of
manufacturing and other operations to the new facility will not result in
operational difficulties, such as delayed shipments or increased operating
expenses, that could have a material adverse effect on the Company's results
of operation. The transfer to the new facility will also result in higher
operating costs and other fixed expenses related to the facility. There can be
no assurances that the Company's future sales will increase sufficiently to
compensate for these higher operating expenses. In addition, the Company's
leases on its existing facilities in Chandler expire in August 1999 and April
2000. Pursuant to such leases, the Company is subject to certain provisions
regarding termination of the leases. The Company may incur ongoing lease-
related expenses, including penalty payments, until such time as it is
released from the provisions. See "--Dependence on Key Personnel," "Business--
Properties" and "--Employees."

SOLE OR LIMITED SOURCES OF SUPPLY

The Company is dependent upon Fujimi Incorporated, a Japanese company, as
the sole supplier of substantially all of the slurry and slurry components
sold by the Company, consisting primarily of thin film memory disk polishing
slurry. Approximately 42.4%, 47.1%, 43.4% and 23.6% of the Company's total
revenue in fiscal 1993, 1994, 1995 and the nine months ended February 29,
1996, respectively, was derived from the sale of products, including both
slurry and slurry components, consisting of vehicles (liquids) and abrasives
(slurry and slurry components are collectively referred to as "slurries")
supplied by Fujimi Incorporated. The inability of the Company to obtain
products from Fujimi Incorporated on a timely basis or the termination of the
relationship with Fujimi Incorporated would have a material adverse effect on
the Company. The Company has the exclusive right to distribute Fujimi
Incorporated thin film memory disk polishing slurry in North America until
October 1, 1999.

In addition, the Company has entered into a joint venture (the "Fujimi Joint
Venture") with Fujimi Incorporated to sell certain products in North and South
America, including slurries for the manufacture of

-10-
<PAGE>

silicon wafers and other products. The Company distributes thin film memory
disk polishing slurry and related products supplied by Fujimi Incorporated in
North America, while the Fujimi Joint Venture distributes other products
supplied by Fujimi Incorporated. The Company accounts for its investment in
the Fujimi Joint Venture on the equity method. During fiscal 1993, 1994, 1995
and the nine months ended February 29, 1996, the Company's share of the net
earnings of the Fujimi Joint Venture was $240,000, $205,000, $87,000 and
$166,000, respectively. The Company does not have the legal right or practical
ability to control the Fujimi Joint Venture. A termination of or deterioration
in the relationship between the Company and Fujimi Incorporated or any
reduction in the supply or increase in the cost of slurries from Fujimi
Incorporated to the Company or the Fujimi Joint Venture would have a material
adverse effect on the Company's business, prospects, results of operations and
financial condition.

The Company earns commissions on the distribution in the U.S. and Europe of
products supplied by the Far East Joint Venture. During fiscal 1993, 1994,
1995 and the nine months ended February 29, 1996, $772,000, $2.1 million, $2.8
million and $4.0 million, respectively, of the Company's total revenue was
attributable to the distribution of such products. In addition, the Company
purchases certain components used in its machines from the Far East Joint
Venture. During fiscal 1993, 1994, 1995 and the nine months ended February 29,
1996, purchases of components from the Far East Joint Venture totaled $3.3
million, $2.6 million, $3.0 million and $2.4 million, respectively. A
termination of or deterioration in the relationship between the Company and
its Far East Joint Venture partner would have a material adverse effect on the
Company's business prospects, results of operations and financial condition.
See "--Reliance on the Performance of and Relationship with Far East Joint
Venture."

The Company relies to a substantial extent on outside vendors to manufacture
many of the components and subassemblies used in the Company's capital
equipment, some of which are obtained from a single supplier or a limited
group of suppliers. The Company's reliance on outside vendors generally, and a
sole or a limited group of suppliers in particular, involves several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over quality, pricing and timing of delivery of
components. In the past, the Company has experienced delays in receiving
materials from vendors, sometimes resulting in delays in the delivery of
products by the Company. Such delays, or other significant vendor or supply
quality issues, may occur in the future, which could result in a material
adverse effect on the Company. Because the manufacture of certain of these
components and subassemblies is specialized and requires long lead times,
there can be no assurance that delays or shortages caused by vendors will not
reoccur. Any inability to obtain adequate deliveries, or any other
circumstance that would require the Company to seek alternative sources of
supply or to manufacture such components internally, could delay shipment of
the Company's products, increase its cost of goods sold and have a material
adverse effect on the Company's business and results of operations. See
"Business--Manufacturing and Suppliers."

DEPENDENCE ON KEY CUSTOMERS

The Company's largest customer, Komag (a manufacturer of thin film memory
disks), accounted for 15.2%, 20.8%, and 20.6% and 21.1% of the Company's total
revenue in fiscal years 1993, 1994, 1995 and the nine months ended February
29, 1996, respectively. Two other customers accounted for 10% or more of the
Company's total revenue in recent fiscal years: Akashic (a manufacturer of
thin film memory disk media), represented 10.1% and 10.9% of the Company's
total revenue for fiscal years 1994 and 1995, respectively, and Seagate (a
manufacturer of disk drives), represented 11.3% of total revenue in fiscal
1994. The Company's ten largest customers accounted for, in the aggregate,
53.9%, 69.3%, 66.9% and 68.6% of the Company's total revenue in fiscal years
1993, 1994, 1995 and the nine months ended February 29, 1996, respectively.
The loss of, or a significant curtailment of purchases by, one or more of the
Company's key customers would materially adversely affect the Company's
business and results of operations. See "Business--Customers" and "--Sales and
Marketing."

The Company expects that sales of its products to relatively few customers
will continue to account for a high percentage of its revenue in the
foreseeable future. In addition, in certain of the markets the Company

-11-
<PAGE>

targets, such as the thin film memory disk, silicon wafer and CMP markets,
there are relatively few potential customers. Generally, the Company has not
entered into long-term agreements with its customers. In addition, as
purchases related to a particular new, expanded or upgraded facility are
completed, sales to that customer may decrease sharply. If completed orders
are not replaced on a timely basis by new orders from the same or other
customers, the Company's revenue could be materially adversely affected. See
"--Fluctuations in Quarterly Operating Results" and "Business--Customers."

INTERNATIONAL BUSINESS

In fiscal 1993, 1994 and 1995 and the nine months ended February 29, 1996,
20.6%, 16.7%, 17.3% and 30.2%, respectively, of the Company's total revenue
was attributable to sales outside the United States, primarily in Europe. In
addition, under certain circumstances, products sold to U.S. customers are
shipped to those customers' overseas facilities. The Company expects that
international sales will continue to represent a significant portion of its
total revenue. Sales to customers outside the United States are subject to
numerous risks, including exposure to currency fluctuations, the imposition of
government controls, the need to comply with a wide variety of foreign and
U.S. export laws, political and economic instability, trade restrictions,
changes in tariffs and taxes typically associated with foreign sales, the
greater difficulty of administering business overseas and general economic
conditions. In addition, the laws of certain foreign countries may not protect
the Company's intellectual property to the same extent as do the laws of the
United States. Moreover, slurries marketed and distributed by both the Company
and the Fujimi Joint Venture are purchased from Fujimi Incorporated, a
Japanese company. The Company also purchases in Japanese yen certain equipment
from the Far East Joint Venture that the Company then sells in the U.S. and
Europe. Fluctuations in exchange rates have in the past resulted, and may in
the future result, in increases in the cost to the Company of such products.
Also, because the value of the net assets of the Company's foreign
subsidiaries and its equity interest in the Far East Joint Venture fluctuate
based upon exchange rates and because the Company does not hedge the value of
such net assets, fluctuations in exchange rates may have an adverse effect on
the Company's shareholders' equity. See "--Reliance on the Performance of and
Relationship with Far East Joint Venture" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon certain senior
management and technical personnel. The loss of the services of one or more of
these key persons could have a material adverse effect on the Company.
Although the Company has employment agreements with certain of these key
employees, such agreements are terminable at will by the employee. The
Company's future success will depend in large part upon its ability to attract
and retain highly skilled technical, managerial, and marketing personnel.
Competition for such personnel in the Company's industry is intense and the
companies with which the Company competes are often larger and more
established than the Company. There can be no assurance that the Company will
be successful in attracting and retaining qualified personnel. See "Business--
Employees" and "Management."

INTELLECTUAL PROPERTY RIGHTS

Although the Company currently holds numerous United States patents and
additional foreign patents in Japan and several Asian and European countries
and has several United States patent applications and foreign patent
applications pending, the Company believes that patents are of less
significance in its industry than such factors as continued innovation,
technical expertise and know-how of its personnel and other factors. Moreover,
there can be no assurance that the Company will be able to protect its
technology or that competitors will not be able to develop similar technology
independently. No assurance can be given that the claims allowed on any
patents held or acquired by the Company will be sufficiently broad to protect
the Company's technologies. In addition, no assurance can be given that any
existing or future patents issued to the Company will not be challenged,
invalidated, or circumvented or that the rights granted thereunder will
provide competitive advantages to the Company. In that event, the Company's
results of operations could be adversely affected. Moreover, the Company may
choose to incur significant costs in an attempt to defend its patent rights.

-12-
<PAGE>

In addition, although the Company believes that its products do not infringe
any valid existing proprietary rights of others, there can be no assurance
that third parties will not assert infringement claims in the future. There
also may be pending patent applications or issued patents of which the Company
is not aware, and which would require the Company to license or challenge such
patents, at significant expense to the Company. There can be no assurance that
any such license would be available on acceptable terms, if at all, or that
the Company would prevail in any such challenge. See "Business--Intellectual
Property."

ENVIRONMENTAL REGULATIONS

The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals used in research and development. In addition, a number of
slurries and other materials sold by the Company and used by the Company's
customers on equipment manufactured by the Company are substances subject to
such regulation. Public attention has increasingly been focused on the
environmental impact of operations that use hazardous materials. Failure to
comply with present or future regulations could result in substantial
liability to the Company. In addition, new laws, rules and regulations could
be adopted that could result in significant expense to the Company in the
conduct of its business.

CONTROL BY EXISTING SHAREHOLDERS

Following the offering, Mr. Farley, his spouse and adult children will, in
the aggregate beneficially own approximately 38.7% of the Company's
outstanding shares (approximately 37.5% assuming the full exercise of the
Underwriters' over allotment option). Further, following this offering, the
Company's executive officers, directors and principal shareholders (exclusive
of shares beneficially owned by Mr. Farley's adult children) will, in the
aggregate, beneficially own approximately 34.7% of the Company's outstanding
shares of Common Stock (approximately 33.6% assuming the full exercise of the
Underwriters' over allotment option). As a result, these shareholders, if
acting together, would be able to determine the outcome of most matters
requiring approval by the shareholders of the Company, including the election
of the directors and other actions by shareholders with respect to the
business and affairs of the Company. In addition, the voting power of these
shareholders under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. See "Management," "Principal
and Selling Shareholders" and "Description of Capital Stock."

POSSIBLE ISSUANCE OF PREFERRED STOCK

The Board of Directors has authority to issue up to 1,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further
vote or action by the shareholders. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company, thereby delaying or preventing a change in
control of the Company. Furthermore, such Preferred Stock may have other
rights, including economic rights senior to the Common Stock, and, as a
result, the issuance thereof could have a material adverse effect on the
market value of the Common Stock. The Company has no present plans to issue
shares of Preferred Stock. See "Description of Capital Stock."

VOLATILITY OF STOCK PRICE

The market price of the Common Stock is subject to significant fluctuations
in response to the Company's operating results and other factors, including:
announcements of developments related to the Company's business; fluctuations
in the Company's order levels; general conditions in the technology industries
or the worldwide economy; announcements of technological innovations; new
products or product enhancements by the Company or its competitors;
developments in patents or other intellectual property rights; and
developments in the Company's relationships with its joint venture partners,
customers, distributors and suppliers. In addition, in recent years the stock
market in general, and the shares of technology companies in particular, have
experienced extreme price fluctuations, and such extreme price fluctuations
may continue. These broad market and industry fluctuations may adversely
affect the market price of the Company's Common Stock.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of shares in the public market following this
offering could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have 12,567,008 shares of Common
Stock outstanding. Of these shares, 7,861,445 shares, including the 2,660,000
shares sold in this offering, will generally be freely tradeable without
restriction, including shares that are freely tradeable pursuant to Rule
144(k) under the Securities Act of 1933, as amended (the "Securities Act"). In
addition, 4,705,563 shares of Common Stock are tradeable pursuant to the
provisions of Rule 144 under the Securities Act. Under certain lock-up
agreements with the underwriters, certain shareholders, owning 6,205,320
shares in the aggregate after the offering, have agreed that they will not,
without the prior written consent of Lehman Brothers Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them for a period of 90 days after the effective date of
the Registration Statement of which this Prospectus forms a part. See "Shares
Eligible for Future Sale" and "Underwriting."

THE COMPANY

The Company was incorporated in Illinois in 1959 as SpeedLap Corporation.
SpeedFam International, Inc. is a holding company operating through three
wholly owned subsidiaries, and also owns interests in two joint ventures. The
Company operates through SpeedFam Corporation in the U.S. ("SpeedFam U.S.")
and SpeedFam Limited ("SpeedFam U.K.") and SpeedFam GmbH ("SpeedFam Germany")
in Europe. SpeedFam International, Inc. owns 50% of each of two joint
ventures, the Far East Joint Venture and the Fujimi Joint Venture. The Far
East Joint Venture primarily produces and sells products in the Far East
similar to those produced by the Company, and the Fujimi Joint Venture sells
slurries and pads in North America.

Unless the context otherwise requires, the "Company" and "SpeedFam" refer
only to SpeedFam International, Inc., an Illinois corporation, and its wholly
owned subsidiaries. The Company's principal executive offices are located at
7406 West Detroit, Chandler, Arizona 85226 and its telephone number is (602)
961-2175.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$32.9 million ($39.5 million if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $17.50 per share and
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company. The Company will not receive any of
the proceeds from the sale of shares by the Selling Shareholders.

A significant portion of the net proceeds will be used by the Company to
fund the construction and equipping of a new corporate headquarters and
manufacturing facility in Chandler, Arizona. The Company presently estimates
that the total costs to be incurred for this project will be approximately
$16.5 million. To date, the Company has spent $2.1 million of the total
estimated costs to purchase the land on which the facility will be built.
Depending upon available alternatives in the future, the Company may seek to
obtain other long-term financing for its new facility in Chandler, Arizona
through bank financing, a sale-leaseback transaction, or the sale of debt
securities.

The Company intends to use $2.4 million of the net proceeds to repay
borrowings under a working capital revolving line of credit, bearing interest
at 6.75% at May 31, 1996. In addition, the Company will use approximately
$151,000 of the net proceeds to repay borrowings by SpeedFam U.K. under a
mortgage loan, bearing interest at 8.25% at May 31, 1996.

The Company expects to use the remaining net proceeds of this offering for
working capital and for other general corporate purposes. The Company may also
use a portion of the net proceeds to fund acquisitions of businesses,
divisions of companies or technologies complementary to those of the Company,
although there are no current agreements or commitments with respect to any
such transactions. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, interest-bearing securities. The
Company continually evaluates its financial position and financing
alternatives. The Company may, in the future, raise additional funds through
bank financing and the sale of equity securities.

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<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SFAM." Public trading of the Common Stock commenced on October 10,
1995. Prior to that time, there was no public market for the Company's Common
Stock. The following table sets forth the high and low closing sale prices for
the Common Stock as reported by Nasdaq for the periods indicated:

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1996
Second Quarter (from October 10, 1995).................. $18 1/4 $11 1/8
Third Quarter........................................... 16 1/2 9 1/2
Fourth Quarter.......................................... 22 12
Fiscal 1997
First Quarter (through June 12, 1996)................... $20 1/8 17 1/8
</TABLE>

On June 12, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $17.50 per share. As of May 31, 1996, there were 93
holders of record of the Common Stock.

The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. Payment of dividends
in the future, if any, will be made at the discretion of the Board of
Directors of the Company. Such decisions will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company and such other factors as the Board of
Directors may deem relevant.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
February 29, 1996 and as adjusted to reflect the sale of the 2,000,000 shares
of Common Stock offered by the Company hereby and the application of a portion
of the estimated net proceeds therefrom (after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company) as described under "Use of Proceeds."

<TABLE>
<CAPTION>
FEBRUARY 29, 1996
-------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt, net of current portion..................... $ 2,783 $ 692
------- -------
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized;
no shares issued or outstanding........................... -- --
Common Stock, no par value, 20,000,000 shares authorized;
10,397,200 shares issued and outstanding, actual;
12,449,340 shares issued
and outstanding, as adjusted(1)........................... 1 1
Additional paid-in capital................................. 26,016 58,909
Retained earnings.......................................... 24,115 24,115
Foreign currency translation adjustment.................... 4,207 4,207
Treasury stock............................................. -- --
------- -------
Total shareholders' equity............................... 54,339 87,232
------- -------
Total capitalization................................... $57,122 $87,924
======= =======
</TABLE>
- --------
(1) Based on shares of Common Stock outstanding at May 31, 1996. Includes
52,140 shares issuable upon the exercise of certain stock options which
are being exercised concurrently with this offering. Excludes an aggregate
of 2,820,192 shares of Common Stock reserved for issuance under the
Company's employee benefit plans, of which options to acquire 1,215,928
shares of Common Stock were outstanding at May 31, 1996.

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<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of earnings data for the years ended May 31,
1993, 1994 and 1995 and the consolidated balance sheet data as of May 31, 1994
and 1995 are derived from the Company's consolidated financial statements and
notes thereto which have been audited by KPMG Peat Marwick LLP, independent
public accountants and are included elsewhere in this Prospectus. The
consolidated statement of earnings data for the years ended May 31, 1991 and
1992 and the consolidated balance sheet data as of May 31, 1991, 1992 and 1993
are derived from the Company's consolidated financial statements which have
been audited by KPMG Peat Marwick LLP but are not included herein. The
consolidated balance sheet data at February 29, 1996, and the statements of
operations data for the nine months ended February 28, 1995 and February 29,
1996, have been derived from unaudited consolidated financial statements
which, in the opinion of the Company, reflect all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
financial position and results of operations of the Company for those periods.
The statements of operations data for interim periods are not necessarily
indicative of results for subsequent periods or the full year. The selected
consolidated financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------------------------------------ -------------------------
FEBRUARY 28, FEBRUARY 29,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Net sales............... $39,469 $36,178 $42,542 $49,247 $57,021 $38,996 $72,353
Commissions............. 1,895 3,431 772 2,134 2,757 1,043 4,041
------- ------- ------- ------- ------- ------- -------
Total revenue........... 41,364 39,609 43,314 51,381 59,778 40,039 76,394
Cost of sales........... 29,834 28,059 32,472 38,945 45,494 31,297 51,481
------- ------- ------- ------- ------- ------- -------
Gross margin.......... 11,530 11,550 10,842 12,436 14,284 8,742 24,913
OPERATING EXPENSES:
Research, development
and engineering........ 125 1,032 1,778 2,267 2,740 1,991 6,993
Selling, general and
administrative
expenses............... 9,709 10,687 8,545 8,988 9,948 7,404 12,617
------- ------- ------- ------- ------- ------- -------
Operating profit (loss). 1,696 (169) 519 1,181 1,596 (653) 5,303
Interest expense........ (940) (878) (824) (697) (959) (769) (615)
Other income, net....... 131 442 433(2) 974 6 73 440
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes,
extraordinary item and
cumulative effect of
change in accounting
principle.............. 887 (605) 128 1,458 643 (1,349) 5,128
Income tax expense
(benefit)............... 325 171 573 (160)(3) 186 (484) 2,002
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before extraordinary
item and cumulative
effect of change in
accounting principle... 562 (776) (445) 1,618 457 (865) 3,126
Equity in net earnings
(loss) of
affiliates(1).......... 1,652 1,830 (45) 655 1,187 981 3,563
Extraordinary item...... 215 -- -- -- -- -- --
Cumulative effect of
change in accounting
principle for income
taxes.................. -- -- -- 78 -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 2,429 $ 1,054 $ (490) $ 2,351 $ 1,644 $ 116 $ 6,689
======= ======= ======= ======= ======= ======= =======
Net earnings (loss) per
share................... $ 0.32 $ 0.14 $ (0.06) $ 0.31 $ 0.20 $ 0.01 $ 0.68
======= ======= ======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares................. 7,625 7,632 7,615 7,619 8,146 8,148 9,790
======= ======= ======= ======= ======= ======= =======
</TABLE>

-16-
<PAGE>

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
--------------------------------------- ------------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital........... $ 5,719 $ 6,503 $ 5,944 $ 9,980 $11,072 $29,761
Total assets.............. 31,656 35,136 35,715 45,709 60,029 97,556
Long-term obligations,
less current maturities.. 6,597 8,358 8,133 9,716 10,362 2,783
Shareholders' equity...... 12,854 14,339 15,669 18,576 23,037 54,339
</TABLE>
- --------
(1) Includes $1,231,000, $1,584,000, ($285,000), $450,000, $1,100,000, $880,000
and $3,397,000 for the 1991 through 1995 fiscal years and the nine months
ended February 28, 1995 and February 29, 1996, respectively, attributable
to the Company's share of net earnings (loss) from the Far East Joint
Venture, accounted for on the equity method. See "Joint Venture
Arrangements," the consolidated financial statements of the Far East Joint
Venture and the unaudited interim consolidated financial statements of the
Company included elsewhere herein. The remainder represents the Company's
share of net earnings (loss) from the Fujimi Joint Venture.

(2) Reflects charges of $300,000 related to the bankruptcy of a subsidiary
operating in Switzerland.

(3) Reflects income tax benefit of $740,000 related to the bankruptcy of a
subsidiary operating in Switzerland.

-17-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

SpeedFam designs, manufactures, markets and services high throughput
precision surface processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers, general industrial components and,
more recently, semiconductor devices through chemical mechanical polishing, or
"CMP." In addition, the Company markets and distributes parts and expendables
and slurries. The Company's total revenue consists of net sales in two
business segments: (i) equipment, parts and expendables, and (ii) slurries, as
well as commissions earned on the distribution in the U.S. and Europe of
products of the Far East Joint Venture. Sales of the Company's products are
recorded upon shipment or when the product is accepted by the customer,
provided that no significant obligations remain outstanding and collection of
the related receivable is deemed probable. The Company accrues estimated
warranty and installation expenses for each equipment and system order at the
time the order is shipped.

Equipment, parts and expendables consist of capital equipment manufactured
by the Company, spare parts for that equipment and expendable products, such
as bearings, grinding stones, lapping plates, workpiece carriers, seals,
retaining rings, workholders and polishing pads. During fiscal year 1993,
1994, 1995 and the nine months ended February 29, 1996, 52.9%, 49.4%, 52.3%
and 73.6%, respectively, of the Company's net sales was attributable to the
sale of capital equipment, parts and expendables. Historically, the gross
margin for products in this segment has been significantly higher than that
for slurries.

Slurries consist of polishing slurry and slurry components (including
vehicles and abrasives) used in surface processing. During fiscal year 1993,
1994, 1995 and the nine months ended February 29, 1996, 47.1%, 50.6%, 47.7%
and 26.4%, respectively, of the Company's net sales was attributable to sales
of slurries. Substantially all of the slurries sold by the Company are
manufactured by Fujimi Incorporated. Historically, the gross margin for
slurries has been significantly lower than that for equipment, parts and
expendables. In recent years, the Company has experienced severe competitive
pressure in the sale of slurries and has been required to reduce prices. In
addition, the Company has experienced increased slurry costs. The Company
expects that these trends will continue.

Commissions from affiliate ("commissions") consist primarily of revenue
derived from the distribution by the Company in the U.S. and Europe of
products of the Far East Joint Venture for which the Company acts as sales
agent. Certain capital equipment marketed and distributed by the Company is
produced solely by the Far East Joint Venture. The Company distributes such
products throughout the U.S. and Europe and receives commissions thereon. Such
amount reflects the difference between the imported equipment's cost to the
Company and sales price to the customer. For fiscal 1995 and the nine months
ended February 29, 1996, commissions accounted for 4.6% and 5.3%,
respectively, of total revenue.

International sales by the Company's wholly owned subsidiaries in Europe
accounted for 17.3% of total revenue in fiscal 1995 and 11.5% of total revenue
in the nine months ended February 29, 1996. Approximately 54% and 59% of the
Company's total revenue in Europe in fiscal 1995 and the nine months ended
February 29, 1996 were attributable to the sale of slurries. Fiscal 1993
reflects charges of $300,000 related to the bankruptcy of a subsidiary of the
Company, FamTec AG, operating in Switzerland. In fiscal 1994, the Company
wrote off its investment in FamTec AG. The net liabilities of FamTec AG and
the removal of the foreign currency translation adjustment from consolidated
shareholders' equity resulted in a pretax gain of $303,000 and an income tax
benefit of $740,000 in fiscal 1994. See "Business--Legal Proceedings."

The Company generally enters into foreign exchange contracts to hedge
certain firm commitments denominated in foreign currencies, principally in
Japanese yen. The terms of the contracts are rarely more than one year.
Currency variations have had an immaterial effect on the Company's results of
operations for the periods presented. Net assets of the Company's foreign
subsidiaries and 50% of the net assets of the Far East

-18-
<PAGE>

Joint Venture were approximately $18.9 million at January 31, 1996 (the end of
the first three quarters of fiscal 1996 of such entities).

The Company owns a 50% interest in both the Far East Joint Venture and the
Fujimi Joint Venture. The Company's equity interests in the joint ventures are
accounted for on the equity method. As a result, the Company's share of the
net earnings (loss) of the Far East Joint Venture and the Fujimi Joint Venture
appear in the "Equity in net earnings (loss) of affiliates" caption on the
Company's consolidated statements of earnings. Neither the Far East Joint
Venture nor the Fujimi Joint Venture has paid significant dividends in the
past and both are expected to retain substantially all earnings in the
foreseeable future. The Company's share of the net earnings (loss) of the Far
East Joint Venture has not in the past resulted and is not expected in the
future to result in a like effect on the cash flows of the Company. At
February 29, 1996, the Company's equity interest in the Far East Joint Venture
was $16.7 million, representing 17.1% of the Company's total assets and 30.7%
of shareholders' equity. The net earnings of the Company in the past have been
substantially influenced by the results of operations of the Far East Joint
Venture and can be expected to continue to be so influenced in the future. See
"Joint Venture Arrangements" and the consolidated financial statements of
SpeedFam Co., Ltd. included elsewhere herein.

The Company began development of its CMP product, the CMP-V, in 1990. The
Company initiated volume shipments of the CMP-V in 1994. CMP-V sales accounted
for 30.4% of net sales for the nine months ended February 29, 1996, as
compared to 7.6% of net sales for the nine months ended February 28, 1995. The
CMP-V generally has gross margins higher than those of the Company's other
capital equipment products.

Historically, a disproportionate share of the Company's revenue and
operating profit has been attributable to the last two quarters of the
Company's fiscal year, primarily the fourth quarter. In particular, the
Company typically experiences a decline in revenues and operating profit from
the fourth fiscal quarter to the first fiscal quarter of the succeeding year.
The Company believes that this decline is primarily due to the seasonal buying
patterns of its customers. Sales of slurries tend to be more consistent than
equipment sales on a quarterly basis.

-19-
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain consolidated statements of earnings
data for the periods indicated as a percentage of total revenue:

<TABLE>
<CAPTION>
YEARS ENDED MAY
31, NINE MONTHS ENDED
-------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Net sales...................... 98.2 % 95.8% 95.4% 97.4 % 94.7%
Commissions.................... 1.8 4.2 4.6 2.6 5.3
----- ----- ----- ----- -----
Total revenue.................. 100.0 100.0 100.0 100.0 100.0
Cost of sales.................. 75.0 75.8 76.1 78.2 67.4
----- ----- ----- ----- -----
Gross margin................. 25.0 24.2 23.9 21.8 32.6
OPERATING EXPENSES:
Research, development and
engineering.................... 4.1 4.4 4.6 5.0 9.2
Selling, general and
administrative expenses........ 19.7 17.5 16.6 18.4 16.5
----- ----- ----- ----- -----
Operating profit............... 1.2 2.3 2.7 (1.6) 6.9
Interest expense............... (1.9) (1.4) (1.6) (1.9) (0.8)
Other income, net.............. 1.0 1.9 -- 0.1 0.6
----- ----- ----- ----- -----
Earnings from consolidated
companies before income taxes
and cumulative effect of
change in accounting
principle..................... 0.3 2.8 1.1 (3.4) 6.7
Income tax expense (benefit)... 1.3 (0.3) 0.3 (1.2) 2.6
----- ----- ----- ----- -----
Earnings (loss) from
consolidated companies before
cumulative effect of change in
accounting principle.......... (1.0) 3.1 0.8 (2.2) 4.1
Equity in net earnings (loss)
of affiliates.................. (0.1) 1.3 2.0 2.5 4.7
Cumulative effect of change in
accounting principle for
income tax.................... -- 0.2 -- -- --
----- ----- ----- ----- -----
Net earnings (loss)............ (1.1)% 4.6% 2.8% 0.3% 8.8%
===== ===== ===== ===== =====
</TABLE>

NINE MONTHS ENDED FEBRUARY 29, 1996 COMPARED WITH NINE MONTHS ENDED FEBRUARY
28, 1995

Net Sales. Net sales for the nine months ended February 29, 1996 were $72.4
million, up 85.5% over net sales of $39.0 million for the similar period in
fiscal 1995. Equipment, parts and expendables accounted for 73.6% of net sales
in the first nine months of fiscal 1996 compared to 41.8% in the same period
of fiscal 1995. CMP-V sales accounted for 30.4% of net sales in the first nine
months of fiscal 1996, from 7.6% in the first nine months of fiscal 1995. In
addition to the significant increase in CMP-V sales to semiconductor
manufacturers, net sales for the nine month period have increased due to
industry growth in the thin film memory disk media and semiconductor wafer
markets. As a result, sales of related equipment, parts and expendables have
also increased in fiscal 1996 over fiscal 1995. Sales of slurries as a percent
of net sales decreased to 26.4% in the first nine months of fiscal 1996 from
58.2% in the comparable period of fiscal 1995. The Company's backlog as of
February 29, 1996 was $67.8 million, an increase of 77.5% from $38.2 million
as of February 28, 1995.

Commissions from Affiliate. Commissions from affiliate increased to $4.0
million in the nine months ended February 29, 1996 compared to $1.0 million in
the nine months ended February 28, 1995. The increase in the nine month period
of fiscal 1996, as compared to the respective period in fiscal 1995, was due
primarily to the

-20-
<PAGE>

increasing demand of the silicon wafer industry to meet that industry's
capacity requirements, and increased demand for certain technologies developed
and manufactured by the Far East Joint Venture.

Gross Margin. For the first nine months of fiscal 1996, gross margin was
$24.9 million or 32.6% of total revenue compared to $8.7 million or 21.8% of
total revenue for the first nine months of fiscal 1995. In addition to higher
sales levels, gross margin has increased due to a considerable shift towards
higher margin products in the equipment, parts and expendables segment,
particularly the CMP-V planarization system.

Research, Development and Engineering. In the nine months ended February 29,
1996, research, development and engineering expense increased to $7.0 million
or 9.2% of total revenue compared to $2.0 million or 5.0% of total revenue in
the first nine months of fiscal 1995. The Company has committed significant
resources to the continued development of the CMP process and other related
technologies. The Company believes that increased spending in research,
development and engineering, including providing required technical support
services for needs of customers, are all major factors to continued CMP-V
sales growth.

Selling, General and Administrative. For the first nine months of fiscal
1996, selling general and administrative expense increased to $12.6 million
from $7.4 million in the first nine months of fiscal 1995. For the nine month
period, selling, general and administrative expense decreased as a percent of
total revenue compared to the similar periods of fiscal 1995 due to the
significantly higher level of sales between the same periods. However, higher
levels of spending were required to support this sales growth including
additional administrative and sales personnel, new service and sales
locations, and distributor commissions to the Far East Joint Venture on export
sales from the U.S. to the Far East region.

Interest Expense. In the nine months ended February 29, 1996, interest
expense decreased to $615,000 from $769,000 in the comparable period of fiscal
1995. The decrease was due to the retirement of the outstanding balance of a
revolving line of credit and the retirement of long-term debt payable to a
former director.

Other Income, Net. Other income increased to $440,000 in the first nine
months of fiscal 1996 from $73,000 in the first nine months of fiscal 1995.
The increase is due primarily to additional interest income earned on the
investment of proceeds received upon completion of the Company's initial
public offering of Common Stock in October 1995.

Equity in Net Earnings of Affiliate. For the nine months ended February 29,
1996, equity in net earnings of affiliates increased to $3.6 million compared
to $981,000 in the nine months ended February 28, 1995. The increase is
attributed to a continued strong demand for products sold to the thin film
memory and semiconductor wafer industries by the Far East Joint Venture. In
addition, profits of the Far East Joint Venture have increased due to
improvements in manufacturing, cost reduction programs and a lower effective
tax rate.

FISCAL 1995 COMPARED WITH FISCAL 1994

Net Sales. Net sales increased 15.8% to $57.0 million in fiscal 1995 from
$49.2 million in fiscal 1994. The increase was primarily attributable to a
$5.5 million increase in equipment, parts and expendables sales to $29.8
million in fiscal 1995 from $24.3 million in fiscal 1994. A significant
portion of this increase was due to higher CMP-V sales. The increase also
reflects strong equipment demand from the semiconductor wafer and thin film
memory disk industries due to those industries' expansion of manufacturing
capacity. Slurries sales increased $2.3 million in fiscal 1995 to $27.2
million from $24.9 million in fiscal 1994 primarily as a result of an increase
in unit sales partially offset by a decrease in unit selling prices. European
sales increased 20.9% to $10.4 million in fiscal 1995 from $8.6 million in
fiscal 1994, primarily due to increased sales of slurries to semiconductor
wafer manufacturers.

-21-
<PAGE>

Commissions. Commissions increased 29.2% to $2.8 million in fiscal 1995 from
$2.1 million in fiscal 1994, due to increased shipments of systems produced by
the Far East Joint Venture, primarily to U.S. manufacturers of semiconductor
wafers.

Gross Margin. Gross margin increased to $14.3 million in fiscal 1995 from
$12.4 million in fiscal 1994 due to higher sales volume in both business
segments. As a percentage of total revenue, gross margin decreased to 23.9% in
fiscal 1995 from 24.2% in fiscal 1994. The decrease was primarily attributable
to increased slurries unit costs and decreased unit sale prices. This decline
was partially offset by increased equipment, parts and expendables sales as a
percentage of total revenue, which traditionally have higher gross margins
than slurries.

Research, Development and Engineering. Research, development and engineering
expenses increased 20.9% to $2.7 million in fiscal 1995 from $2.3 million in
fiscal 1994. The majority of the expenses relate to the continued development
of the CMP-V and CMP process technology. In addition, the Company invested in
the development of proprietary slurries and the enhancement of existing
machines for the thin film memory disk and precision optics markets. As a
percentage of total revenue, research, development and engineering expenses
increased to 4.6% in fiscal 1995 from 4.4% in fiscal 1994.

Selling, General and Administrative. Selling, general and administrative
expenses increased 10.7% to $9.9 million in fiscal 1995 from $9.0 million in
fiscal 1994, primarily as a result of increased expenses related to the
expansion of marketing, sales and customer support functions, the addition of
new office and assembly facilities and the upgrading of management information
systems, all of which were primarily related to the CMP-V. As a percentage of
total revenue, selling, general and administrative expenses decreased to 16.6%
in fiscal 1995 from 17.5% in fiscal 1994 as a result of a larger total revenue
base.

Interest Expense. Interest expense increased 37.6% to $959,000 in fiscal
1995 from $697,000 in fiscal 1994. This increase was the result of increased
borrowings under a revolving line of credit and higher short-term interest
rates. As a percentage of total revenue, interest expense increased to 1.6% in
1995 from 1.4% in 1994.

Other Income, Net. Other income, net decreased 99.4% to $6,000 in fiscal
1995 from $974,000 in fiscal 1994. The most significant change resulted from a
$350,000 foreign exchange loss incurred on several import equipment orders.

Provision for Income Taxes. The Company's effective tax rate in fiscal 1995
was 29%, compared to (11%) in fiscal 1994. The Company's effective income tax
rate in fiscal 1995 differs from the Federal statutory rate primarily as a
result of the tax benefit from the foreign sales corporation. The fiscal 1994
effective tax rate differs from the Federal statutory rate primarily as a
result of the tax benefit recognized upon the disposal of FamTec AG. The
benefit arose from the write-off and resulting deduction of the Company's
investment in FamTec AG for U.S. tax purposes.

Equity in Net Earnings (Loss) of Affiliates. Equity in net earnings (loss)
of affiliates increased 81.2% to $1.2 million in fiscal 1995 from $655,000 in
fiscal 1994. The increase was primarily attributable to increased sales of
equipment, parts and expendables to the Far East semiconductor industry by the
Far East Joint Venture. Introduction of new and enhanced equipment and systems
as well as improving conditions in the semiconductor equipment market in the
Far East led to increases in sales and profits.

FISCAL 1994 COMPARED WITH FISCAL 1993

Net Sales. Net sales increased 15.8% to $49.2 million in fiscal 1994 from
$42.5 million in fiscal 1993. Substantially all of the increase was
attributable to increased sales of slurries to the thin film memory disk media
market in the U.S. and increased sales in the semiconductor wafer market in
Europe. Slurries sales accounted for 50.6% of net sales in fiscal 1994, while
capital equipment, parts and expendables sales, primarily to the thin film
memory disk media industry, comprised the balance. The increase in slurries
unit sales offset a decrease in unit selling prices. European sales decreased
4.0% to $8.6 million in 1994 from $8.9 million in fiscal 1993 as a result of
the closing of FamTec AG, which was partially offset by increases in sales of
slurries.

-22-
<PAGE>

Commissions. Commissions increased 176.4% to $2.1 million in fiscal 1994
from $772,000 in fiscal 1993, due to increased shipments of systems by the Far
East Joint Venture to manufacturers of thin film memory disks and silicon
wafers.

Gross Margin. Gross margin increased to $12.4 million in fiscal 1994 from
$10.8 million in fiscal 1993. As a percentage of total revenue, gross margin
decreased to 24.2% in 1994 from 25% in fiscal 1993. This decrease is primarily
due to competitive pressures in fiscal 1994 on certain high volume slurries
sold to the thin film memory disk industry which, combined with rising costs
for these products, contributed to a decline in the overall gross margin as a
percent of total revenues in 1994 as compared to fiscal 1993.

Research, Development and Engineering. Research, development and engineering
expenses increased 27.5% to $2.3 million in fiscal 1994 from $1.8 million in
fiscal 1993. The increase was attributable to continued development and
engineering expenses related to the CMP-V system and CMP process technology,
expenditures incurred for designing a new lapping machine for the quartz
industry and research related to proprietary formulas for new slurry products.
As a percentage of total revenue, research, development and engineering
expenses were 4.4% of total revenue in fiscal 1994 and 4.1% in fiscal 1993.

Selling, General and Administrative. Selling, general and administrative
expenses increased 5.2% to $9.0 million in fiscal 1994 from $8.5 million in
fiscal 1993. The increase was primarily a result of increased marketing and
administrative staff additions and increased compensation expenses, partially
offset by decreased expenses related to the closing of FamTec AG. As a
percentage of total revenue, selling, general and administrative expenses
decreased to 17.5% in fiscal 1994 from 19.7% in fiscal 1993.

Interest Expense. Interest expense decreased 15.4% to $697,000 in fiscal
1994 from $824,000 in fiscal 1993 as a result of lower average borrowings
during fiscal 1994, primarily due to the elimination of indebtedness of FamTec
AG. As a percentage of total revenue, interest expense decreased to 1.4% in
1994 from 1.9% in fiscal 1993.

Other Income, Net. Other income, net increased 124.9% to $974,000 in fiscal
1994 from $433,000 in fiscal 1993. The most significant items that contributed
to the increase were income received from a customer payment in connection
with an order cancellation amounting to $379,000, a pre-tax gain of $303,000
on the closing of FamTec AG and royalties received of $245,000 on the
licensing of certain CMP technology. In fiscal 1993, other income, net
included $800,000 of income attributable to the settlement of a patent
infringement suit.

Provision for Income Taxes. The Company's effective income tax rate in
fiscal 1993 differs from the Federal statutory rate primarily as a result of
the FamTec AG operating losses for which no tax benefit was recognized and the
U.S. taxation of dividends received from the Company's subsidiaries in Europe.

Equity in Net Earnings (Loss) of Affiliates. Equity in net earnings (loss)
of affiliates was $655,000 in fiscal 1994 compared with a loss of $45,000 in
fiscal 1993. The fiscal 1994 results were attributable to improving economic
and market conditions in Japan and the rest of the Far East region and
increased demand by semiconductor wafer manufacturers for the Far East Joint
Venture's equipment.

-23-
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following table presents certain unaudited consolidated quarterly
financial information for the eleven quarters ended February 29, 1996 and such
information expressed as a percentage of total revenue. In the opinion of the
Company's management, this information has been prepared on the same basis as
the consolidated financial statements appearing elsewhere in this Prospectus
and includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information. Results of operations
for any previous quarter are not necessarily indicative of results for any
future period.

<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995 FISCAL 1996
----------------------------------- ----------------------------------- -------------------------
AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 29
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
EARNINGS
DATA:
Net sales............. $12,684 $9,550 $10,554 $16,459 $13,751 $12,918 $12,327 $18,025 $17,633 $24,637 $30,083
Commissions........... 20 517 713 884 202 162 679 1,714 183 801 3,057
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 12,704 10,067 11,267 17,343 13,953 13,080 13,006 19,739 17,816 25,438 33,140
Cost of sales......... 9,699 7,986 8,708 12,552 11,180 10,420 9,697 14,197 12,766 18,420 20,295
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 3,005 2,081 2,559 4,791 2,773 2,660 3,309 5,542 5,050 7,018 12,845
Research, development
and engineering...... 373 428 401 1,065 578 707 706 749 1,195 2,302 3,496
Selling, general and
administrative....... 1,999 1,974 2,005 3,010 2,541 2,458 2,405 2,544 3,482 3,380 5,183
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit........ 633 (321) 153 716 (346) (505) 198 2,249 373 1,336 4,166
Interest expense........ (174) (175) (174) (174) (244) (277) (248) (190) (271) (254) (90)
Other income (expense),
net..................... 130 (105) 428 521 (37) (44) 154 (67) (225) (79) 172
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes and
cumulative effect of
accounting change...... 589 (601) 407 1,063 (627) (826) 104 1,992 (123) 1,003 4,248
Income tax expense
(benefit)............... 193 (179) (515) 341 (208) (287) 11 670 (27) 413 1,616
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies. 396 (422) 922 722 (419) (539) 93 1,322 (96) 590 2,632
Equity in net earnings
(loss) of affiliates... (270) (170) 811 284 565 106 310 206 800 1,035 1,728
Cumulative effect of ac-
counting change........ 78 -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 204 $ (592) $ 1,733 $ 1,006 $ 146 $ (433) $ 403 $ 1,528 $ 704 $ 1,625 $ 4,360
======= ====== ======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUE:
Net sales............. 99.8% 94.9% 93.7% 94.9% 98.6% 98.8% 94.8% 91.3% 99.0% 96.9% 90.8%
Commissions........... 0.2 5.1 6.3 5.1 1.4 1.2 5.2 8.7 1.0 3.1 9.2
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......... 76.3 79.3 77.3 72.4 80.1 79.7 74.6 71.9 71.7 72.4 61.2
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 23.7 20.7 22.7 27.6 19.9 20.3 25.4 28.1 28.3 27.6 38.8
Research, development
and engineering...... 2.9 4.3 3.6 6.1 4.1 5.4 5.4 3.8 6.7 9.0 10.5
Selling, general and
administrative....... 15.8 19.6 17.8 17.3 18.2 18.8 18.5 12.9 19.5 13.3 15.7
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit........ 5.0 (3.2) 1.3 4.2 (2.4) (3.9) 1.5 11.4 2.1 5.3 12.6
Interest expense........ (1.4) (1.7) (1.5) (1.0) (1.7) (2.1) (1.9) (1.0) (1.5) (1.0) (0.3)
Other income (expense),
net..................... 1.0 (1.1) 3.8 3.0 (0.3) (0.3) 1.2 (0.3) (1.3) (0.3) 0.5
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes and
cumulative effect of
accounting change...... 4.6 (6.0) 3.6 6.2 (4.4) (6.3) 0.8 10.1 (0.7) 4.0 12.8
Income tax expense
(benefit)............... 1.5 (1.8) (4.6) 2.0 (1.4) (2.2) 0.1 3.4 (0.2) 1.6 4.9
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies. 3.1 (4.2) 8.2 4.2 (3.0) (4.1) 0.7 6.7 (0.5) 2.4 7.9
Equity in net earnings
(loss) of affiliates... (2.1) (1.7) 7.2 1.6 4.0 0.8 2.4 1.0 4.5 4.1 5.3
Cumulative effect of
accounting change...... 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... 1.6% (5.9)% 15.4% 5.8% 1.0% (3.3)% 3.1% 7.7% 4.0% 6.5% 13.2%
======= ====== ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

-24-
<PAGE>

The Company's results of operations may be subject to significant quarterly
variation. Certain of the Company's systems have relatively high selling
prices. This can cause quarterly variations in equipment sales and have a
significant effect on the Company's results of operations. The results of
operations for a particular quarter may also vary due to a number of factors,
including market conditions in the thin film memory disk, semiconductor wafer
and device industries, customer delivery schedules, timing of orders, the mix
of products sold by the Company, competitive pricing pressures, availability
and cost of raw materials and the quarterly operating results of the Company's
joint ventures. Also, customers may reschedule, or in rare instances cancel
shipments, and production difficulties may delay shipments.

LIQUIDITY AND CAPITAL RESOURCES

The Company completed its initial public offering of 2,927,500 shares of
common stock during the second quarter of fiscal 1996. Proceeds to the Company
as a result of the offering were $28.4 million, net of underwriters' discounts
and commissions and offering expenses. Approximately $10.5 million was used to
repay borrowings by the Company's U.S. subsidiary under a working capital
revolving line of credit. In addition, approximately $879,000 was used to
repay indebtedness incurred in 1990, including accrued interest, in connection
with the repurchase of shares of common stock of a former director. The
remaining funds are being used for working capital and other general corporate
purposes.

A significant portion of the net proceeds from the sale of the Common Stock
offered hereby will be used by the Company to fund the construction and
equipping of a new corporate headquarters and manufacturing facility in
Chandler, Arizona. The Company presently estimates that the total costs to be
incurred for this project will be approximately $16.5 million. To date, the
Company has spent $2.1 million of the total estimated costs to purchase the
land on which the facility will be built. Depending upon available
alternatives in the future, the Company may seek to obtain other long-term
financing for its new facility in Chandler, Arizona through bank financing, a
sale-leaseback transaction, or the sale of debt securities.

At February 29, 1996, the Company had an aggregate of $12.7 million in
secured lines of credit. This increased from $10.2 million at May 31, 1995. As
of February 29, 1996, no borrowings were outstanding under the lines of
credit. The Company has recently entered into a new unsecured $22.5 million
credit facility which replaced the former secured bank line of credit in its
U.S. operations.

For the nine months ended February 29, 1996, the Company used $6.1 million
in cash from operating activities compared to $1.0 million in the same period
last fiscal year. This use of cash is primarily attributable to the buildup of
inventories and accounts receivable associated with the significant growth in
sales in fiscal 1996, especially in the third quarter.

The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with anticipated funds provided by operations and
borrowings available under its revolving line of credit agreement, will be
sufficient to meet the Company's planned capital requirements during at least
the next 12 months. Beyond the next 12 months, the Company may require
additional financing to address its working capital and fixed asset
requirements. There can be no assurance that additional financing will be
available on terms acceptable to the Company, if at all.

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
was issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. Management has reviewed the Statement and expects that its
provisions will not have a material adverse effect upon the financial
condition or results of operations of the Company.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation Plans" was issued in October 1995. The Statement will be
effective for the Company's fiscal year 1997. As allowed by the new Statement,
the Company plans to continue to use Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" in accounting for its stock
options. Certain pro forma and other information will be disclosed as if the
Company had measured compensation costs in a manner consistent with the new
Statement. Management has reviewed the Statement and expects that its
provisions will not have a material adverse effect upon the financial
condition or results of operations of the Company.

-25-
<PAGE>

BUSINESS

The Company designs, develops, manufactures, markets and services high
throughput precision surface processing systems used in the fabrication of
thin film memory disk media, semiconductor wafers, general industrial
components and, more recently, semiconductor devices through chemical
mechanical polishing, or "CMP." In addition, the Company markets and
distributes slurries and parts and expendables used in its customers'
manufacturing processes. The Company's processing systems include polishing,
grinding, lapping and pre-deposition cleaning equipment. The process steps
performed by the Company's equipment are an integral part of and occur
repeatedly throughout the fabrication cycles of both thin film memory disk
media, semiconductor wafers and advanced semiconductors. The Company has been
utilizing innovative designs, formulas and process technologies to address its
customers' precision surface processing needs since 1959. The Company believes
that the processing expertise it has developed over the past 35 years enables
it to provide precision surface processing solutions to leading-edge
electronics manufacturers who require increasingly smaller device geometries
and tighter process tolerances. Major customers of the Company include AMD,
Akashic, Digital Equipment, Hewlett-Packard, HMT, IBM, Komag, MEMC, Mosel
Vitelic, Motorola, Rockwell International, Seagate, Siemens, Siltec, StorMedia
and Wacker Siltronic.

INDUSTRY BACKGROUND

The semiconductor and memory disk industries have experienced rapid growth
as a result of the personal computer, telecommunications and networking
markets and the emergence of consumer-oriented semiconductor applications in
products such as automobiles, electronic games and other consumer electronics.
The computer markets are characterized by the emergence of new operating
systems that require higher processor performance, more memory and increased
disk storage to run effectively. In both the computing and consumer-oriented
markets, end users demand greater system performance, along with product
features such as small size, portability, long battery life and cool
operation.

The heightened requirements of end users for increased system performance,
processing capacity and product features are requiring semiconductor and thin
film memory disk manufacturers to rapidly adopt new technologies. Thus,
semiconductor device manufacturers are producing devices with smaller
geometries and multi-level metal processes. Similarly, thin film memory disk
media manufacturers are continually increasing the density of disk media by
increasing coercivity (magnetic density) and reducing head flying heights in
order to satisfy end user demand for greater storage capacity.

In order to meet these evolving specifications, both semiconductor and thin
film memory disk manufacturers must tighten tolerances and improve certain
surface characteristics. At present, some complex semiconductor devices have
line geometries and feature sizes of less than 0.5 micron, and devices with
geometries of 0.18 micron or less are under development. In the last decade,
coercivity requirements have increased from approximately 800 oersteds to
2,000 oersteds or more and flying height requirements have decreased to less
than 0.5 microinch. Such dramatic increases in coercivity and reductions in
flying heights require improved thin film memory disk media surface quality.
These tightened tolerances necessitate improvements in the semiconductor and
thin film memory disk media manufacturing processes in order to increase
planarity (flatness) and provide a number of new surface characteristics.

Polishing is a process used to change the characteristics of the surface of
a semiconductor wafer or thin film memory disk. Polishing is a complex
science, often involving multiple steps, each at a specified set of process
parameters such as polishing speed, pressure, time, and temperature, as well
as slurry pH and particle size, hardness and shape. Polishing improves the
flatness (planarity), smoothness and optical properties of a surface. A
typical flat polishing system consists of a moving platen that is covered with
a polishing pad, in combination with a polishing liquid (or slurry) containing
minute abrasive particles that impinge on the surface, thereby creating the
desired surface qualities. This liquid slurry can be chemically active such
that the surface of the component being polished is chemically modified, thus
accelerating and improving the polishing process.

-26-
<PAGE>

The combination of chemical action from the acidic or alkaline slurry and
mechanical action from the abrasive slurry has long been used to process
silicon wafers and thin film memory disk media and is increasingly used in the
manufacture of advanced semiconductor devices.

EMERGENCE OF CMP IN SEMICONDUCTOR PRODUCTION

CMP, or chemical mechanical polishing for patterned wafers, was first
applied in the manufacture of semiconductor devices by IBM in the 1980's, and
has since been adopted by a number of manufacturers of semiconductor devices.
The objective of CMP is to reestablish a flat or planar surface that has been
degraded by prior deposition steps to a point where it is not possible or
feasible to deposit additional levels without first restoring the surface to a
planar condition. For example, after a microprocessor device has had several
levels of metal deposited, the surface may have become so irregular that the
optics of the photolithography equipment may be unable to maintain proper
focus on all areas of the wafer surface. During the CMP process, the higher
points of the dielectric or metal layer are removed, resulting in a flatter
and more even surface. This provides a level foundation on which to deposit
the next level of circuitry. CMP allows the semiconductor manufacturers to
make denser, smaller, faster and more reliable devices by enabling them to
effectively stack many levels of interconnection.

End user performance demands are requiring semiconductor manufacturers to
produce increasingly sophisticated logic and memory devices containing
multiple metal layers. Because of the depth of focus limitations of existing
photolithography equipment, global planarization becomes particularly
important for devices with design geometries of 0.35 micron or less and three
or more metal levels. The Company believes that the CMP process is currently
the most effective method to provide this global planarization. According to
Dataquest Incorporated, the CMP equipment market was estimated at $197 million
in 1995 and it currently projects the market to be approximately $680 million
in the year 2000.

CMP MARKET REQUIREMENTS

The Company believes that manufacturers of semiconductor devices consider
many factors in evaluating a CMP system, including the following:

Cost of Ownership. Cost of ownership refers to the total cost to a
manufacturer of processing a wafer assuming a given set of process parameters.
Key factors that determine cost of ownership include capital equipment and
consumables costs, throughput, yield, reliability and amount of clean room
space occupied by the CMP system.

Throughput. Throughput is determined by measuring the number of wafers
processed per unit of time given a certain set of process conditions, such as
the amount of material requiring removal.

Process Flexibility, Performance and Reliability. Flexibility is determined
by the ability of a CMP system to address the evolving process and application
needs of semiconductor device manufacturers. Specifically, the Company
believes that semiconductor device manufacturers want a common, standardized
CMP system capable of processing various film types, including metal, oxide
and other materials. Performance is primarily characterized by the ability to
repeatably create precise, uniform film layers while achieving rapid removal
rates. Reliability of a CMP system is analyzed through measures such as "mean
time between failures" (MTBF), "mean wafers between failures" (MWBF) and "mean
wafers between interruptions" (MWBI).

Support and Other Capabilities of the CMP Supplier. Semiconductor device
manufacturers typically review the CMP supplier's support and other
capabilities, including the supplier's management systems, support locations,
training capabilities, research and development capabilities, technology
roadmap and process development activities.

CMP systems typically utilize polishing heads that hold wafers during the
planarization process. Historically, many CMP systems employed either one or
two head system architectures that permitted the processing of only one or two
wafers at a time. The Company believes that the architecture of these one or
two head systems limits their ability to adequately address the CMP objectives
of semiconductor device manufacturers, particularly with respect to cost of
ownership and throughput. The Company believes that multiple head CMP systems
have inherent advantages over one and two head CMP systems. The Company was

-27-
<PAGE>

one of the earliest manufacturers to develop and ship commercial quantities of
a multiple head CMP system. Over the past few years, several other
manufacturers have developed multiple head CMP systems. In general, these
other systems have not yet achieved broad market acceptance. Recently, a
number of CMP equipment manufacturers have announced new multiple head systems
and the Company expects other such systems to be introduced in the future.

THE SPEEDFAM CMP SOLUTION

The Company has leveraged its 35 years experience in precision surface
processing, polishing, wet processing and high-throughput production equipment
to develop its CMP-V system. The Company began developing the CMP-V in 1990
and initiated commercial shipments during 1994. The CMP-V utilizes a five
head, two polishing table architecture that is designed to address the
objectives of semiconductor device manufacturers in the following respects:

Cost of Ownership. The CMP-V is designed to provide a favorable combination
of capital equipment and consumables costs, throughput, yield and space
utilization. For example, the CMP-V's use of a large polishing table to
process five wafers simultaneously results in enhanced throughput, efficient
consumables usage, and effective clean room space utilization.

Throughput. The CMP-V is designed to optimize throughput in a number of
ways. First, the system processes five wafers simultaneously and uses batch
load/unload in order to reduce handling time between process runs. The two
table design of the system allows it to directly perform a secondary polishing
step, important for most metal CMP applications, without having to unload and
load a wafer onto a separate carrier. In addition, the utilization of a
relatively large polishing wheel is designed to enable the CMP-V to achieve
relatively high removal rates and throughput while maintaining process
stability and control. Material removal rate is generally proportional to the
relative velocity between the surface of the polishing pad and the
semiconductor wafer. The Company believes its larger polishing wheel provides
higher relative velocities even while the wheel is turning at a relatively low
rotational speed. The Company currently expects to introduce an enhanced
version of the CMP-V in the second half of fiscal 1997 which is intended to
offer an improvement in throughput.

Process Flexibility, Performance and Reliability. The CMP-V supports a range
of applications, including oxide, metal and emerging CMP applications.
Specifically, the system is designed to provide the uniformity needed for
oxide applications, while providing efficient support for two-step metal
applications through its two table architecture. The Company believes that
this ability to support both oxide and metal applications in a single system
provides a solution to device manufacturers seeking to standardize on a common
CMP system throughout their fabrication facility. The Company believes that
the CMP-V achieves the precision and uniformity of film layers typically
required in CMP applications for advanced process technologies, including both
oxide and metal applications. The Company seeks to continually improve the
reliability of the CMP-V system and, from time to time, engages in joint
development projects with customers from the semiconductor industry as a means
to enhance the system's reliability.

Support and Other Capabilities of the CMP Supplier. The Company believes
that its United States and European support capabilities, in combination with
the support capabilities of the Far East Joint Venture, provide a network that
is able to support the worldwide CMP operations of semiconductor device
manufactures. The Company is committed to significant investment in research
and development in order to provide customers with a CMP product and
technology migration strategy consistent with the SIA (Semiconductor Industry
Association) technology roadmap.

-28-
<PAGE>

SPEEDFAM STRATEGY

The Company's goal is to establish and maintain market leadership in systems
which provide high throughput precision surface processing of thin film disk
media, advanced semiconductors and other high value-added products. Key
elements of the Company's strategy include:

. Establish a leading position in the CMP market. The Company seeks to
leverage its expertise in precision surface processing systems to establish
a leading position in the CMP market. The Company's multiple head, two
polishing table CMP system is designed to provide high throughput, low cost
of ownership and attractive levels of process flexibility. The Company
seeks to capitalize on the experience gained by being one of the earliest
manufacturers to develop and ship commercial quantities of a multiple head
CMP system. The Company currently expects to introduce an enhanced version
of the CMP-V in the second half of fiscal 1997. The Company is also
currently developing a post-CMP cleaning system, which is presently
expected to be introduced during fiscal 1997.

. Maintain a leading position in the sale of precision surfacing processing
systems to the thin film memory disk media and silicon wafer
industries. The Company intends to maintain a leading position in the thin
film memory disk media and silicon wafer industries by continuing to foster
strong relationships with its customers, participating in cooperative
development programs with them and continuing to provide high-quality
systems and solutions at competitive prices to meet evolving industry
requirements.

. Capitalize on the Company's core competence in precision surface processing
and leverage existing customer relationships. The Company intends to
capitalize on its surface processing expertise and its existing customer
relationships to address new market applications, particularly within the
semiconductor and flat panel display industries, and to develop new
products.

. Provide a "total solution." The Company seeks to provide a complete
solution to its customers' precision tolerance and surface processing
needs, including process expertise, training, cooperative development,
slurries and expendables, along with equipment. The Company focuses on each
market application by organizing marketing, sales, service and support
functions into separate market-oriented business units to provide
responsiveness and capability specific to each market.

. Capitalize on the Far East Joint Venture. The Far East Joint Venture, which
has been operating for approximately 25 years, designs, manufactures,
markets and services high throughput precision surface processing systems
in the Far East. The Company intends to continue to capitalize on the
opportunities and benefits provided by the Far East Joint Venture. The Far
East is a major market for equipment required by the thin film memory disk
media and semiconductor industries. In addition, because the Far East high
technology markets may adopt certain new technologies prior to the U.S.
markets, the Company may be able to take advantage of the expertise gained
by the Far East Joint Venture prior to the time those new technologies are
introduced into the U.S. markets. The Company believes that the Far East
Joint Venture's long-established presence in the Far East provides the
Company with a significant competitive advantage.

JOINT VENTURES

Since 1971, the Company has owned a 50% interest in the Far East Joint
Venture. The remaining 50% is owned by Obara Corporation, a privately-owned
Japanese company that supplies products to the automotive industry. Generally,
the Far East Joint Venture designs, produces and markets in the Far East
equipment similar to that produced by the Company in the U.S. Prior to 1971,
the Company marketed its products in Japan through Japanese trading companies;
however, the Company believed that the most effective method to further
penetrate the Japanese market was with a Japanese partner. See "Joint Venture
Arrangements--Far East Joint Venture." In 1984, the Company established the
Fujimi Joint Venture with Fujimi Incorporated, a Japanese manufacturer of
slurries. The Fujimi Joint Venture sells slurries manufactured by Fujimi
Incorporated, primarily to silicon wafer manufacturers and general industrial
manufacturers in North America. See "--Manufacturing and Suppliers" and "Joint
Venture Arrangements--Fujimi Joint Venture."

-29-
<PAGE>

PRODUCTS

SpeedFam's products include polishing, grinding and lapping equipment; pre-
deposition cleaning machines; other high precision surface processing systems;
and certain other products used in its customers' manufacturing process,
including slurries. During fiscal year 1995 and the nine months ended February
29, 1996, 54.5% and 75.0%, respectively, of the Company's total revenue
(including commissions) was attributable to the sale of capital equipment,
parts and expendables and 45.5% and 25.0%, respectively, of the Company's total
revenue was attributable to sales of slurries.

Applications

The areas indicated in the table below set forth the general categories of
processes and certain individual applications performed by products marketed by
SpeedFam:

SpeedFam offers equipment that performs specialized surface processing, such
as polishing, lapping, free abrasive machining and grinding. The Company's
polishing systems generally employ a flat rotating table, covered with a
polishing pad, one or more carriers to hold the parts being processed and
slurry. Processes similar to polishing include lapping (a process where no
polishing pad is used and the workpiece is pressed into the slurry, directly
onto a cast-iron lapping wheel) and free abrasive machining (a process similar
to lapping except that instead of using a cast iron wheel, a high alloy
hardened steel wheel is used). Lapping and free abrasive machining result in
higher removal rates than polishing but produce more coarse surface finishes.
Flat grinding is similar to lapping except that the abrasive particles are
contained within a fixed medium (grinding stones), rather than a liquid.
Grinding results in higher removal rates than lapping but produces a coarser
surface finish. Rotational speed, process type, pressure and the nature of the
chemicals and abrasives used are the primary variables considered in the
determination of the best process for a specific application. Polishing and
other surface treatment processes are typically followed by a cleaning process.
Thin film memory disk cleaning systems offered by SpeedFam incorporate
ultrasonics, PVA (polyvinyl alcohol) brush scrubbing, rinsing and drying in a
Class 1 cleanroom-compatible system.

Equipment

Thin Film Memory Disk Media. The Company sells polishing machines, pre-
deposition cleaning machines and grinding machines for producing aluminum,
nickel-plated and glass substrates for the thin film memory disk media market.
LOGO

-30-
<PAGE>

The following chart describes the major steps in the typical thin film
memory disk media manufacturing process:
THIN FILM MEMORY DISK MEDIA MANUFACTURING PROCESS

MANUFACTURING PROCESS STEP APPLICABLE SPEEDFAM PRODUCTS

Stamp out aluminum blank
^^
Turn the outside and inside diameter
on a lathe to establish the proper
dimensions and shape
^^
Rough grind both sides for thickness
and approximate flatness
requirements
^^
Fine grind for final thickness,
flatness and surface finish
requirements
^^
Clean the disk
^^
Nickel plate the aluminum substrate
^^
Rough polish the plated surface
^^
Final polish the nickel plated
surface
^^
Texture the disk
^^
Clean disk in cleanroom environment
^^
Deposit the magnetic layers and
apply a protective carbon overcoat
^^
Burnish the carbon overcoat layer
^^
Inspect, certify and package the
disk

DSM 9B-5SSG; DSM 16B-5SSG; DSM 18B-5SSG; DSM 9B-14SSG
DSM 9B-51SSG; DSM 16B-51SSG;
DSM 18B-51SSG
MD-03; MD-05

DSM 9B-5P; DSM 16B-5P; DSM 18B-5P; DSM 9B-14P; AUTO 11.8B-5P
DSM 9B-5P; DSM 16B-5P; DSM 18B-5P; DSM 9B-14P; AUTO 11.8B-5P

MD-07; MD-07A

The Company's DSM line of machines is used in the manufacture of thin film
memory disk media for grinding the aluminum substrate as well as polishing
after deposition of the nickel plating. The DSM line of machines
simultaneously processes both sides of a disk substrate and is available in
various sizes. Typical U.S. selling prices for the DSM line range from $90,000
to $850,000.

The MD line of cleaning systems is used to clean the substrate at various
stages of the manufacturing process, including the critical cleaning
immediately prior to the deposition of the magnetic layers. Cleaning systems
distributed by the Company are produced by the Far East Joint Venture. Typical
U.S. selling prices for the MD line of cleaning systems range from $200,000 to
$900,000.

-31-
<PAGE>

Semiconductor Wafers. The Company supplies chemical mechanical polishing,
double-sided lapping and, more recently, edge polishing systems to the
semiconductor substrates market.

The following chart describes the major steps in the typical silicon
semiconductor wafer manufacturing process:

SILICON SEMICONDUCTOR WAFER MANUFACTURING PROCESS

MANUFACTURING PROCESS STEP APPLICABLE SPEEDFAM PRODUCTS

Slice the single crystal silicon
ingot into wafers
^^
Bevel the wafer edge
^^
Etch the wafer in a chemical
solution to remove gross surface
damage
^^
Lap the wafer in a double-sided
machine to achieve the required
flatness and thickness
^^
In advanced applications, polish the
edges of the wafer
^^
Rough polish the face of the wafer
^^
Final polish the face of the wafer
^^
Clean and measure the flatness of
the wafer
^^
Inspect and package the wafer

DSM Auto 22B-5L; DSM 22B-5L; DSM
20B-5L; DSM 16B-5L
EP-150; EP-200-IV
Auto 59 SP Line; 59 SP; 50 SP; 50
SP-II; 48 SP
Auto 59 SP Line; 59 SP; 50 SP; 48 SP

The Company's DSM line of double-sided lapping systems is available in
various sizes and is used to create the initial flatness and thickness of the
silicon wafer after it is sliced from an ingot. The lapping process also
removes saw marks remaining after slicing and provides a surface finish
suitable for subsequent polishing processes. Typical U.S. selling prices for
the DSM line range from $300,000 to $1.5 million.

The Company began distributing the EP line of edge polishing systems during
fiscal 1995. Edge polishing is an emerging technology that is beginning to be
incorporated into high volume silicon wafer manufacturing. This technology was
introduced for the purpose of making the wafer's edge easier to clean, thereby
increasing semiconductor device manufacturing yields. The Far East Joint
Venture produces the EP line that is marketed and distributed by the Company.
Typical U.S. selling prices for the EP line range from $400,000 to $800,000.

The SP line utilizes a chemical mechanical polishing process to remove the
shallow damage layer remaining from previous process steps and to attain the
specified flatness and surface finish. A 50-inch model is manufactured by the
Company in the U.S. and a 59-inch model is manufactured by the Far East Joint
Venture. The 50-inch model typically sells in the U.S. for between
approximately $250,000 and $450,000. The 59-inch model typically sells in the
U.S. for between $700,000 and $1 million, but is also available as a fully
automated line integrating four 59-inch models, which can range up to $4.9
million.

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<PAGE>

Semiconductor Chemical Mechanical Polishing (CMP). The Company's CMP-V is a
five head, two polishing table CMP system capable of processing 40-45 wafers
per hour based on a two-minute polishing cycle. The Company's CMP process is
currently characterized for oxide and metal (tungsten) applications. The
system incorporates full cassette-to-cassette automation. Robotics remove the
wafers from the cassette and place them into the buffer tray. The wafers are
then staged for batch pickup by the polishing heads. Once secured by the
polishing heads, the wafers are moved onto the primary polishing pad and the
process is initiated. The polishing table, covered with a flat polishing pad,
rotates at a variable speed throughout the polishing cycle. Upon completion of
the initial polish, the wafers are transported either to a rinsing station or
to a second polishing table for an additional polishing or buffing step. The
wafers are then rinsed and placed into the output buffer tray, scrubbed on
both sides with a wet PVA sponge and placed wet into the output cassettes. The
system is self-enclosed, and has its own air filtration and air flow
management system. The CMP-V offers compatibility with all commonly used
slurry chemistries. Depending on specifications, the selling price of the CMP-
V in the U.S. ranges from $1.5 million to $2.0 million.

SPEEDFAM CMP-V PLANARIZATION SYSTEM

[DIAGRAM OF CMP-V HERE]

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<PAGE>

The Company intends to periodically develop and introduce enhanced versions
of the CMP-V system. The Company currently expects to introduce an enhanced
version of the CMP-V in the second half of fiscal 1997. The Company believes
that this enhanced version of the CMP-V will offer higher throughput than its
existing CMP-V by incorporating modifications in the control and automation
system in order to decrease the time interval between processes, thereby
increasing the number of wafers processed.

General Industrial. The Company offers a broad line of lapping, grinding and
polishing systems for the general industrial market. The line includes
approximately 35 models of single-side processing machines, double-side
processing machines, in-line grinding systems, optics polishing machines and
optics curve generating machines. The product offering is available in a wide
range of sizes from a 12 inch plate diameter up to a 150 inch plate diameter.
Each system typically consists of a specialized machining plate, a rotating
spindle, a means to fix and apply pressure to the workpieces, an abrasive
distribution system and a control system. U.S. selling prices of these systems
typically range from $20,000 to $700,000.

-34-
<PAGE>

Parts and Expendables

The Company markets a broad line of parts and expendables. These products
include general spare parts, bearings, grinding stones, lapping plates,
workpiece carriers, seals, retaining rings, workholders and polishing pads.
These products are typically obtained from outside vendors and are generally
manufactured to the Company's specifications. The Company's parts and
expendables management system provides customer service representatives with
detailed product specifications and availability information. The Company
maintains spare parts inventories at three U.S. locations and two European
locations. The Company believes that its ability to quickly supply parts and
expendables is an important factor in its ability to provide customers with a
total solution.

Slurries

The Company offers a broad line of slurry and slurry components (including
vehicles and abrasives) used in surface treatment processes as part of a total
process solution. Polishing slurry consists of abrasive particles contained in
a liquid vehicle that may contain a suspension agent and may be chemically
active. The slurries marketed by the Company are used by manufacturers of thin
film memory disk media, semiconductor wafers and other products as part of
their polishing processes.

Substantially all of the slurries sold by the Company are manufactured by
Fujimi Incorporated. Typical U.S. selling prices of slurry offered by the
Company range from $500 to $2,000 per 55-gallon drum.

The Company has entered into a joint venture (the "Fujimi Joint Venture")
with Fujimi Incorporated to sell certain products in North and South American
markets, including slurry and slurry components. The Company distributes thin
film memory disk polishing slurry and related products supplied by Fujimi
Incorporated, while the Fujimi Joint Venture distributes other products
supplied by Fujimi Incorporated. To date, no material sales of products have
been made to South American markets by the Fujimi Joint Venture. See "Joint
Venture Arrangements--Fujimi Joint Venture."

The slurry for thin film memory disk media polishing applications is
available in different varieties to address the varying needs of each specific
process. Some formulations allow higher stock removal rates and others
emphasize surface finish results. There are also a variety of slurry
formulations available for silicon wafer processing. Slurry is an essential
process component in chemical mechanical polishing. The chemical action of
this process is implemented by designing the slurry to be chemically active
with the surface to be polished, typically by adjusting the pH of the slurry
vehicle. The mechanical portion of the process is accomplished by abrasive
particles in the slurry.

-35-
<PAGE>

The table below sets forth certain slurry distributed by the Company, along
with typical market application:

SLURRY PRODUCTS

<TABLE>
<CAPTION>
TYPICAL TYPICAL MEAN
SLURRY SURFACE REMOVAL PARTICLE PARTICLE
PRODUCT APPLICATION FINISH(1) RATE(2) SIZE COMPOSITION
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MEMORY DISK SLURRY
- ------------------------------------------------------------------------------
MDS 401 Rough Polish 24A 2.10mm/min 1.3mm A12O3
- ------------------------------------------------------------------------------
Disklite 1312 Fine Polish 17A 0.98mm/min 0.8mm A12O3
- ------------------------------------------------------------------------------
Disklite 2008 Fine Polish 10A 0.56mm/min 0.8mm A12O3
- ------------------------------------------------------------------------------
RDD 5405 Very Fine Polish 6A 0.34mm/min .65mm A12O3
- ------------------------------------------------------------------------------
Compol 80 Very Fine Polish 5A 0.05mm/min .08mm SiO2
- ------------------------------------------------------------------------------
SILICON WAFER SLURRY
- ------------------------------------------------------------------------------
PWA 15 Lapping 4000A 17.5mm/min 10mm A12O3
- ------------------------------------------------------------------------------
FO-1200 Lapping 1800A 5.0mm/min .75mm A12O3,
ZrO/2/
- ------------------------------------------------------------------------------
Compol 50AD First Polish 5.5A 0.8mm/min .04mm SiO2
- ------------------------------------------------------------------------------
GLANZOX Second Polish 4.9A 0.5-1.0mm/min .02mm SiO2
SP-15
- ------------------------------------------------------------------------------
GLANZOX Final Polish 3.3A minimal .04mm SiO2
3900
</TABLE>
- --------
(1) Characterized by the roughness average, or "Ra," measured in angstroms.
(2) Removal rate can be influenced by a variety of factors, including pressure
and process temperature.

The Company believes that meeting the evolving slurry requirements of each
customer is vital to providing a total process solution. The Company intends
to continue to maintain an emphasis on slurry distribution and to work closely
with Fujimi Incorporated in developing, designing and formulating customized
slurries that address specific customer needs.

-36-
<PAGE>

CUSTOMERS

The Company sells its products to leading manufacturers of thin film memory
disks, semiconductor wafers, semiconductor devices and general industrial
applications. Certain of the Company's top customers in fiscal 1993, 1994,
1995 and the nine months ended February 29, 1996 in the thin film memory disk
media, semiconductor wafer, general industrial application, semiconductor CMP
and slurries markets are listed below.

<TABLE>
<CAPTION>
SEMICONDUCTOR GENERAL
THIN FILM WAFER INDUSTRIAL
MEMORY DISK MEDIA ---------------- APPLICATIONS
----------------- --------------
<S> <C> <C>
Akashic MEMC Coors Ceramics
HMT Siltec Hayward Quartz
IBM Sumitomo Sitix Motorola
Komag Wacker Siltronic Pilkington
Seagate
StorMedia
</TABLE>

<TABLE>
<CAPTION>
SEMICONDUCTOR CMP* SLURRIES
------------------ --------
<S> <C>
AMD Akashic
Digital Equipment HMT
Hewlett-Packard IBM
Mosel Vitelic Komag
Motorola Seagate
Rockwell
Siemens
</TABLE>
- --------
* Through February 29, 1996, the Company had shipped an aggregate of 17 CMP-V
systems to the seven customers listed.

One customer, Komag, accounted for 15.2%, 20.8%, 20.6% and 21.1% of the
Company's total revenue in fiscal years 1993, 1994, 1995 and the nine months
ended February 29, 1996, respectively. In addition, during fiscal 1994 and
1995, Akashic accounted for 10.1% and 10.9% of the Company's total revenue,
respectively, and, in fiscal 1994, Seagate accounted for 11.3% of the
Company's total revenue. The Company's ten largest customers accounted for
53.9%, 69.3%, 66.9% and 68.6% of the Company's total revenue in fiscal years
1993, 1994, 1995 and the nine months ended February 29, 1996, respectively.

SALES AND MARKETING

The Company markets and sells its products in North America through a
combination of direct sales personnel and distributors. The Company sells
directly to the thin film memory disk media and semiconductor industries and
uses a network of 19 regional distributors for its general industrial product
lines. In its European operations, the Company uses direct sales personnel and
a small number of distributors.

The Company's sales strategy emphasizes direct interaction with customers,
particularly in the memory disk and semiconductor industries, where ongoing
customer support and service are critical. The Company's direct sales force is
divided into focused units for each of the thin film memory disk media,
semiconductor wafer and semiconductor device industries.

At May 31, 1996, the U.S. direct sales organization had a total of 28 sales
personnel. The Company has sales offices in Chandler, Arizona and Elk Grove
Village, Illinois. The Company also had an aggregate of seven direct sales
personnel in the SpeedFam U.K. and SpeedFam Germany offices. To enhance its
sales capabilities, the Company maintains process development and
demonstration laboratories in its locations in the U.S. and Europe. Sales and
marketing activities in the Far East are conducted by the Far East Joint
Venture. See "Joint Venture Arrangements--Far East Joint Venture."

The Company's marketing strategy includes involvement with SEMATECH, Inc., a
consortium of major semiconductor manufacturers and equipment suppliers,
attendance at Semicon, Diskcon, IMTS and other trade shows and the sponsorship
of technical conferences, which include the presentation of technical papers
written

-37-
<PAGE>

by customers, university scientists and the Company's own senior
technologists. The Company believes these initiatives serve to promote
acceptance of the Company's products and process technologies in the thin film
memory disk, semiconductor and other industries.

CUSTOMER SERVICE AND SUPPORT

The Company believes that providing highly responsive service is an
essential factor in providing a total solution to its customers. In order to
provide customers with experienced service and support personnel, the Company
has structured its service operations into distinct service units responsible
for each of the thin film memory disk media, semiconductor wafer,
semiconductor device and general industrial products industries. Elements of
the Company's customer service and support program include system installation
and process certification, process support, machine repair, providing spare
parts inventories, internal training programs, external customer training,
documentation and formation of customer user groups. At May 31, 1996, the
Company had 83 service employees in the U.S. and Europe. For large users of
the Company's systems, the Company often creates a customized service
arrangement designed to meet the specific requirements of the customer.

The Company generally provides a one year warranty on all equipment it
sells. Field service personnel provide warranty service, post-warranty
service, and equipment installations. Field service engineers are located in
various locations throughout the U.S., including dedicated site-specific
engineers in place at certain customer locations pursuant to contractual
arrangements. The Company also provides service and maintenance training as
well as process application training for its customers' personnel. The Company
maintains an extensive inventory of spare parts at its primary locations and
at its satellite service sites. This provides the Company the ability to
provide same day or overnight delivery for many parts.

BACKLOG

Backlog of orders for capital equipment, parts, expendables and slurries
increased to approximately $67.8 million at February 29, 1996, from
approximately $38.2 million at February 28, 1995, as a result of an increase
in overall demand for the Company's products. Approximately $56.9 million, or
83.9% of the total backlog at February 29, 1996, is comprised of orders for
capital equipment. The Company's backlog does not include orders for capital
equipment or other products manufactured by the Far East Joint Venture and
distributed by the Company in the U.S. and Europe for which the Company
receives commissions. The time between the placing of orders and shipment of
parts, expendables and slurries is significantly less than for capital
equipment and as a result, the Company's backlog consists primarily of orders
for capital equipment. The Company includes in its backlog only those customer
orders for which it has accepted signed purchase orders with assigned delivery
dates within 12 months. Orders generally carry a stipulation that customers
may incur a penalty in the event of cancellation. However, there can be no
assurance that orders will not be cancelled by customers or that the Company
will obtain a meaningful penalty payment. As a result of systems and equipment
ordered and shipped in the same quarter, possible changes in delivery
schedules, occasional cancellation of orders and delays in product shipments,
the Company's backlog at any particular date may not be indicative of actual
sales for any succeeding period.

RESEARCH, DEVELOPMENT AND ENGINEERING

The markets in which the Company competes are characterized by evolving
industry standards and frequent improvements in products and service. To
compete effectively in its markets, the Company must continually improve its
products and its process technologies and develop new technologies and
products that compete effectively on the basis of price and performance and
that adequately address current and future customer requirements. The
Company's research, development and engineering expenditures during fiscal
1993, 1994, 1995 and the nine months ended February 29, 1996, were
approximately $1.8 million, $2.3 million, $2.7 million and $7.0 million,
respectively.

At May 31, 1996, the Company had an engineering staff of 41 employees and a
research and development staff of 36 employees. Because of the complex and
highly specialized design, testing and manufacturing requirements of the
Company, these employees must be experienced in a wide range of engineering
disciplines. The Company's philosophy is to maintain strong technical
expertise in each of its core competencies and to utilize consulting engineers
for non-critical portions of product development projects. The Company
believes that this approach provides flexibility and allows the Company to
shorten time to market for new products.

-38-
<PAGE>

Product Development

Typically, the Company cultivates a "user-group" of current and potential
customers to act as technical advisors during the conceptualization of a new
product. The Company's CMP-V system was developed in a similar manner and its
development was assisted through technical collaboration with and sponsorship
by SEMATECH, Inc. and several SEMATECH, Inc. member companies that are leaders
in the use of CMP technology. From time to time, the Company also engages in
formal, funded joint development projects with customers from the
semiconductor and thin film memory disk industries as a means to enhance its
product development efforts. The Company is currently involved in several
development efforts aimed at enhancing the CMP-V system. The Company intends
to periodically develop and introduce enhanced versions of the CMP-V system.
The Company currently expects to introduce an enhanced version of the CMP-V in
the second half of fiscal 1997. The Company is also currently developing a
post-CMP cleaning system, which is presently expected to be introduced during
fiscal 1997. The Company is also developing new products and new product
enhancements for the semiconductor, thin film memory disk and silicon wafer
markets.

Process Development

In addition to product development, the Company continually seeks to enhance
existing processes. The Company maintains process development laboratories in
both the U.S. and Europe that are staffed with process engineers. The
Company's process engineers frequently work directly with customers'
engineers, often working within the customers' facilities. The Company is
developing new processing capability in the CMP area for additional film
layers such as polysilicon, as well as developing end-point detection
metrology for the purpose of measuring the film thickness of oxide layers. In
addition, the Company continues to pursue the development of enhanced
processes for the thin film memory disk media, silicon wafer and industrial
component markets.

MANUFACTURING AND SUPPLIERS

The Company assembles its equipment and systems from components and
fabricated parts manufactured and supplied by others, including stainless
steel plates and gears, frames and weldments, power supplies, process
controllers, robots and polishing heads. Certain of the items manufactured by
others are made to the Company's specifications. All final assembly and system
tests are performed within the Company's manufacturing/assembly facilities.
Quality control is maintained through incoming inspection of components, in-
process inspection during equipment assembly and final inspection and
operation of all manufactured equipment prior to shipment. Substantially all
of the Company's non-CMP manufacturing is located in its Des Plaines, Illinois
facility. The Company's CMP-V development and manufacturing are located at the
Company's headquarters in Chandler, Arizona.

Certain of the components and sub-assemblies included in the Company's
products are obtained from a single supplier or limited group of suppliers.
The disruption or termination of these sources could have a material adverse
effect on the Company's operations. The Company is dependent upon Fujimi
Incorporated, a Japanese company, as the sole supplier of substantially all of
the slurries sold by the Company, consisting primarily of thin film memory
disk polishing slurry. Approximately 42.4%, 47.1%, 43.4% and 23.6% of the
Company's total revenue in fiscal 1993, 1994, 1995 and the nine months ended
February 29, 1996, respectively, was derived from the sale of slurries,
supplied by Fujimi Incorporated. Accordingly, any disruption in the supply
provided by Fujimi Incorporated or in the overall relationship between the
Company and Fujimi Incorporated would have a material adverse effect upon the
Company. The Company has the exclusive right to distribute Fujimi Incorporated
thin film memory disk polishing slurry in North America until October 1, 1999.
See "Joint Venture Arrangements--Fujimi Joint Venture."

COMPETITION

The Company competes in several distinct markets. These markets include the
thin film memory disk media equipment market, the semiconductor wafer
equipment market, the CMP equipment market, the general industrial
applications market, the slurries market and the related parts and expendables
market. In all markets, the Company competes on the basis of technology,
overall cost of ownership, product quality, price, availability, size of
installed base, breadth of product line and customer service and support.

-39-
<PAGE>

The Company faces substantial competition from both established competitors
and from potential new entrants, some of which have substantially greater
financial, engineering, manufacturing and marketing resources than the
Company. In each of the thin film memory disk and semiconductor wafer markets,
there are currently three principal providers of equipment, including the
Company, each of which holds a substantial position within the market. In the
CMP market, the Company faces significant competition from current competitors
and expects other competitors to enter this market in the future. IPEC
currently has the largest installed base of CMP equipment. The Company
believes that other companies are developing CMP machines and are planning to
introduce new products to the CMP market, including Applied Materials, a large
semiconductor capital equipment supplier with significant resources that could
present substantial competition for the Company. Certain competitors,
including IPEC and Applied Materials, have announced and may in the near
future begin volume shipments of multi-head CMP systems. In addition, certain
of the Company's competitors have longer-standing relationships than the
Company with particular customers, including device manufacturers. These
longer-standing relationships may make it more difficult for the Company to
sell its CMP system to such device manufacturers.

Competition in the general industrial products markets is fragmented; no one
competitor currently holds a dominant position. The slurries market presents
significant competitive pressure for the Company, particularly with regard to
pricing, resulting in decreased margins for the Company in recent periods. In
the thin film memory disk slurry market, the Company competes primarily with
Praxair, a large chemical company that manufactures and sells its own
products. In addition, the loss of the Company's distribution rights to slurry
and other products supplied by Fujimi Incorporated would have a material
adverse effect on the Company.

INTELLECTUAL PROPERTY

There can be no assurance that the Company's pending patent applications
will be allowed or that the issued or pending patents will not be challenged
or circumvented by competitors. There can be no assurance that any of these
rights held by the Company will not be challenged, invalidated or
circumvented, or that such rights will provide competitive advantages to the
Company.

There are no pending lawsuits against the Company regarding infringement of
any existing patents or other intellectual property rights or any unresolved
claims by third parties that the Company is infringing intellectual property
rights of such third parties. There can be no assurance that infringement
claims will not be asserted by third parties in the future. There also can be
no assurance in the event of such claims of infringement that the Company will
be able to obtain licenses on reasonable terms, if at all. The Company's
involvement in any patent dispute or other intellectual property dispute or
action could have a material adverse effect on the Company's business. Adverse
determinations in any litigation relating to intellectual property could
possibly subject the Company to significant liabilities to third parties,
require the Company to seek licenses from third parties and prevent the
Company from manufacturing and selling one or more of its products. Any of
these events could have a material adverse effect on the Company.

SpeedFam, FAM, Spitfire, Rogers & Clarke and the SpeedFam logo are
registered trademarks of the Company.

PROPERTY

The Company currently owns or leases buildings containing a total of
approximately 130,000 square feet of space in the U.S. and Europe, including
approximately 79,000 square feet of factory/assembly area and approximately
51,000 square feet of corporate office space. The Company's U.S. operations
(the SpeedFam International, Inc. headquarters and the SpeedFam U.S.
subsidiary) account for approximately 119,000 square

-40-
<PAGE>

feet of the total, of which approximately 42,000 square feet is owned and the
balance of approximately 77,000 square feet is leased. The Company maintains
locations in the United States in Chandler, Arizona, Des Plaines, Illinois,
Elk Grove Village, Illinois, Austin, Texas, Portland, Oregon and Fremont,
California. SpeedFam U.K. is located in Hinckley, England and it maintains
approximately 9,000 square feet of owned space. SpeedFam Germany leases
approximately 2,000 square feet of office space in Inglefingin, Germany.

The Company recently began construction of a corporate headquarters and
manufacturing facility, consisting of approximately 135,000 square feet, on
13.5 acres of land purchased by the Company. Full occupancy of the building is
anticipated in the fourth quarter of fiscal 1997. The Company believes that
its facilities, after the completion of the new facility, will be adequate to
meet its requirements for the foreseeable future and that suitable additional
or substitute space will be available as needed.

LEGAL PROCEEDINGS

The Company is not presently involved in any material legal proceedings.

The Company's wholly owned subsidiary, FamTec AG, incorporated under the
laws of Switzerland, engaged in the manufacture, sale and service of through-
feed grinding systems for the general industrial market. As a result of
declining sales, the Company decided to terminate Swiss operations and to seek
protection under the bankruptcy laws of Switzerland. A voluntary petition for
bankruptcy was filed with Swiss authorities in November, 1993. Subsequently,
creditors' claims were adjudicated and all Swiss assets liquidated. On July
27, 1995, the Bankruptcy Administrator paid out the liquidation proceeds to
creditors, and the bankruptcy matter was closed. Under the laws of
Switzerland, members of the Board of Directors of an entity have potential
personal liability for the debts of the bankrupt entity. Mr. Farley, Chairman
and Chief Executive Officer of the Company, was a director of FamTec AG.
Because no creditor filed within the ten-day period to reserve rights against
the directors of FamTec AG, no personal liability is expected to result.

EMPLOYEES

At May 31, 1996, the Company had 382 full time employees in the U.S. and
Europe, including 122 in manufacturing, 48 in marketing and sales, 83 in field
service, 41 in engineering, 36 in research and development and 52 in general
administration. In addition, the Company had 40 temporary contract employees
engaged principally in its assembly operations at its Chandler, Arizona and
Des Plaines, Illinois facilities. The Company believes that the use of
temporary employees allows the Company to respond more rapidly to fluctuations
in assembly and product demand and enables the Company to better control the
labor component of its manufacturing costs. None of the Company's employees is
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.

JOINT VENTURE ARRANGEMENTS

FAR EAST JOINT VENTURE

SpeedFam Co., Ltd. (together with its subsidiaries and joint ventures, the
"Far East Joint Venture"), is headquartered in Kanagawa Prefecture, Japan.
Generally, the Far East Joint Venture designs, produces and markets in the Far
East equipment similar to that produced by the Company in the U.S. The Far
East Joint Venture conducts operations primarily in Japan but has subsidiaries
and branches located in China, Hong Kong, India, Korea, Singapore, Taiwan and
Thailand, and owns a majority interest in a Japanese subcontract manufacturing
organization, Saku Seiki Co. Ltd. ("Saku Seiki"). The Far East Joint Venture
operations in China, Hong Kong, Singapore, Korea and Thailand are primarily
marketing, sales and service functions. The subsidiaries in India and Taiwan
also include manufacturing facilities where certain of the equipment sold by
the subsidiaries is produced. Through a joint venture with Met-Coil Systems
Corporation (a U.S. company), the Far East Joint Venture manufactures and
markets in the Far East sheet metal forming equipment developed by Met-Coil
Systems Corporation.

Background. During the late 1960's, the Company marketed its products in
Japan through Japanese trading companies. At that time, the Company believed
that a presence in the Japanese market would enhance its competitive position
in the U.S. as well as provide additional sources of income and access to
technology. For numerous business and cultural reasons, the Company believed
it could most effectively penetrate the Japanese

-41-
<PAGE>

market with the aid of a Japanese partner. In 1970 the Company entered into a
joint venture with a Japanese company, Obara Corporation ("Obara"), pursuant
to which the Far East Joint Venture was formed. The Company and Obara each own
a 50% interest in the Far East Joint Venture. Obara, a privately-owned
company, principally supplies welding guns and related products to the
automotive industry; its business is unrelated to that of the Company and the
Far East Joint Venture.

Terms of the Joint Venture Agreement. Pursuant to the terms of an agreement
between the Company and Obara dated November 14, 1970 (the "Joint Venture
Agreement"), the Far East Joint Venture will continue as long as SpeedFam Co.,
Ltd. is in corporate existence and both the Company and Obara are
shareholders. Both parties to the Joint Venture Agreement have agreed to
refrain from competing with the joint venture in Japan. The agreement may,
however, be terminated upon 90-days notification by either party in the event
of a substantial breach by the other party if such breach is not cured within
the 90-day period. In the event that either the Company or Obara desires to
sell its interest in the Far East Joint Venture, it must first offer its
interest to the other party, which then has 60 days to purchase the interest
at a price to be mutually agreed upon. If the interest is not purchased within
the 60-day period, the party desiring to sell its interest may sell it to a
third party free of the right of first offer provisions, provided that the
price is not less than the price initially offered by the other party.

Pursuant to the terms of a License and Technical Assistance Agreement
between the Company and SpeedFam Co., Ltd. dated November 14, 1970 (the
"Technology Agreement"), the Company licensed to the Far East Joint Venture
certain trademarks and technology, and granted to the Far East Joint Venture
the exclusive right to manufacture and sell in Japan, Korea, Taiwan, Hong
Kong, China, India, the Philippines, Thailand, Vietnam, Malaysia, Singapore
and Indonesia, and such other countries as the parties may agree to from time
to time, products similar to those manufactured and distributed by the
Company. In exchange for such rights, the Far East Joint Venture agreed to pay
to the Company a royalty of 4% of the total net sales of products sold by the
Far East Joint Venture that incorporate the technology. The Company also
agreed to provide technical assistance and to communicate to the Far East
Joint Venture all developments and improvements related to the technology. In
addition, the Far East Joint Venture agreed to communicate to the Company all
developments and improvements known to the Far East Joint Venture relating to
the technology, and the Company agreed to pay to the Far East Joint Venture a
2% royalty fee on machines sold by the Company that utilize certain of that
technology. The Technology Agreement continued for an initial term of ten
years and was renewable for subsequent ten year periods. By oral agreement in
1980, the Technology Agreement was extended and amended to reduce the
percentage of royalties to be paid by the Far East Joint Venture.
Notwithstanding the requirements of the Technology Agreement, although the Far
East Joint Venture had transferred technology to the Company, the Company and
the Far East Joint Venture agreed that no royalties would be paid by the
Company. By oral agreement in 1990, the Technology Agreement was extended for
a new ten-year period. By oral agreement in 1991, the Technology Agreement was
amended to eliminate the payment of royalties by either party. On July 24,
1995, the foregoing oral agreements were confirmed in writing. Unless
extended, the Technology Agreement will expire in November 2000.

Since the inception of the Far East Joint Venture, the Company and the Far
East Joint Venture have worked cooperatively on various research and
development projects and each entity has communicated significant technology
to the other. It is not anticipated that either the Company or the Far East
Joint Venture will pay royalties to the other in connection with the transfer
of technology in the foreseeable future, including with respect to the
Company's CMP technology.

Management. SpeedFam Co., Ltd. currently has eight directors serving on its
Board of Directors, including Messrs. Farley and Kouzuma, the Chairman and
President of the Company, respectively, as well as Hiroshi Obara, Suminori
Suzuki, Ryosuke Tojo, Shinya Iida, Hatsuyuki Arai and Isao Nagahashi. Mr.
Kouzuma is the Executive Vice President and General Manager of SpeedFam Co.,
Ltd. and is responsible for day to day operations and acts as the primary
liaison between the Company and Obara. Mr. Obara is the President of the Far
East Joint Venture. Mr. Suzuki, an employee of Obara, is the senior finance
officer of the Far East Joint Venture. Mr. Tojo is director of sales for the
silicon wafer market and also assists in the overall management of operations.
Mr. Iida is the chief technical officer and is responsible for all research,
development and engineering

-42-
<PAGE>

operations. Messrs. Arai and Nagahashi are the directors of CMP and thin film
memory disk technology, respectively, and report to Mr. Iida. The Joint
Venture Agreement provides limited direction with respect to the relationship
between the joint venture partners and the operation and management of the Far
East Joint Venture. To date, decisions with respect to the strategic direction
of the Far East Joint Venture have been made by the Company and Obara from
time to time on the basis of informal discussions and the relationships forged
over time by the individuals. Business transactions between the Company and
the Far East Joint Venture, including those relating to the absence of payment
of royalties on transfers of certain technology, may not be consistent with
business decisions and results that would exist between two independent
entities dealing at arms-length.

Financial Information. During the Company's 1993, 1994 and 1995 fiscal years
and the nine months ended February 29, 1996, the Company's share of the net
earnings (loss) of the Far East Joint Venture was ($285,000), $450,000, $1.1
million and $3.4 million, respectively, representing (58.2%), 19.1%, 66.9% and
50.8%, respectively, of the Company's net earnings (loss). The Far East Joint
Venture has not paid significant dividends in the past and is expected to
retain substantially all of its earnings in the foreseeable future to support
the growth of its business. As a result, the Company's share of the net
earnings (loss) of the Far East Joint Venture has not in the past resulted and
is not expected in the future to result in a like effect on the cash flows of
the Company. During fiscal 1993, 1994, 1995 and the nine months ended February
29, 1996, 1.6%, 4.0%, 4.5% and 5.3% respectively, of the Company's total
revenue was attributable to commissions earned on products produced by the Far
East Joint Venture and which were sold by the Company. At February 29, 1996,
the Company's equity interest in the Far East Joint Venture was $16.7 million,
representing 17.1% of the Company's total assets and 30.7% of shareholders'
equity. Set forth below is certain selected financial information with respect
to the Far East Joint Venture which has been derived from consolidated
financial statements which have been audited by KPMG Peat Marwick LLP, with
the exception of the selected financial information as of and for the nine
months ended January 31, 1996, which is unaudited. Such information should be
read in conjunction with the consolidated financial statements and notes
thereto of the Far East Joint Venture appearing elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED APRIL 30, ENDED JANUARY 31,
------------------------- -----------------
1993 1994 1995 1996
------- ------- -------- -----------------
(in thousands)
Consolidated Statement of Earnings
Data:
<S> <C> <C> <C> <C>
Net sales......................... $75,747 $87,217 $108,664 $115,325
Gross profit...................... 21,509 23,812 31,576 37,861
Operating profit.................. 1,203 2,908 6,467 14,526
Net earnings (loss)(1)............ (460) 1,084 2,169 6,795
Consolidated Balance Sheet Data
(at period end):
Working capital................... $16,428 $18,377 $ 23,779 $ 22,617
Total assets...................... 76,335 86,869 110,813 113,330
Long-term debt, less current
portion........................... 10,800 12,387 12,528 8,305
Stockholders' equity.............. 23,746 26,641 34,215 33,408
</TABLE>
- --------
(1) Approximately one-half of such amount is recognized by the Company on the
equity method as "equity in net earnings (loss) of affiliates."

Products and Customers. Generally, the Far East Joint Venture designs,
produces and markets in the Far East equipment similar to that produced by the
Company in the U.S. The Far East Joint Venture's product mix is significantly
different than the Company's primarily because, as a percentage of sales, the
Far East Joint Venture sells substantially less slurry and slurry components
than the Company (Fujimi Incorporated sells slurries directly in the Far East)
and because of differences in the composition of the U.S. and Far East
markets. The Far East Joint Venture also designs, produces and markets edge
and flat polishing machines for the semiconductor wafer market and pre-
deposition cleaning machines for the thin film memory disk market and, more
recently, the flat panel display market. The Company distributes these
machines in the U.S. and Europe. The Far East Joint Venture also markets parts
and expendables and, to a much lesser degree than the Company, slurries
(primarily to thin film memory disk and silicon wafer manufacturers).

-43-
<PAGE>

The Far East Joint Venture has developed and is currently manufacturing and
marketing a two head CMP system. The rate of adoption of the CMP process in
the fabrication of memory devices, which are predominately the type of
semiconductor devices manufactured in the Far East, has been historically
lower than that for advanced logic devices, which are widely manufactured in
the U.S. Accordingly, the marketing of the CMP system manufactured by the Far
East Joint Venture is substantially dependent on the rate of adoption of the
CMP process by the memory device manufacturing industry in the Far East
market.

The Far East Joint Venture's products are sold to semiconductor wafer
(primarily silicon), thin film memory disk and general industrial (primarily
quartz, ceramic and LCD glass) manufacturers. Major end user customers of the
Far East Joint Venture include: NSC Electron Corporation (silicon wafer
manufacturer), Nippon Light Metal Co. Ltd. (aluminum thin film memory disk
substrate manufacturer), Siltron Inc. (silicon wafer manufacturer), Toshiba
Ceramics Co., Ltd. (silicon wafer manufacturer) and Kobe Precision Technology
(thin film memory disk manufacturer). During the Far East Joint Venture's
fiscal years 1993, 1994, 1995 and nine months ended January 31, 1996, sales to
certain customers through Fujimi Incorporated, acting as a distributor,
accounted for approximately 15%, 7%, 11% and 12% of net sales, respectively.

Competition. The Far East Joint Venture competes in several distinct markets
including the semiconductor substrate equipment market, the thin film memory
disk equipment market and the general industrial equipment applications market
(primarily quartz, ceramic and LCD glass) and the slurries market. The Far
East Joint Venture competes on the basis of technology, overall cost of
ownership, product quality, price, availability, size of installed base,
breadth of product line and customer service and support. The Far East Joint
Venture faces intense competition from established competitors, some of which
have substantially greater financial, engineering, manufacturing and marketing
resources. In the equipment markets served, the Far East Joint Venture
generally competes with a relatively small number of competitors which,
together with the Far East Joint Venture, provide a substantial majority of
the products sold into those markets. In the slurries market, Fujimi
Incorporated is the provider of substantially all of the slurries sold by the
Far East Joint Venture. Fujimi Incorporated also sells directly to end users
and is a dominant supplier and distributor of slurries in the Far East region.

Sales, Marketing and Service. The Far East Joint Venture markets and sells
its products through a combination of Japanese trading companies and direct
sales personnel. As is customary in Japan, the Far East Joint Venture sells a
substantial portion of the products sold in Japan through trading companies,
although the Far East Joint Venture sales personnel have primary
responsibility for most aspects of the sale. The Far East Joint Venture
maintains a field service organization consisting of 42 persons based in the
major locations where the Far East Joint Venture maintains a presence, such as
Japan, India Korea, Singapore Taiwan and Thailand.

Research, Development and Manufacturing. The Far East Joint Venture
maintains a research and development staff of 56 persons. Research and
development efforts are focused on enhancing existing products as well as
developing new products and generally cover a broader range of products and
technologies than the Company's research and development efforts. The Company
and the Far East Joint Venture have in the past collaborated on various
projects and are expected to do so in the future.

The Far East Joint Venture or manufacturing subcontractors retained by the
Far East Joint Venture typically manufacture equipment and systems from
components and fabricated parts manufactured and supplied by others. Certain
of the items manufactured by others are made to the Company's specifications.
A portion of the products sold by the Far East Joint Venture are manufactured
by the Far East Joint Venture's majority owned subsidiary, Saku Seiki, and a
substantial portion are manufactured by unaffiliated third party
subcontractors for the Far East Joint Venture.

Employees. At May 1, 1996, the Far East Joint Venture had 394 full-time
employees, including 318 in Japan, 4 in Thailand, 12 in Korea, 32 in Taiwan,
17 in India, 8 in Singapore, 1 in Shanghai and 2 in Hong Kong. Of these
employees, 70 are engaged in manufacturing, 66 in marketing and sales, 42 in
field service, 53 in engineering, 56 in research and development, 47 in
management and 60 in clerical and general administration.

Certain Relationships. The Company acts as distributor in North America and
Europe of certain machines produced by the Far East Joint Venture. During
fiscal 1995 and the nine months ended February 29, 1996, commissions paid to
the Company relating to such distribution amounted to approximately $2.8
million and $4.0

-44-
<PAGE>

million, respectively. Further, the Company purchases certain components used
in its machines from the Far East Joint Venture. During fiscal 1995 and the
nine months ended February 29, 1996, purchases of components from the Far East
Joint Venture totaled approximately $3.0 million and $2.4 million,
respectively.

Messrs. Farley and Kouzuma receive certain amounts from the Far East Joint
Venture consisting of directors' fees and bonuses, as well as dividends on
their individual holdings of stock in certain of SpeedFam Co., Ltd.'s
subsidiaries. During the Far East Joint Venture's fiscal year ended April 30,
1995, Messrs. Farley and Kouzuma received an aggregate of approximately
(Yen)15.3 million ($156,600) and (Yen)32.9 million, ($336,800), respectively
(based upon the yen/dollar exchange rate on dates of payment). During the Far
East Joint Venture's fiscal year ended April 30, 1996, Mr. Kouzuma received an
aggregate of approximately (Yen)39,240,000 million ($399,587) (based upon the
yen/dollar exchange rate on dates of payment). Pursuant to Mr. Farley's
employment agreement with the Company, all amounts payable to Mr. Farley from
the Far East Joint Venture since the date of his employment agreement and
through April 30, 1996, totaling approximately $85,000, were directed to the
Company. Prior to entering into his employment agreement with the Company and
for the fiscal year ended April 30, 1996, Mr. Farley received an aggregate of
approximately $44,000 from the Far East Joint Venture (based upon the
yen/dollar exchange rate on dates of payment).

Both Messrs. Farley and Kouzuma serve as directors of SpeedFam Co., Ltd. In
addition, both serve as directors of SpeedFam Clean Systems Co. Ltd., a
majority owned subsidiary of SpeedFam Co., Ltd. Mr. Kouzuma also serves as
President of SpeedFam Clean Systems Co. Ltd. In addition, each of Messrs.
Farley and Kouzuma own 5% of the outstanding capital stock of SpeedFam Clean
Systems Co., Ltd. Messrs. Farley and Kouzuma also serve as directors of Met-
Coil Limited, SpeedFam Co. Ltd.'s 50%-owned joint venture. Mr. Kouzuma owns
10.62% of the outstanding capital stock of Saku Seiki, a majority owned
subsidiary of SpeedFam Co., Ltd., and serves as a director of Saku Seiki.
Messrs. Farley and Kouzuma also serve as directors of several wholly owned
subsidiaries of SpeedFam Co. Ltd., namely SpeedFam Korea Limited, SpeedFam
Incorporated in Taiwan and SpeedFam India (Pvt.) Ltd.

FUJIMI JOINT VENTURE

Pursuant to a joint venture agreement dated September 7, 1984, the Company
and Fujimi Incorporated formed Fuijimi Corporation, an Illinois corporation
(the "Fujimi Joint Venture"). Each of Fuijimi Incorporated and the Company
owns 50% of the Fujimi Joint Venture's common stock. Fujimi Incorporated, a
publicly traded company in Japan, is a manufacturer of slurry, abrasives and
compounds in Japan. The initial term of the joint venture agreement was for a
period of five years, but the agreement continues in effect until such time as
either party terminates upon written notice delivered to the other party upon
one-year notice. The agreement may also be terminated upon 60-days
notification by either party in the event of a breach by the other party if
such breach is not cured within 60 days.

The Fujimi Joint Venture was organized to sell Fujimi Incorporated products
in North and South America. The Fujimi Joint Venture distributes abrasives,
polishing pads, diamond wheels and other products to the semiconductor wafer
and general industrial markets. Notwithstanding the written terms of the joint
venture agreement, the Company, through SpeedFam U.S., has distributed a
variety of products, primarily slurry, to manufacturers of thin film memory
disks. The Company has the exclusive right to distribute Fujimi Incorporated
memory disk polishing slurry in North America until October 1, 1999. Revenue
from sales of products by the Fujimi Joint Venture were $10.2 million in
fiscal 1993, $12.3 million in fiscal 1994, $15.8 million in fiscal 1995 and
$13.8 million in the nine months ended February 29, 1996. For a description of
other business relationships between the Company and Fujimi Incorporated, see
"Business--Manufacturing and Suppliers." The Fujimi Joint Venture imports the
products it sells and purchases such products in non-U.S. dollar denominated
transactions. This business is subject to both foreign exchange rate
fluctuations and has recently experienced increased competition which drives
down selling prices, the result of which is lower gross margins for the Fujimi
Joint Venture.

The Fujimi Joint Venture currently has six directors serving on its Board of
Directors, including Mr. Farley, Chairman of the Company, Mr. Kouzuma,
President of the Company, and Mr. Augur, President of SpeedFam U.S. The other
three directors, Messrs. Isamu Koshiyama, Shoji Azuma and Sadao Nakamura are
representatives of Fujimi Incorporated. Day to day management of the Fujimi
Joint Venture is under the control of its president, Mr. Donald R. Hixson. The
Fujimi Joint Venture employs four full-time sales personnel.

-45-
<PAGE>

MANAGEMENT

The executive officers, key employees and directors of SpeedFam
International, Inc. and their ages as of June 1, 1996 are as follows:

<TABLE>
<CAPTION>
EXECUTIVE OFFICERS,
KEY EMPLOYEES
AND DIRECTORS AGE POSITION WITH THE COMPANY
- ------------------- --- -------------------------
<S> <C> <C>
James N. Farley (1) 67 Chairman, Chief Executive Officer and Director
Makoto Kouzuma (1) 56 President, Chief Operating Officer and Director
Roger K. Marach (1) 50 Treasurer, Chief Financial Officer and Assistant Secretary
Christopher E. Augur (1) 36 President of SpeedFam Corporation
Robert R. Smith (1) 53 Managing Director of SpeedFam Limited

Mukesh Desai 42 Vice President of SpeedFam Corporation--Director of Technology
of Semiconductor Group
Mark A. Hredzak 38 Vice President of SpeedFam Corporation--General Manager of
Electronics Equipment Group
Ellis E. Ponton 34 Vice President of SpeedFam Corporation--General Manager of
Semiconductor Group
Philbin L. Scott 37 General Manager of Consumable Products Group
for SpeedFam Corporation
Byron L. Sheets 41 Vice President of SpeedFam Corporation--General Manager of
Industrial Applications Group
Neil R. Bonke 54 Director-elect
Thomas J. McCook (2) (3) 72 Director
Dr. Stuart Meyer (2) (3) 59 Director
Robert M. Miller (2) 69 Director
Carl S. Pedersen (3) 82 Director
</TABLE>
- --------
(1) Messrs. Farley, Kouzuma, Marach, Augur and Smith are executive officers of
SpeedFam International, Inc.
(2) Member of Compensation Committee
(3) Member of Audit Committee

Mr. Farley has been a director of SpeedFam International, Inc. since 1961.
He was appointed Chairman and Chief Executive Officer by the Board of
Directors in 1993. Mr. Farley had been President of SpeedFam International,
Inc. from 1967 to 1993. Prior to that, he was Vice President of Sales and had
served as Business Manager since joining SpeedFam International, Inc. in 1960.
Mr. Farley was instrumental in developing the organization and is presently
responsible for developing and directing the future strategy of SpeedFam
International, Inc. Mr. Farley also serves on the board of two privately-held
companies. He holds a BSEE from Northwestern University.

Mr. Kouzuma has been a director of SpeedFam International, Inc. since 1982.
He was appointed President of SpeedFam International, Inc. in 1993. He was
Executive Vice President of SpeedFam International, Inc. and had the
additional post of President of SpeedFam Corporation from 1990 to 1993. He is
also Executive Vice President and General Manager of the Far East Joint
Venture. He has been responsible for the day to day operations of the Far East
Joint Venture since its founding in 1971. Mr. Kouzuma joined SpeedFam
International, Inc. in 1969 to open a Japanese liaison office. He graduated as
an Electrical Engineer from Chuo University in Tokyo, Japan. Mr. Kouzuma is a
resident of Japan.

-46-
<PAGE>

Mr. Marach joined SpeedFam International, Inc. in 1988 as Chief Financial
Officer and was elected Treasurer in 1989. Prior to joining SpeedFam
International, Inc., Mr. Marach was the Assistant Treasurer of Ingersoll
International, Inc., a capital equipment manufacturer, for eight years and
previously worked for five years in auditing and treasury operations for G.D.
Searle & Co., a major pharmaceutical company. He has a BS in Economics
(Accounting) from the Illinois Institute of Technology, and a Masters in
Management (Finance) from Northwestern University.

Mr. Augur was named President of SpeedFam Corporation in April 1993. He was
the Executive Vice President from June 1992 to March 1993. From 1991 to 1992,
Mr. Augur served as the General Manager of the Electronic Equipment Group of
SpeedFam Corporation. He joined SpeedFam International, Inc. in 1982 and
assisted in establishing its Arizona operations. Prior to joining SpeedFam
International, Inc., Mr. Augur worked for Motorola in the semiconductor
products sector. He has a BS in Computer Systems Engineering from Arizona
State University and a Masters of Business Administration from the University
of Phoenix.

Mr. Smith was appointed Managing Director of SpeedFam Limited in 1974. Mr.
Smith was hired to organize SpeedFam Limited in 1974 and has been responsible
for its day to day operations since that time as well as for SpeedFam
International, Inc.'s other European subsidiary, SpeedFam GmbH. Mr. Smith has
a National Certificate in Mechanical Engineering from Lancaster Polytechnicon
in England.

Mr. Desai was appointed Vice President of SpeedFam Corporation in June 1995.
He joined SpeedFam Corporation as Director of Technology of the Semiconductor
Group in February 1994. He has extensive experience in CMP planarization
technology and worked in the CMP area at IBM from 1984 to 1994. From May, 1993
to February, 1994, Mr. Desai served as an IBM assignee at SEMATECH, Inc. and
acted as Project Leader on CMP research and development. He is currently
responsible for directing the Company's CMP development. He holds a BS in
Chemistry from Bombay University, Bombay, India, and a Masters of Science in
Chemistry from Polytechnic University, Brooklyn, New York.

Mr. Hredzak was appointed Vice President of SpeedFam Corporation in June
1995. Since 1993, he has been General Manager of the Electronics Equipment
Group. The Group previously served both the silicon wafer and the thin film
memory disk industries. As of June 1996, the Electronics Equipment Group
serves the thin film memory disk industry. From 1990 to 1993, Mr. Hredzak was
the sales manager for SpeedFam Corporation Cleaning Equipment Group. Mr.
Hredzak started with SpeedFam Corporation in 1988 in the sales department of
the Electronics Equipment Group. Mr. Hredzak received a BS in Metallurgical
and Materials Engineering from the University of Kentucky.

Mr. Ponton was appointed Vice President of SpeedFam Corporation in June
1995. Since 1993, he has been General Manager of the Semiconductor Group,
which focuses entirely on CMP and the semiconductor device industry. He was
the Assistant General Manager for the Electronics Equipment Group from 1992 to
1993, and its sales manager from 1988 to 1992. Mr. Ponton started with
SpeedFam Corporation in 1986 as a sales engineer and was promoted to sales
manager in 1988. Mr. Ponton has a BS in Geology and Mathematics from Ball
State University.

Mr. Scott was appointed General Manager of the Consumable Products Group of
SpeedFam Corporation in June 1995 and is responsible for slurry and slurry
component sales. He joined SpeedFam Corporation in May 1992 as the products
manager of disk slurry products. From 1988 to 1992, Mr. Scott worked at the
McDonnell Douglas Helicopter Company where he served as a Manufacturing
Research Engineer, Industrial Engineer and Manager of Production Scheduling.
He has a BA in Biology from UNC-Charlotte, a Masters of Environmental Science
from Miami University and a Masters of Science in Engineering from Arizona
State University.

-47-
<PAGE>

Mr. Sheets was appointed Vice President of SpeedFam Corporation in June
1995. Since 1993, he has been General Manager of the Industrial Applications
Group, which services the broad industrial applications market. He was the
sales manager for the Industrial Applications Group from 1990 to 1993. Mr.
Sheets was hired in 1990 when Spitfire Tool and Machine Company ("Spitfire")
was acquired by SpeedFam Corporation from General Signal Corp. Mr. Sheets
worked for Spitfire from 1979 to 1990.

In May 1996, the Board of Directors appointed Mr. Bonke to fill a vacancy on
the Company's Board, effective at the time Mr. Bonke attends his first Board
of Directors meeting. Mr. Bonke has not yet attended a regular Board meeting.
Mr. Bonke has been Chairman of the Board of Electroglas, Inc. since April
1993, and its Chief Executive Officer from April 1993 through April 1996. He
also serves on the Board of Directors of Sanmina Corp. and FSI International
Inc. Electroglas, Inc., Sanmina Corp. and FSI International Inc., each a
public company, are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended. Mr. Bonke was a Group Vice President of
General Signal and President of General Signal's Semiconductor Equipment
Operations from September 1991 to July 1993.

Mr. McCook has been a director of SpeedFam International, Inc. since 1979.
He is currently serving as Vice Chairman of the Economic Development Council
of Cape Coral, Florida and was formerly Vice President of Stewart-Warner, an
automotive parts manufacturer.

Dr. Meyer has been a director of SpeedFam International, Inc. since 1982. He
has been an Associate Professor of Management and Strategy at the Kellogg
Graduate School of Management, Northwestern University since 1977.

Mr. Miller has been a director of SpeedFam International, Inc. since 1990.
He is currently Chairman of Okuma Technology Institute in Charlotte, North
Carolina. The Okuma Technology Institute is dedicated to machine tool and
cutting tool research and development. Since 1985, Mr. Miller has been
President of ITMC Inc., a marketing consulting firm providing service to
capital equipment manufacturers.

Mr. Pedersen has been a director of SpeedFam International, Inc. since 1979.
Since 1988, he has been Chairman Emeritus of Luther & Pedersen, a capital
equipment distributor in Aurora, Illinois. He previously served as Chairman of
Luther & Pedersen.

BOARD OF DIRECTORS

The Board of Directors currently consists of six persons. The Company's non-
employee directors each receive an annual retainer of $2,500, plus a fee of
$500 for each Board meeting and Committee meeting they attend. In addition,
each non-employee director annually receives an option to purchase 2,000
shares of Common Stock pursuant to the 1995 Stock Plan for Employees and
Directors of the Company. All directors are reimbursed for expenses incurred
in connection with attending Board and Committee meetings.

On July 27, 1995 a Compensation Committee was appointed consisting of
Messrs. McCook, Meyer and Miller, and an Audit Committee was appointed
consisting of Messrs. McCook, Meyer and Pedersen. The duties of the
Compensation Committee are to provide a general review of the Company's
compensation and benefit plans to ensure that they meet corporate objectives.
The Compensation Committee (i) determines compensation for all officers of the
Company, (ii) grants awards to officers under the Company's compensation and
benefit plans and (iii) adopts major Company compensation policies and
practices. The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors and reviews the independence
of such auditors, approves the scope of the annual audit activities of the
independent auditors, approves the audit fees payable to the independent
auditors and reviews audit results.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Articles of Incorporation and Bylaws provide for
indemnification by the Company of its directors, officers, employees and
agents to the fullest extent permitted by law for expenses, judgments,
penalties, fines and amounts paid in settlement in connection with any
pending, threatened or completed action, suit or proceeding (other than by the
Company), to which any such person was made a party by reason of the fact that

-48-
<PAGE>

he or she was acting in such capacity for the Company or was serving as such
for another corporation or enterprise at the Company's request, if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to a criminal
proceeding, had no reasonable cause to believe such conduct was unlawful. In
actions by the Company, such indemnification will be limited to expenses.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company. The Company is not aware
of any threatened litigation or proceeding which may result in a claim for
indemnification.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table shows the compensation awarded or paid by the Company to
the Chief Executive Officer and the four executive officers (the "Named
Executive Officers") of the Company during the fiscal years ended May 31, 1995
and 1996:

<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) (# SHARES) COMPENSATION(2)
------------------ ------ -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
James N. Farley(3)
Chairman and Chief 1996 $252,120 $100,000 $13,754 0 $2,097
Executive Officer...... 1995 303,748 258,267 13,754 0 900
Makoto Kouzuma(3)
President and Chief Op- 1996 $166,859 $140,000 -- 46,796 $1,800
erating Officer........ 1995 254,823 117,906 -- 22,000 900
Roger K. Marach
Treasurer and Chief Fi- 1996 $144,200 $ 92,500 $ 6,838 31,198 $1,337
nancial Officer........ 1995 118,844 47,000 31,168 19,040 900
Christopher E. Augur
President of SpeedFam 1996 $139,327 $ 90,000 $ 6,838 28,078 $1,005
Corporation............ 1995 117,974 45,000 7,524 19,040 900
Robert R. Smith
Managing Director-- 1996 $141,883 $ 41,292 $18,118 12,479 --
SpeedFam Limited....... 1995 137,164 37,752 18,772 9,520 --
</TABLE>
- --------
(1) Represents auto allowances and, for Mr. Marach in fiscal 1995, relocation
expenses of $24,330.
(2) Consists of the Company's matching contribution to the Company's 401(k)
Plan and, for fiscal 1996 only, payments of life insurance premiums.
(3) Messrs. Farley and Kouzuma received an aggregate of approximately $156,600
and $336,800, respectively, from the Far East Joint Venture during the Far
East Joint Venture's fiscal year ended April 30, 1995. During the Far East
First Venture's fiscal year ended April 30, 1996, Mr. Kouzuma received an
aggregate of approximately $399,587 from the Far East Joint Venture and,
prior to entering into his employment agreement with the Company, Mr.
Farley received an aggregate of approximately $44,000 from the Far East
Joint Venture (based upon the yen/dollar exchange rate on dates of
payment). See "Joint Venture Arrangements--Far East Joint Venture--Certain
Relationships."

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with James N. Farley as
Chairman of the Board of Directors and Chief Executive Officer, Makoto Kouzuma
as President and Chief Operating Officer and Roger K. Marach as Chief
Financial Officer and Treasurer; SpeedFam U.S. has entered into an employment
agreement with Christopher E. Augur as President; and SpeedFam U.K. has
entered into an employment agreement with

-49-
<PAGE>

Robert R. Smith, as Managing Director of SpeedFam Limited (collectively, the
"Employment Agreements"). The Employment Agreements, each dated September
1995, have an initial term of one year and may be terminated only for cause.

The Employment Agreements set salaries, provide for bonuses at the
discretion of the Compensation Committee of the Board of Directors, grant car
allowances, and entitle the employee to participate in and receive the
benefits of any and all pension, profit sharing, health, disability and
insurance plans which the respective company may maintain. Salaries for each
of Messrs. Farley, Kouzuma, Marach, Augur and Smith have been set by their
respective Employment Agreement at an annual amount of $250,000, $100,000,
$145,000, $140,000 and (Pounds)91,254 (approximately $147,000) (based on
pound/dollar exchange rate on May 31, 1995), respectively. Mr. Farley has
agreed to pay to the Company all compensation received from the Far East Joint
Venture.

In the event of sickness or disability which renders the employee unable to
perform his duties, the respective company may, at its option, cease to pay
compensation to the employee other than premiums on group health, disability
and life insurance plans until the employee is able to reassume his duties.

The Employment Agreements provide that upon the termination of the employee,
the employee agrees not to disclose trade secrets of the respective company,
agrees that for a period of one year any inventions relating to the respective
company's business will be the property of the respective company, and the
employee further agrees not to compete against the respective company for a
period of one year.

Messrs. Farley, Kouzuma, Marach, Augur and Smith have also separately
entered into severance agreements with the Company which provide for a
severance payment to the employee of 2.5 times the employee's Base Annual
Salary (as defined in the severance agreements) in the event of (a) a
voluntary or involuntary termination within a certain period following a
change in control, or (b) an involuntary termination (defined to mean a
termination other than for cause, or by reason of death or disability, or a
voluntary resignation) outside of a change in control period. As provided in
the agreements, the employee is entitled to the severance payment if a change
of control occurs resulting from a tender offer, exchange offer, merger,
consolidation or other business combination (each a "transaction") such that
(i) any person, other than James N. Farley or his affiliates, becomes the
beneficial owner of more than 50% of the combined voting power of the
outstanding securities of the Company; (ii) the directors of the Company,
prior to such transaction, cease to constitute a majority of the directors
following the transaction; (iii) the shareholders of the Company, prior to
such transaction, own, in the aggregate, less than 70% of the outstanding
voting securities of the surviving entity in the case of a merger or
consolidation; (iv) more than 50% of the voting securities of the Company are
transferred as a result of a tender offer or exchange offer; or (v) the
Company transfers substantially all of its assets to another corporation of
which the Company owns less than 50% of the outstanding voting securities.

Option Grants in Last Fiscal Year

The following table sets forth each grant of stock options made during the
fiscal year ended May 31, 1996 to each of the Named Executive Officers. Mr.
Farley, Chairman and Chief Executive Officer, has not been granted any stock
options. No stock appreciation rights were granted during such year to any of
the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
-------------------------------------------------------- -----------------------------
PERCENT OF
NUMBER OF SECURITIES TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EXERCISE
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR(2) ($/SH)(3) DATE 5% 10%
- ---- -------------------- -------------- --------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Makoto Kouzuma.......... 46,796 14% $20.50 5/31/06 $603,310 $1,415,805
Roger K. Marach......... 31,198 10% $20.50 5/31/06 402,215 943,890
Christopher E. Augur.... 28,078 9% $20.50 5/31/06 361,991 849,495
Robert R. Smith......... 12,479 4% $20.50 5/31/06 160,884 377,550
</TABLE>

-50-
<PAGE>

- --------
(1) Options become exercisable over a five-year period with 20% vesting
annually beginning May 31, 1997. The term of the options is ten years.

(2) Based on an aggregate of 325,976 options granted to employees in fiscal
1996 including the Named Executive Officers.

(3) The exercise price per share of each option was equal to 100% of the fair
market value of the Common Stock on the date of grant as determined by the
Board of Directors.

(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the stock price on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and the option
is exercised and sold on the last day of its term for the appreciated
stock price. No gain to the optionee is possible unless the stock price
increases over the option term.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option/Values

The following table sets forth the number and value of the unexercised
options held by each of the Named Executive Officers at May 31, 1996. Mr.
Farley, Chairman and Chief Executive Officer, has not been granted any stock
options.

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ --------------- ------------------
<S> <C> <C> <C> <C>
Makoto Kouzuma.......... 0 0 72,640/93,856 $1,161,806/691,804
Roger K. Marach......... 11,000 139,748 44,808/75,830 722,429/676,490
Christopher E. Augur.... 0 0 39,608/72,710 636,926/676,490
Robert R. Smith......... 20,000 251,360 30,304/44,095 491,114/491,165
</TABLE>
- --------
(1) Value is based on the difference between the stock option exercise price
and the closing price on May 31, 1996 of $20.50, multiplied by the number
of shares of Common Stock underlying the stock options. No market existed
for the Common Stock prior to this offering.

1995 PURCHASE PLAN

The Company's 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan")is
designed to provide employees of the Company and its Designated Subsidiaries
(as defined in the 1995 Purchase Plan) with an opportunity to purchase Common
Stock of the Company.

A summary of the principal features of the 1995 Purchase Plan follows.

Term. The 1995 Purchase Plan became effective on October 6, 1995 and will
continue in effect for a term of 20 years unless terminated earlier pursuant
to the provisions of the 1995 Purchase Plan.

Administration. The 1995 Purchase Plan is administered by the Board of
Directors or a committee of members of the Board appointed by the Board.

Participation. Only employees may participate in the 1995 Purchase Plan. For
this purpose, an "employee" is any person, including an officer, who is
regularly employed at least 20 hours per week and more than five months per
calendar year by the Company or one of its Designated Subsidiaries. No
employee shall be permitted to subscribe for shares under the 1995 Purchase
Plan if, immediately after the grant of the option, the employee would own 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any subsidiary (including stock issuable upon exercise of
options held by him or her), nor shall

-51-
<PAGE>

any employee be granted an option that would permit him or her to buy more
than $25,000 worth of stock (determined at the fair market value of the shares
at the time the option is granted) under the 1995 Purchase Plan in any
calendar year. At May 31, 1996 there were 382 employees eligible to
participate in the 1995 Purchase Plan.

Type of Awards. On the first day of an offering period, each eligible
employee participating in the 1995 Purchase Plan will be granted an option to
purchase (at the per share option price) up to a certain number of shares of
Common Stock. There will generally be one offering under the 1995 Purchase
Plan during each six month period. The first offering period commenced on
October 6, 1995 and was terminated on December 31, 1995. Subsequent offering
periods have been and are currently intended to be January 1 through June 30
and July 1 through December 31 and continue until the 1995 Purchase Plan is
terminated. The Board of Directors of the Company, or any committee designated
by the Board of Directors to administer the 1995 Purchase Plan will have the
power to change the duration of future offering periods with respect to future
offerings without shareholder approval if the change is announced at least
fifteen days prior to the first offering period to be affected.

Shares Available. The maximum number of shares of Common Stock originally
available for sale under the plan was 500,000 shares. In the event of any
changes in the capitalization of the Company effected without receipt of
consideration by the Company, such as stock splits, reverse stock splits or
stock dividends, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of outstanding shares of Common
Stock, proportionate adjustments will be made by the Company in the shares
subject to purchase and in the price per share.

Stock Options. The per share option price of shares sold in an offering
under the 1995 Purchase Plan will be the lower of (i) 85% of the fair market
value of a share of Common Stock of the Company on the first day of an
offering period or (ii) 85% of the fair market value of a share of Common
Stock on the last day of an offering period. The fair market value of a share
of Common Stock on a given date shall be the closing price as reported in The
Wall Street Journal or, if not so reported, the fair market value shall be
determined pursuant to the provisions of the 1995 Purchase Plan. The 1995
Purchase Plan provides that the purchase price of such shares of Common Stock
during the offering period shall not exceed 15% of total compensation during
such offering period. Funds received upon sales of Common Stock under the 1995
Purchase Plan will be used for general corporate purposes. The option for the
purchase of shares available to each participant in the 1995 Purchase Plan
will be exercised automatically on the last day of an offering period, and the
maximum number of shares will be purchased for such participant subject to
payment in full by the participant for such shares within 30 days. An eligible
employee who is a participant in the 1995 Purchase Plan may terminate his or
her interest in a given offering by signing and delivering to the Company a
notice of withdrawal from the 1995 Purchase Plan at least fifteen days prior
the last day of the offering period. Termination of a participant's employment
for any reason, including retirement or death, cancels his or her
participation in the 1995 Purchase Plan immediately.

Adjustments. The Board of Directors may make provision for adjusting the
number of shares of Common Stock reserved, as well as the price per share of
Common Stock covered by each outstanding option, in the event that the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation. In the event of the proposed liquidation or dissolution of the
Company, the offering period will cease and an employee's participation in the
1995 Purchase Plan will be terminated immediately before consummation of such
proposed event unless otherwise provided by the Board of Directors. In the
event of a sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the employee's
rights may be satisfied by assumption of the Company's obligations by such
acquiring or successor corporation unless the Board of Directors determines
that the employee will have the right to exercise the option as to all of the
optioned stock, including shares as to which the option would not otherwise be
exercisable. If the Board of Directors makes an option fully exercisable in
lieu of assumption or substitution in such event, the employee's option will
be fully exercisable for fifteen days from the date of notice by the Board of
Directors, after which the employee's rights under the 1995 Purchase Plan
shall terminate.

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<PAGE>

Termination and Amendment. The Board of Directors may at any time amend or
terminate the 1995 Purchase Plan, except that no such termination may affect
options previously granted and no amendment may make any change in any option
granted prior to such time which adversely affects the rights of any
participant in the 1995 Purchase Plan. Under the 1995 Purchase Plan, an
amendment to increase the number of shares reserved for issuance requires the
prior approval of the shareholders of the Company.

1995 STOCK PLAN

The 1995 Stock Plan for Employees and Directors of the Company (the "1995
Stock Plan") is designed to enhance the long-term profitability and
shareholder value of the Company by offering stock-based incentives to those
individuals who are key to the growth and success of the Company, to attract
and retain executives and directors with experience and ability on a basis
competitive with industry practice and to encourage executives and directors
to acquire and maintain stock ownership in the Company. At May 31, 1996,
options and rights to acquire 8,000 shares of Common Stock under the 1995
Stock Plan were outstanding.

A summary of the principal features of the 1995 Stock Plan follows.

Term. The 1995 Stock Plan became effective as of July 27, 1995 and has no
fixed expiration date.

Administration. The 1995 Stock Plan is administered by the Compensation
Committee of the Board of Directors (the "Compensation Committee") which has
the exclusive authority to make awards under the 1995 Stock Plan and all
interpretations and determinations affecting the 1995 Stock Plan. No
Compensation Committee member will be eligible to participate in the 1995
Stock Plan or may be awarded equity securities of the Company pursuant to the
1995 Stock Plan or any other plan of the Company during the year prior to
Compensation Committee service unless the 1995 Stock Plan or any other such
plan and the award under the 1995 Stock Plan or any other such plan comply
with the applicable requirements of Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The 1995
Stock Plan and the grant of stock options to the directors pursuant to the
1995 Stock Plan have been structured to comply with the applicable
requirements of Rule 16b-3 and may only be amended to the extent permitted by
Rule 16b-3.

Participation. Participation in the 1995 Stock Plan is limited to key
officers and other employees of the Company and any of its subsidiaries
("Employees") and any member of the Board of Directors of the Company who is
not then an Employee or beneficial owner, either directly or indirectly, of
more than 10% of the Common Stock ("Eligible Director"), who are selected from
time to time by the Compensation Committee. Employees who are participants in
the 1995 Stock Plan are also eligible to participate in any other incentive
plan of the Company. Eligible Directors are eligible to receive automatic
grants of non-qualified stock options pursuant to the provisions of the 1995
Stock Plan.

Type of Awards. Awards under the 1995 Stock Plan may be in the form of stock
options (including incentive stock options ("ISOs") which meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and in particular with all such requirements which apply to
employees owning 10% or more of the total combined voting power of all classes
of stock of the Company), restricted shares and restricted units. Stock
Appreciation Rights ("SARs") may be awarded by the Compensation Committee in
connection with any option granted under the Plan, either at the time the
option is granted or thereafter at any time prior to the exercise, termination
or expiration of the option ("tandem right"), or separately ("freestanding
right"). Awards will be granted for no cash consideration or for such minimal
cash consideration as may be required by applicable law. However, the exercise
price per share of Common Stock purchasable under any ISO and the option price
of any SAR accompanying an ISO will not be less than 100% of the fair market
value of a share of Common Stock on the date of grant of the ISO or SAR
accompanying an ISO.

Shares Available. No more than 1,000,000 shares of Common Stock may be
issued under the 1995 Stock Plan (subject to adjustment as described below for
stock splits, stock dividends, recapitalizations, mergers and other events as
described in the 1995 Stock Plan). Generally, any shares of Common Stock which
cease to be

-53-
<PAGE>

subject to purchase under a granted option, or any forfeited restricted shares
or restricted units, will become available for subsequent awards under the
1995 Stock Plan.

Stock Options. The term of all options granted to Employees under the 1995
Stock Plan will be fixed by the Compensation Committee; however, the term of
ISOs may not exceed ten years from the grant date. The exercise price for any
shares of Common Stock purchasable under an option granted to Employees will
be determined by the Compensation Committee subject to adjustment as described
below. The exercise price for any shares purchasable under an ISO will not be
less than 100% of the fair market value of a share of Common Stock on the date
the ISO is granted. Each option granted to an Employee will become exercisable
as determined by the Compensation Committee, provided the Compensation
Committee may, in its discretion, accelerate the exercisability of any option,
in whole or in part, at any time. The terms of non-qualified stock options
granted to Eligible Directors, the exercise price for shares purchasable under
such options and the date such options become exercisable are determined
pursuant to the formula provision of the 1995 Stock Plan which can only be
amended to the extent permitted by Rule 16b-3. However, each option granted
either to an Employee or Eligible Director will become exercisable in full at
the earliest of the death, Eligible Retirement (as defined in the 1995 Stock
Plan) or Total Disability (as defined in the 1995 Stock Plan) of the option
holder or a Change in Control (as defined in the 1995 Stock Plan) of the
Company. Each option shall be exercisable in full or in part, subject to
certain requirements in the 1995 Stock Plan, by payment of the exercise price
in cash or already owned shares for the number of shares of Common Stock to be
purchased.

Stock Appreciation Rights. The Compensation Committee may grant SARs in
connection with any option granted under the 1995 Stock Plan, either as a
tandem right or a freestanding right. Each tandem right is subject to the same
terms and conditions as the related options. The exercise price of SARs
granted under the 1995 Stock Plan will be determined by the Compensation
Committee; however, the exercise price of each SAR granted in connection with
an ISO will not be less than 100% of the fair market value of a share of
Common Stock on the date the ISO is granted. Upon exercise of an SAR, the
holder will be entitled to receive the excess of the fair market value of a
share of Common Stock over the total exercise price for a share of Common
Stock, payable in cash (unless otherwise determined by the Compensation
Committee).

SARs may be granted to Employees deemed officers for purposes of Section 16
of the Exchange Act. SARs granted to such officers may not be transferred or
disposed of within six months from the date of grant or within six months of
the date the exercise price is fixed. SARs granted to such officers generally
may be exercised only during the ten business days beginning on the third
business day following announcement of the Company's quarterly earnings.

Restricted Shares. The Compensation Committee may make awards of shares of
Common Stock on such terms, conditions and restrictions as it determines. The
holder of such shares will generally have the rights of shareholders subject
to the provisions of the 1995 Stock Plan. The Compensation Committee may at
any time, in its sole discretion, waive the terms and conditions and/or
shorten the restricted period established for any award. All restrictions with
respect to a restricted share award will lapse upon the earliest to occur of
the death, Eligible Retirement or Total Disability of the holder or a Change
in Control of the Company. Except as set forth elsewhere in this summary and
in the 1995 Stock Plan, all restricted shares and all rights with respect to
such restricted shares will be forfeited by reason of termination of
employment. None of the shares subject to a restricted share award may be
sold, transferred, assigned or pledged until they are delivered to the holder
of the share award.

Restricted Units. The Compensation Committee is authorized to grant and to
determine the terms, conditions and restrictions of any restricted unit
awards. No shares of Common Stock will be issued at the time the award is made
and the Company will not be required to set aside funds for the payment of any
such award. The Compensation Committee may at any time, in its sole
discretion, waive the terms and conditions and/or shorten the restricted
period established for any award. All restrictions with respect to a
restricted unit award will lapse upon the earliest to occur of the death,
Eligible Retirement or Total Disability of the holder or a Change in Control
of the Company. Restricted unit awards may be paid in cash or shares or any
combination thereof.

-54-
<PAGE>

Adjustments. The Compensation Committee may, at any time, in the event of
any stock dividend, stock split, recapitalization, merger, consolidation or
other change in the capitalization of the Company or similar corporate
transaction or event affecting the Common Stock, in such manner as it deems
equitable, adjust, among other things, (i) the limitation of 1,000,000 shares
that may be issued under the 1995 Stock Plan; (ii) the number and class of
shares that may be subject to stock options, restricted shares or restricted
units that have not been issued; (iii) the exercise price to be paid for
unexercised stock options; and (iv) the share value used to determine the
amount or value of any award under the 1995 Stock Plan.

Termination and Amendment. The Board of Directors may suspend, terminate,
modify or amend the 1995 Stock Plan at any time, but if any such amendment
requires shareholder approval in order to meet the requirements of the then
applicable rules under Section 16(b) of the Exchange Act, such amendment may
not be effected without obtaining shareholder approval. The Board of Directors
may terminate the 1995 Stock Plan, but the terms of the 1995 Stock Plan will
continue to apply to awards granted prior to such termination. No suspension,
termination, modification or amendment of the 1995 Stock Plan may adversely
affect the rights of an Employee or Eligible Director under previously granted
awards.

1991 STOCK PLAN

The 1991 Employee Incentive Stock Option Plan, as amended (the "1991 Stock
Plan") is designed to reward valued employees of the Company by granting
incentive stock options to those individuals who are key to the growth and
success of the Company. Directors who are not employees are not eligible to
participate in the 1991 Stock Plan.

A summary of the principal features of the 1991 Stock Plan follows.

Term. The 1991 Stock Plan expires on May 31, 2001.

Administration. The 1991 Stock Plan is administered by the Compensation
Committee of the Board of Directors (the "Compensation Committee") which has
the exclusive authority to make awards under the 1991 Stock Plan and all
interpretations and determinations affecting the 1991 Stock Plan. No member of
the Compensation Committee will be eligible to participate in the 1991 Stock
Plan.

Participation. Participation in the 1991 Stock Plan is available only to
persons who are employees of the Company or of any of its subsidiaries (as
defined in Section 425 of the Code) ("Employees"). No person may be granted an
option under the 1991 Stock Plan who is the beneficial owner, either directly
or indirectly, of more than 10% of the Common Stock of the Company at the time
the option is granted, except as provided in the 1991 Stock Plan. The
Compensation Committee of the Board of Directors of the Company will determine
the employees to be granted options under the 1991 Stock Plan, the number of
shares of Common Stock subject to each option, and the period and terms and
conditions of each option in accordance with the provisions of the 1991 Stock
Plan.

Shares Available. No more than 1,500,000 shares of Common Stock may be
issued and sold pursuant to options granted under the 1991 Stock Plan (subject
to adjustment for stock splits, stock dividends, recapitalizations, mergers or
consolidations). At May 31, 1996, options to acquire 1,260,068 shares of
Common Stock under the 1991 Stock Plan were outstanding.

Stock Options. Awards under the 1991 Stock Plan will be in the form of
incentive stock options ("ISOs") which meet the requirements of Section 422 of
the Code and in particular with all such requirements which apply to employees
owning 10% or more of the total combined voting power of all classes of stock
of the Company. The term of all options granted to Employees under the 1991
Stock Plan will be fixed by the Compensation Committee, however, the term of
ISOs may not exceed 10 years from the grant date, unless the Employee to whom
the option is granted owns, at the time the option is granted, more than 10%
of the total combined voting power of all classes of stock of the Company,
then the term of such option may not exceed five years from the

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<PAGE>

grant date. The exercise price for any shares purchasable under an ISO will be
determined by the Compensation Committee but will not be less than 100% of the
fair market value of the shares of Common Stock on the date the ISO is
granted. Each option granted to an Employee will become exercisable as
determined by the Compensation Committee provided the Compensation Committee
may, in its discretion, accelerate the exercisability of any option, in whole
or in part, at any time.

Restrictions. The aggregate fair market value of the Common Stock
(determined at the time the option is granted) with respect to which ISO's are
exercisable for the first time by an Employee during any calendar year may not
exceed $100,000. The Compensation Committee may make awards of shares of
Common Stock on such terms, conditions and restrictions as it determines. Any
option granted to an officer of the Company, or the shares of Common Stock
into which any such option is exercised, may not be transferred or disposed of
within six months from the date of grant. Except as set forth elsewhere in
this summary and in the 1991 Stock Plan, all shares of Common Stock and all
rights with respect to such shares of Common Stock will be forfeited by reason
of termination of employment. The right to purchase shares of Common Stock
under an option granted under the 1991 Stock Plan may not be sold,
transferred, assigned, pledged or otherwise disposed of, except that any
options granted to an Employee may be transferred upon the death of such
Employee.

Termination and Amendment. The Board of Directors may suspend, terminate,
modify or amend the 1991 Stock Plan at any time, but if any such amendment
requires shareholder approval in order to meet the requirements of the then
applicable rules under Section 16(b) of the Exchange Act, such amendment may
not be effected without obtaining shareholder approval. Without the approval
of shareholders, no amendment may be made to the 1991 Stock Plan which
increases the number of shares of Common Stock which may be purchased (except
with respect to certain recapitalizations), changes the purchase price or
extends the period during which the shares of Common Stock may be purchased
under any option. The Board of Directors may amend the 1991 Stock Plan at any
time and without shareholder approval to the extent necessary to cause ISOs
granted under the 1991 Stock Plan to meet the requirements of Section 422A of
the Code.

CERTAIN TRANSACTIONS

CERTAIN RELATIONSHIPS RELATED TO THE FAR EAST JOINT VENTURE

For a description of certain relationships between the Company and the Far
East Joint Venture and Messrs. Farley and Kouzuma and the Far East Joint
Venture, see "Joint Venture Arrangements--Far East Joint Venture--Certain
Relationships."

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<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of May 31,
1996, and as adjusted to reflect the sale of the Common Stock being offered
hereby (assuming no exercise of the Underwriters' over-allotment option) by
(i) each shareholder who is known by the Company to own beneficially more than
5% of the Common Stock, (ii) each of the Company's directors, (iii) each Named
Executive Officer, (iv) all directors and executive officers of the Company as
a group, and (v) each Selling Shareholder. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
----------------------- -----------------------
NAME AND ADDRESS NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ---------------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
James N. Farley(1)(2)... 2,562,525 24.4% 400,860 2,161,665 17.2%
Nancy Jo Farley(1)(3)... 1,110,850 10.6 50,000 1,060,850 8.4
Makoto Kouzuma(1)(4).... 835,420 7.9 70,000 765,420 6.1
SpeedFam Employees
Profit Sharing
Trust(1)(5)............. 351,380 3.3 50,000 301,380 2.4
Roger K. Marach(6)...... 70,808 * 15,000 55,808 *
Christopher E. Augur.... 54,608 * 25,000 29,608 *
Robert R. Smith(7)...... 172,124 1.6 20,000 152,124 1.2
Neil R. Bonke........... 0 * -- 0 *
Tom McCook.............. 66,380 * 16,380 50,000 *
Dr. Stuart Meyer........ 76,380 * 8,380 68,000 *
Robert M. Miller........ 18,380 * 4,000 14,380 *
Carl S. Pedersen(8)..... 70,380 * 380 70,000 *
All directors and
executive officers as a
group
(10 persons)........... 3,927,005 36.5% 560,000 3,367,005 25.6%
</TABLE>
- --------
*Less than one percent.
(1) The business address of Messrs. Farley and Kouzuma, Mrs. Farley and the
SpeedFam Employees Profit Sharing Trust is 7406 West Detroit, Chandler,
Arizona 85226.
(2) All shares beneficially owned by Mr. Farley are held in the James N.
Farley Trust, of which Mr. Farley acts as sole trustee. Excludes (i)
shares beneficially owned by Nancy Jo Farley (Mr. Farley's spouse), (ii)
an aggregate of 1,635,825 shares beneficially owned by Mr. Farley's adult
children, (iii) 762,780 shares held in the Makoto Kouzuma Trust, a
revocable trust, of which Mr. Farley serves as co-trustee, and (iv)
351,380 shares owned by the SpeedFam Employees Profit Sharing Trust, of
which Mr. Farley acts as co-trustee. Mr. Farley disclaims beneficial
ownership of all shares referred to (i) through (iv) above.
(3) Of such shares, 727,400 are held in the Nancy Jo Farley Trust, a revocable
trust. Charles A. Kelly, Secretary of the Company, acts as co-trustee of
such trust with Mr. Farley (the spouse of Nancy Jo Farley). Pursuant to
the trust agreement, Mr. Kelly has sole voting and dispositive power over
shares held in the trust. The Nancy Jo Farley Trust may be voluntarily
terminated by Mrs. Farley at any time. Includes 346,770 shares of Common
Stock over which Mrs. Farley has sole voting and dispositive power as
Custodian for nine minor grandchildren. Also includes 36,680 shares of
Common Stock over which Mrs. Farley has sole voting and dispositive power
as sole trustee of the James C. Farley Irrevocable Trust. Mrs. Farley
disclaims beneficial ownership as to such shares. Excludes shares
beneficially owned by Mr. Farley and an aggregate of 1,635,825 shares
beneficially owned by Mrs. Farley's adult children, as to all of which
Mrs. Farley disclaims beneficial ownership.
(4) Of such shares, 762,780 are held in the Makoto Kouzuma Trust, a revocable
trust. Mr. Kelly and Mr. Farley act as co-trustees of such trust and share
voting and dispositive power over shares held in the trust. The Makoto
Kouzuma Trust may be voluntarily terminated by Mr. Kouzuma at any time.
The remaining 72,640 shares are subject to issuance to Mr. Kouzuma upon
the exercise of certain stock options.
(5) Messrs. Farley, Marach and Kelly act as co-trustees of the Plan and share
voting and dispositive power over shares held by the Plan.
(6) Excludes 351,380 shares owned by the SpeedFam Employees Profit Sharing
Trust of which Mr. Marach serves as co-trustee. Mr. Marach disclaims
beneficial ownership of such shares.
(7) Includes 50,000 shares beneficially owned by Mr. Smith's spouse.
(8) Of such shares, 62,000 are held in the Pedersen Family Limited
Partnership, of which Pedersen Holdings, Inc. is sole general partner and
Mr. Pedersen serves as sole limited partner. Mr. Pedersen serves as
President of Pedersen Holdings, Inc. and own 33% of its outstanding stock.
The remaining 8,380 shares are subject to issuance to Mr. Pedersen upon
the exercise of certain stock options.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 1,000,000 shares of
Preferred Stock, none of which has been issued, and 20,000,000 shares of
Common Stock, of which 10,514,868 were currently issued and outstanding as of
May 31, 1996.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the shareholders generally, including the election of
directors. Subject to the rights of holders of any Preferred Stock
outstanding, holders of Common Stock are entitled to receive such dividends as
are declared by the Board of Directors out of funds legally available
therefor, and in the event of liquidation, dissolution or winding upon of the
Company, the holders of Common Stock are entitled to share ratably in any
assets remaining after payment of the Company's liabilities. Holders of Common
Stock do not have preemptive or other subscription rights. The Common Stock
currently outstanding is, and the shares of Common Stock offered by the
Company hereby will be, when issued, validly issued, fully paid and non-
assessable.

Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin, is the registrar and
transfer agent for the Common Stock.

PREFERRED STOCK

The Preferred Stock may be issued from time to time in one or more series,
and the Board of Directors, without further approval of the shareholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, special series voting rights and
sinking fund provisions applicable to each such series of Preferred Stock. If
the Company issues a series of Preferred Stock in the future that has special
voting rights or preferences over the Common Stock with respect to the payment
of dividends or upon the Company's liquidation, dissolution or winding up, the
rights of the holders of the Common Stock may be adversely affected. The
issuance of shares of Preferred Stock could be utilized, under certain
circumstances, in an attempt to prevent an acquisition of the Company and may
adversely affect the voting and other rights of the holders of Common Stock.

ANTI-TAKEOVER STATUTES

Section 7.85 of the Illinois Business Corporation Act of 1983 (the "BCA")
provides that business combinations between an Illinois corporation with a
class of securities registered under the Exchange Act or a corporation which
elects to be subject to Section 7.85 and the beneficial holder of 10% or more
of the voting power of such corporation generally require (i) the approval of
80% of the votes of each class of stock entitled to vote and (ii) the
affirmative vote of at least a majority of the votes of each class of stock
entitled to be cast held by persons other than the 10% owner. Such
requirements will not apply if the transaction is approved by 2/3 of the
disinterested directors (generally defined as a director not affiliated or
associated with the 10% owner), the price to be paid to the shareholders of
the corporation is generally the higher of the fair market value (as defined
in the statute) or the price per share paid by the 10% owner in acquiring its
shares, and certain other conditions relating to the absence of dividend
defaults, the receipt of special benefits by the 10% owner and the provision
of specified information about the transaction to the corporation's public
shareholders, are satisfied.

Section 11.75 of the BCA provides that a corporation shall not engage in any
business combination with any interested shareholder (generally defined as the
beneficial owner of 15% or more of the outstanding voting shares of the
company) for a period of three years following the date that such shareholder
became an interested shareholder, unless (a) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder, or (b) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the

-58-
<PAGE>

transaction commenced (excluding for purposes of determining the number of
shares outstanding those shares owned (i) by persons who are directors and
also officers and (ii) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer), or (c) on or
subsequent to such date the business combination is approved by the board of
directors and authorized at an annual or special meeting of shareholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested shareholder.

Section 8.85 of the BCA permits directors and officers of an Illinois
corporation to consider the interests of constituencies other than the
corporation's shareholders when exercising their duties, including in the
consideration of a transaction which could result in a change of control of
the Company.

The Company is automatically subject to Section 8.85 and, as of the closing
date of the offering, will become subject to Section 7.85 and, depending on
the final distribution of the shares offered hereby and certain shareholder
residency requirements with the State of Illinois, Section 11.75.

-59-
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have outstanding an
aggregate of 12,567,008 shares of Common Stock. Of these shares, 5,937,500
shares, including the 2,660,000 shares sold in the offering, will be freely
tradeable without restriction or further registration under the Securities
Act, except for any shares purchased by "affiliates" of the Company as that
term is defined under the Securities Act.

The remaining 6,629,508 shares held by existing shareholders of the Company
are "restricted" securities within the meaning of Rule 144 under the
Securities Act and are eligible for sale pursuant to the provisions of Rule
144 subject to the expiration of the lock-up agreements described below. Of
such shares, 1,923,945 shares of Common Stock have been held for more than
three years by shareholders who are not affiliates of the Company and are
eligible for sale in the public market in reliance on Rule 144(k) under the
Securities Act.

In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated), including an affiliate, may
sell an amount of restricted securities which were last purchased from the
issuer or an affiliate of the issuer a minimum of two years prior to such
sale, such that, within any three-month period, such person's sales do not
exceed the greater of 1% of the then outstanding shares of the Company's
Common Stock (125,670 shares immediately after this offering), or the average
weekly trading volume in the Common Stock in the Nasdaq National Market during
the four calendar weeks preceding the date on which notice of such sale is
filed under Rule 144(h) of the Securities Act, or if no such notice is
required, the date of receipt of the order to execute the transaction. In
addition, under Rule 144(k), a shareholder who is not deemed an affiliate, and
has not been an affiliate for at least three months prior to the sale, is
entitled to sell restricted securities which were last purchased from the
issuer or an affiliate of the issuer a minimum of at least three years prior
to such sale without complying with the foregoing requirements. In calculating
the two and three year holding periods described above, a holder of restricted
securities can include the holding period of a prior owner who was not an
affiliate.

Certain stockholders of the Company have agreed pursuant to certain
agreements with the Underwriters (the "Lock-up Agreements") that they will
not, without the prior written consent of Lehman Brothers Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them (including any shares issuable upon the exercise of
stock options), or any security convertible or exchangeable for Common Stock,
for a period of 90 days after the date of the Prospectus. See "Underwriting."

As of May 31, 1996, options to purchase a total of 1,268,068 shares of
Common Stock were outstanding, of which options to purchase a total of 347,364
shares were immediately exercisable. Of such shares immediately exercisable,
244,880 shares are subject to Lock-Up Agreements. An additional 1,104,264
shares of Common Stock will be available for future stock option grants under
the Company's stock option plans.

-60-
<PAGE>

UNDERWRITING

Under the terms of, and subject to the conditions in, the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc., Alex. Brown & Sons Incorporated and Needham &
Company, Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders,
and the Company and the Selling Shareholders have agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
their respective names below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Lehman Brothers Inc. ....................................
Alex. Brown & Sons Incorporated..........................
Needham & Company, Inc...................................
---------
Total.................................................. 2,660,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to certain conditions, and that
if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all the shares of Common
Stock agreed to be purchased by the Underwriters must be so purchased.

The Company and the Selling Shareholders have been advised that the
Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain selected dealers (who may include the Underwriters)
at such public offering price less a selling concession not in excess of $
per share. The selected dealers may reallow a concession not in excess of
$ per share to certain brokers and dealers. After the initial public
offering, the public offering price, the concession to selected dealers and
the reallowance may be changed by the Underwriters.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.

The Company has granted to the Underwriters an option to purchase up to an
aggregate of 399,000 shares of Common Stock, exercisable solely to cover over-
allotments, at the offering price to the public less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.

Certain holders of shares of Common Stock of the Company, owning an
aggregate of 6,205,320 shares, have agreed that they will not, subject to
certain limited exceptions, directly or indirectly, offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares for a period of 90 days after
the effective date of the offering without either the prior written consent of
Lehman Brothers Inc. Lehman Brothers Inc. reserves the right to release any or
all of such shareholders from their obligations under such lock-up agreements
at any time without notice. Any such release would increase the number of
shares available for sale into the public market, which could have a material
adverse effect on the price of the Common Stock. In addition, the Company has
agreed that it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable for such shares without the
prior written consent of Lehman Brothers Inc. for 90 days after the effective
date of the offering.

-61-
<PAGE>

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Chapman and Cutler, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, San Diego, California. Mr. Charles A. Kelly, a partner of
Chapman and Cutler, serves as Secretary of the Company and owns 60,000 shares
of the Company's Common Stock. In addition, Mr. Kelly has sole voting and
dispositive power over 727,400 shares of Common Stock held in the Nancy Jo
Farley Trust, a revocable trust, of which he serves as co-trustee. Mr. Kelly
also shares voting and dispositive power over 762,780 shares of Common Stock
held in the Makoto Kouzuma Trust, a revocable trust, of which he serves as co-
trustee and over 351,380 shares of Common Stock held in the SpeedFam Employees
Profit Sharing Trust, of which he serves as co-trustee. Mr. David S. Crossett,
also a partner of Chapman and Cutler, owns 500 shares of the Company's Common
Stock.

EXPERTS

The consolidated financial statements and schedules of the Company and the
consolidated financial statements of the Far East Joint Venture included in
this Prospectus and elsewhere in the Registration Statement have been audited
by KPMG Peat Marwick LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

A Registration Statement (which term shall include any amendments thereto)
on Form S-1, relating to the Common Stock offered hereby has been filed by the
Company with the Commission. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement and the exhibits and schedules thereto which constitute a part of
the Registration Statement may be inspected by anyone without charge at the
offices of the Commission described above. Copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission.

The Company intends to furnish to its shareholders annual reports containing
consolidated financial statements audited by its independent accountants and
quarterly reports containing unaudited consolidated financial information.

Certain statements in this Registration Statement, including without
limitation certain of those contained in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Industry Background, --The SpeedFam CMP Solution, and --SpeedFam
Strategy," constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.

-62-
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

<S> <C>
ANNUAL
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets--at the end of fiscal years 1994 and 1995..... F-3
Consolidated Statements of Earnings--for the fiscal years 1993, 1994 and
1995..................................................................... F-4
Consolidated Statements of Shareholders' Equity--for the fiscal years
1993, 1994 and 1995...................................................... F-5
Consolidated Statements of Cash Flows--for the fiscal years 1993, 1994 and
1995..................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
INTERIM
Condensed Consolidated Balance Sheets--at May 31, 1995 and February 29,
1996 (unaudited)......................................................... F-21
Condensed Consolidated Statements of Earnings--for the nine months ended
February 28, 1995 and February 29, 1996 (unaudited)...................... F-22
Condensed Consolidated Statements of Cash Flows--for the nine months ended
February 28, 1995 and February 29, 1996 (unaudited)...................... F-23
Notes to Condensed Consolidated Financial Statements (unaudited).......... F-24

SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES

ANNUAL
Independent Auditors' Report.............................................. F-26
Consolidated Balance Sheets--at the end of fiscal years 1994 and 1995..... F-27
Consolidated Statements of Earnings--for the fiscal years 1993, 1994 and
1995..................................................................... F-28
Consolidated Statements of Shareholders' Equity--for the fiscal years
1993, 1994 and 1995...................................................... F-29
Consolidated Statements of Cash Flows--for the fiscal years 1993, 1994 and
1995..................................................................... F-30
Notes to Consolidated Financial Statements................................ F-31
</TABLE>

The above consolidated financial statements of SpeedFam Co., Ltd. and
consolidated subsidiaries are included in this prospectus pursuant to Rule 3-
09 of Regulation S-X.

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
SpeedFam International, Inc.:

We have audited the accompanying consolidated balance sheets of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1994 and 1995,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1995.
These consolidated financial statements are the responsibility of the
management of SpeedFam International, Inc. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended May 31, 1995 in conformity with generally
accepted accounting principles.

As discussed in notes 1 and 5 to the consolidated financial statements, the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," were
adopted in fiscal year 1994.

KPMG PEAT MARWICK LLP

July 18, 1995, except as to note 15, which is as of July 27, 1995
Chicago, Illinois

F-2
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AT THE END OF FISCAL YEARS 1994 AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MAY 31,
----------------
ASSETS 1994 1995
------ ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 809 $ 1,095
Trade accounts and notes receivable, less allowance for
doubtful accounts of $192 and $187 in 1994 and 1995,
respectively.............................................. 14,506 16,971
Inventories................................................ 10,728 17,995
Income taxes receivable.................................... 265 --
Deferred income taxes...................................... 95 147
Prepaid expenses and other current assets.................. 541 1,067
------- -------
Total current assets..................................... 26,944 37,275
Investments in affiliates.................................... 14,738 18,582
Property, plant and equipment, net........................... 2,996 3,061
Other assets................................................. 1,031 1,111
------- -------
Total assets............................................. $45,709 $60,029
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.......................... $ 899 $ 908
Accounts payable........................................... 6,747 7,138
Customer deposits.......................................... 1,078 5,662
Due to affiliates.......................................... 4,947 8,907
Accrued expenses........................................... 3,081 3,083
Income taxes............................................... 212 505
------- -------
Total current liabilities................................ 16,964 26,203
------- -------
Long-term liabilities:
Long-term debt............................................. 9,716 10,362
Deferred income taxes...................................... 453 427
------- -------
Total long-term liabilities.............................. 10,169 10,789
------- -------
Shareholders' equity:
Common stock, no par value, 20,000,000 shares authorized
and issued, 7,474,380 shares outstanding at the end of
fiscal year 1994 and 7,459,700 shares outstanding at the
end of fiscal year 1995................................... 1 1
Additional paid-in capital................................. 828 828
Retained earnings.......................................... 15,782 17,426
Foreign currency translation adjustment.................... 5,139 7,991
Treasury stock............................................. (3,174) (3,209)
------- -------
Total shareholders' equity............................... 18,576 23,037
------- -------
Total liabilities and shareholders' equity................... $45,709 $60,029
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenue:
Net sales......................................... $42,542 $49,247 $57,021
Commissions from affiliate........................ 772 2,134 2,757
------- ------- -------
Total revenue................................... 43,314 51,381 59,778
Cost of sales....................................... 32,472 38,945 45,494
------- ------- -------
Gross margin.................................... 10,842 12,436 14,284
------- ------- -------
Operating expenses:
Research, development and engineering............. 1,778 2,267 2,740
Selling, general, and administrative expenses..... 8,545 8,988 9,948
------- ------- -------
Total operating expenses........................ 10,323 11,255 12,688
------- ------- -------
Operating profit.................................... 519 1,181 1,596
------- ------- -------
Other income (expense):
Gains on sales of assets.......................... 42 19 246
Royalty income.................................... 91 245 264
Interest income................................... 26 34 52
Interest expense.................................. (824) (697) (959)
Disposal of FamTec AG............................. (300) 303 --
Miscellaneous, net................................ 574 373 (556)
------- ------- -------
(391) 277 (953)
------- ------- -------
Earnings from consolidated companies before income
taxes and cumulative effect of change in accounting
principle.......................................... 128 1,458 643
Income tax expense (benefit)........................ 573 (160) 186
------- ------- -------
Earnings (loss) from consolidated companies before
cumulative effect of change in accounting
principle.......................................... (445) 1,618 457
Equity in net earnings (loss) of affiliates......... (45) 655 1,187
------- ------- -------
Earnings (loss) before cumulative effect of change
in accounting principle............................ (490) 2,273 1,644
Cumulative effect of change in accounting principle
for income taxes................................... -- 78 --
------- ------- -------
Net earnings (loss)................................. $ (490) $ 2,351 $ 1,644
======= ======= =======
Net earnings (loss) per share....................... $ (0.06) $ 0.31 $ 0.20
======= ======= =======
Weighted average common and common equivalent
shares............................................. 7,615 7,619 8,146
======= ======= =======
Pro forma net earnings per share data (Note 16)
(Unaudited):
Pro forma net earnings............................ $ 1,966
=======
Pro forma net earnings per share.................. $ 0.18
=======
Pro forma common and common equivalent shares
outstanding...................................... 10,781
=======
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FISCAL YEARS 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1992. $ 1 $761 $13,921 $2,824 $(3,168) $14,339
Net loss................ -- -- (490) -- -- (490)
Foreign currency
translation adjustment. -- -- -- 1,767 -- 1,767
Purchase of treasury
stock.................. -- -- -- -- (6) (6)
Sale of treasury stock.. -- 56 -- -- 3 59
--- ---- ------- ------ ------- -------
Balance at May 31, 1993. 1 817 13,431 4,591 (3,171) 15,669
Net earnings............ -- -- 2,351 -- -- 2,351
Foreign currency
translation adjustment. -- -- -- 548 -- 548
Purchase of treasury
stock.................. -- -- -- -- (4) (4)
Sale of treasury stock.. -- 11 -- -- 1 12
--- ---- ------- ------ ------- -------
Balance at May 31, 1994. 1 828 15,782 5,139 (3,174) 18,576
Net earnings............ -- -- 1,644 -- -- 1,644
Foreign currency
translation adjustment. -- -- -- 2,852 -- 2,852
Purchase of treasury
stock.................. -- -- -- -- (35) (35)
--- ---- ------- ------ ------- -------
Balance at May 31, 1995. $ 1 $828 $17,426 $7,991 $(3,209) $23,037
=== ==== ======= ====== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEARS 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------
1993 1994 1995
----- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................................. $(490) $ 2,351 $ 1,644
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Equity in net earnings (loss) of affiliates....... 45 (655) (1,187)
Depreciation and amortization..................... 654 675 635
Provision for losses on accounts receivable....... 45 7 3
Provision for deferred income taxes............... 302 (220) (120)
Gains on sales of assets.......................... (42) (19) (246)
Increase in cash surrender value of life
insurance........................................ (77) (119) (138)
Gain on disposal of FamTec AG..................... -- (298) --
Cumulative effect of change in accounting
principle........................................ -- (78) --
Change in assets and liabilities:
Decrease (increase) in trade accounts and notes
receivable..................................... 751 (7,782) (2,271)
(Increase) in inventories....................... (212) (3,297) (7,067)
(Increase) decrease in prepaid expenses and
other assets................................... (147) 50 (452)
(Decrease) increase in accounts payable and due
to affiliates.................................. (368) 5,569 4,149
(Decrease) increase in accrued expenses,
customer deposits and other liabilities........ (298) 1,670 4,474
Increase (decrease) in income taxes, net........ 32 (368) 566
----- ------- -------
Net cash provided by (used in) operating activities... 195 (2,514) (10)
----- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................ (314) (443) (744)
Proceeds from sales of assets....................... 163 46 431
Dividends from affiliates........................... 180 77 90
Other investing activities.......................... (106) (81) (83)
----- ------- -------
Net cash used in investing activities................. (77) (401) (306)
----- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock transactions......................... 53 8 (35)
Increase in short-term borrowings................... 83 -- --
Proceeds from long-term debt........................ 524 3,750 1,500
Principal payments on long-term debt................ (885) (778) (899)
----- ------- -------
Net cash (used in) provided by financing activities... (225) 2,980 566
----- ------- -------
Effect of foreign currency rate changes on cash....... (15) (21) 36
----- ------- -------
Net (decrease) increase in cash and cash equivalents.. (122) 44 286
Cash and cash equivalents at beginning of year........ 887 765 809
----- ------- -------
Cash and cash equivalents at end of year.............. $ 765 $ 809 $ 1,095
===== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest.......................................... $ 835 $ 664 $ 866
===== ======= =======
Income taxes...................................... $ 172 $ 412 $ 125
===== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The consolidated financial statements include the accounts of SpeedFam
International, Inc. (the Company, formerly named FamTec International, Inc.),
an Illinois corporation, and the following wholly owned subsidiaries:

<TABLE>
<CAPTION>
SUBSIDIARIES INCORPORATED
------------ --------------
<S> <C>
SpeedFam Corporation.................................... United States
SpeedFam Limited........................................ United Kingdom
SpeedFam GmbH........................................... Germany
</TABLE>

All significant intercompany balances and transactions have been eliminated.
Non-U.S. subsidiaries are included in the consolidated financial statements
based upon fiscal years ended April 30. The Company's fiscal year ends on May
31.

The Company's investments in the common stock of affiliates, SpeedFam Co.,
Ltd. (a Japanese corporation, 50% owned), and Fujimi Corporation (an Illinois
corporation, 50% owned) are accounted for by the equity method using fiscal
years that end April 30 and May 31, respectively.

(b) Cash and Cash Equivalents

Cash and cash equivalents include deposits in banks and highly liquid short-
term investments with original maturities of three months or less. Short-term
investments are carried at cost which approximates market.

Property, plant and equipment is stated at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the assets.
Depreciation expense was $596, $575 and $538 in fiscal years 1993, 1994 and
1995, respectively. The estimated useful lives of the assets are as follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 7 to 40 years
Machinery and equipment..................................... 5 years
Furniture and fixtures...................................... 3 to 5 years
Leasehold improvements...................................... 2 to 10 years
</TABLE>

(d) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

(e) Income Taxes

In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Statement 109 requires a change to the asset and liability
method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

F-7
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

Effective June 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that accounting change in the fiscal year 1994
consolidated statement of earnings.

(f) Revenue Recognition

Sales of the Company's products are recorded upon shipment or when the
product is accepted by the customer. Commission revenue from affiliate is
recorded upon shipment of product.

(g) Installation and Warranty Costs

Costs to be incurred by the Company related to product installation and
warranty fulfillment are accrued at the date of shipment and are estimated by
the Company based on past experience. The accrual for product installation and
warranty fulfillment, included in accrued expenses in the consolidated balance
sheets, was $180 and $200 at the end of fiscal years 1994 and 1995,
respectively.

(h) Foreign Currency Translation

Assets and liabilities of the Company's non-U.S. operations have been
translated using the exchange rates in effect at the balance sheet dates.
Results of operations are translated using the average exchange rates
prevailing throughout the period. Local currencies are considered the
functional currencies of the Company's foreign entities. Foreign currency
exchange rates used to translate the financial statements are summarized
below:

<TABLE>
<CAPTION>
FOREIGN CURRENCY
PER U.S. DOLLAR
-------------------
1993 1994 1995
------ ------ -----
<S> <C> <C> <C>
Rates at balance sheet date:
Pound sterling ((Pounds))........................... .63 .66 .62
Deutsche mark (DM).................................. 1.59 1.65 1.39
Japanese yen ((Yen))................................ 111.15 101.65 84.20
</TABLE>

(i) Treasury Stock

The Company accounts for treasury stock using the cost method. In fiscal
years 1993 and 1994, the number of shares of treasury stock sold by the
Company amounted to 26,000 and 6,000, respectively. There were no sales of
treasury stock in fiscal year 1995. In fiscal years 1993, 1994 and 1995 the
number of shares of treasury stock purchased by the Company amounted to 2,800,
1,800, and 14,680, respectively. There are 12,540,300 shares of treasury stock
at the end of fiscal year 1995, including 1,096,800 shares held in escrow in
accordance with the terms of a note agreement with a former member of the
Board of Directors.

(j) Net Earnings (Loss) Per Share

Net earnings (loss) per share data has been computed using the weighted
average number of shares of common stock and common equivalent shares from
stock options (when dilutive using the treasury stock method). Stock options
issued during the twelve month period prior to the Company's proposed initial
public offering (see note 15) have been included in the calculation as if they
were outstanding for all periods presented (even if antidilutive using the
treasury stock method and the anticipated initial public offering price).

F-8
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(k) Concentration of Credit Risk

The Company designs, manufactures, markets and services high throughput
precision surface processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers, general industrial components and,
more recently, semiconductor devices through chemical mechanical polishing. In
addition, the Company markets and distributes parts and expendables and
polishing liquids, or slurry. The following is a summary of net sales to and
commissions earned from significant customers:

<TABLE>
<CAPTION>
CUSTOMER 1993 1994 1995
-------- ---- ---- ----
<S> <C> <C> <C>
A......................................................... 15% 21% 21%
B......................................................... * 10% 11%
C......................................................... * 11% *
</TABLE>
- --------
*Less than 10%.

(l) Patents and Trademarks

Patents and trademarks included in other assets, in the net amount of $277
and $311 at the end of fiscal years 1994 and 1995, respectively, are amortized
on a straight-line basis over 17 years for patents and 5 years for trademarks.

(m) Research, Development and Engineering

Expenditures for research, development and engineering of products and
processes are expensed as incurred.

(2) INVENTORIES

Inventories at the end of fiscal years 1994 and 1995 are summarized as
follows:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw materials............................................. $ 7,844 $10,383
Work-in-process........................................... 1,330 4,930
Finished goods............................................ 1,554 2,682
------- -------
Total inventories....................................... $10,728 $17,995
======= =======
</TABLE>

(3) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at the end of fiscal years 1994 and 1995 is
summarized as follows:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Land.................................................... $ 184 $ 188
Buildings and improvements.............................. 1,991 2,013
Machinery and equipment................................. 2,710 2,448
Furniture and fixtures.................................. 651 1,125
Leasehold improvements.................................. 371 522
------- -------
5,907 6,296
Less accumulated depreciation........................... (2,911) (3,235)
------- -------
Net property, plant and equipment..................... $ 2,996 $ 3,061
======= =======
</TABLE>

F-9
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(4) INVESTMENT IN AFFILIATES

The Company owns a 50% interest in SpeedFam Co., Ltd. The Company's equity
interest in SpeedFam Co., Ltd. was $13,321 and $17,108 at the end of fiscal
years 1994 and 1995, respectively. SpeedFam Co., Ltd.'s consolidated financial
statements include the accounts of the following subsidiaries:

<TABLE>
<CAPTION>
COMPANY LOCATION
------- --------
<S> <C>
SpeedFam Clean System Co., Ltd.............................. Japan
Saku Seiki Co., Ltd......................................... Japan
SpeedFam Incorporated....................................... Taiwan
SpeedFam Korea Ltd.......................................... South Korea
SpeedFam India (Pvt.) Ltd................................... India
Precision Technology, Inc. ................................. South Korea
</TABLE>

Significant intercompany balances and transactions have been eliminated.
SpeedFam Co., Ltd.'s investments in two affiliated Japanese companies, Met-
Coil Ltd. and CRT K.K., are accounted for by the equity method.

Condensed consolidated financial statements of SpeedFam Co., Ltd. are as
follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
APRIL 30,
----------------
ASSETS 1994 1995
------ ------- --------
<S> <C> <C>
Current assets:
Cash and short-term investments.......................... $ 6,989 $ 15,531
Trade accounts and notes receivable, net................. 39,203 46,088
Inventories.............................................. 9,865 11,086
Due from affiliated companies ........................... 4,792 8,759
Prepaid expenses and other current assets................ 1,759 1,712
------- --------
Total current assets................................... 62,608 83,176
Investments in affiliates.................................. 928 1,223
Property, plant and equipment, net......................... 18,650 20,371
Deferred income taxes and other assets..................... 4,683 6,043
------- --------
Total assets........................................... $86,869 $110,813
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings.................................... $13,207 $ 15,744
Current portion of long-term debt........................ 1,815 2,406
Accounts payable......................................... 24,627 34,299
Accrued expenses......................................... 3,253 4,384
Income taxes payable..................................... 1,329 2,564
------- --------
Total current liabilities.............................. 44,231 59,397
Long-term debt............................................. 12,387 12,528
Liability for employee benefits............................ 2,017 2,595
Minority interest.......................................... 1,593 2,078
Stockholders' equity:
Common stock............................................. 210 210
Retained earnings........................................ 15,987 18,036
Foreign currency translation adjustment.................. 10,444 15,954
Unrealized gains on marketable securities................ -- 15
------- --------
Total liabilities and stockholders' equity............. $86,869 $110,813
======= ========
</TABLE>

F-10
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

The following is a summary of SpeedFam International, Inc. and consolidated
subsidiaries' transactions with SpeedFam Co., Ltd.

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam Co., Ltd............................. $ 447 $ 67 $ 259
====== ====== ======
Purchases from SpeedFam Co., Ltd....................... $3,276 $2,555 $3,046
====== ====== ======
Commission revenue..................................... $ 772 $2,134 $2,757
====== ====== ======
Commission expense..................................... $ 164 $ 91 $ 196
====== ====== ======
</TABLE>

Net amounts due to SpeedFam Co., Ltd. included in the consolidated balance
sheets at the end of fiscal years 1994 and 1995 are $4,595 and $8,698,
respectively.

The Company's investment in the common stock of Fujimi Corporation (an
Illinois corporation, 50% owned) is accounted for by the equity method using a
fiscal year that ends May 31. Summary financial information relating to Fujimi
Corporation is as follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 31,
-------------
1994 1995
------ ------
<S> <C> <C>
Due from affiliates........................................... $ 352 $ 208
====== ======
Other current assets.......................................... $5,401 $6,649
====== ======
Noncurrent assets............................................. $ 23 $ 55
====== ======
Current liabilities........................................... $2,942 $3,963
====== ======
Total stockholders' equity.................................... $2,834 $2,949
====== ======
</TABLE>

F-11
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
MAY 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $10,227 $12,301 $15,783
Costs and operating expenses........................ 9,440 11,595 15,536
------- ------- -------
Earnings before income taxes........................ 787 706 247
Income taxes........................................ 306 296 72
------- ------- -------
Net earnings........................................ $ 481 $ 410 $ 175
======= ======= =======
</TABLE>

The Company received dividends from Fujimi Corporation of $40, $50 and $30
in fiscal years 1993, 1994, and 1995, respectively. Purchases from Fujimi
Corporation approximated $326, $775, and $1,301 in fiscal years 1993, 1994,
and 1995, respectively. Amounts due to Fujimi Corporation included in the
consolidated balance sheets at the end of fiscal years 1994 and 1995 are $352
and $208, respectively.

(5) INCOME TAXES

As discussed in note 1, the Company adopted Statement 109 effective June 1,
1993. The cumulative effect of this change in accounting for income taxes of
$78 was determined as of June 1, 1993 and is reported separately in the
consolidated statement of earnings in fiscal year 1994.

The Company files consolidated U.S. Federal income tax returns with its U.S.
subsidiary. Operations in the United Kingdom and Germany file local income tax
returns. Earnings (loss) from consolidated companies before income taxes and
cumulative effect of change in accounting principle are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ----
<S> <C> <C> <C>
U.S. .................................................. $ 167 $1,165 $183
Non-U.S. .............................................. (39) 293 460
----- ------ ----
Total.............................................. $ 128 $1,458 $643
===== ====== ====
</TABLE>

The provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Current:
U.S. Federal......................................... $ 60 $ (72) $ 112
State................................................ 8 -- 12
Non-U.S. ............................................ 203 132 182
---- ----- -----
271 60 306
---- ----- -----
Deferred:
U.S. Federal and State............................... 302 (214) (92)
Non-U.S. ............................................ -- (6) (28)
---- ----- -----
302 (220) (120)
---- ----- -----
Income tax expense (benefit)....................... $573 $(160) $ 186
==== ===== =====
</TABLE>

F-12
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

In fiscal year 1993, deferred income tax expense results from timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The sources and tax effects of those timing
differences are as follows:

<TABLE>
<CAPTION>
1993
----
<S> <C>
DISC dividend...................................................... $ (7)
Property, plant and equipment...................................... 41
Inventory.......................................................... 145
Warranty accrual................................................... 132
Other.............................................................. (9)
----
Deferred income tax expense.................................... $302
====
</TABLE>

The tax effects of temporary differences that give rise to the deferred tax
liabilities at the end of fiscal years 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Property, plant and equipment............................... $(479) $(478)
Inventory................................................... (233) (257)
Allowance for doubtful accounts............................. 65 73
Trademark amortization...................................... 44 66
Warranty accrual............................................ 175 81
Alternative minimum tax credit carryforward................. 83 47
Unrealized foreign currency losses.......................... -- 141
Other....................................................... (13) 47
----- -----
Net deferred tax liability.............................. $(358) $(280)
===== =====
</TABLE>

There is no valuation allowance for deferred tax assets at the end of fiscal
years 1993, 1994 or 1995. Deferred tax assets are considered realizable due to
the expectation of future taxable income. At the end of fiscal year 1995, the
Company has an alternative minimum tax credit carryforward of approximately
$47 available to offset regular income tax in the future to the extent such
regular income tax exceeds the alternative minimum tax.

A reconciliation between the Company's effective tax rate and the "expected"
tax rate of 34% on earnings (loss) before income taxes and cumulative effect
of change in accounting principle is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate............................. 34% 34% 34%
Officers' life insurance............................... 36 2 4
U.S. tax benefit on disposal of FamTec AG.............. -- (51) --
Difference of non-U.S. and "expected" tax rates........ (8) 2 --
FamTec AG losses without tax benefit................... 221 -- --
Dividend income from non-U.S. affiliates............... 160 1 3
State taxes, net of U.S. Federal benefit............... 13 (1) --
Foreign sales corporation.............................. (22) (2) (13)
Other.................................................. 14 4 1
--- --- ---
Effective income tax rate.............................. 448% (11%) 29%
=== === ===
</TABLE>

No provision is made for income taxes on undistributed earnings of wholly
owned non-U.S. subsidiaries and SpeedFam Co., Ltd. because it is the Company's
present intention to reinvest substantially all the earnings of these
operations. At the end of fiscal year 1995 there were approximately $10,508 of
accumulated

F-13
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
undistributed earnings of those operations. It is not practical for the
Company to compute the amount of unrecognized deferred tax liability on the
undistributed earnings.

The Company has not recognized a deferred tax liability of approximately
$232 for its share of the undistributed earnings of Fujimi Corporation that
arose in fiscal year 1993 and prior years because the Company does not expect
those unremitted earnings to reverse and become taxable in the foreseeable
future. A deferred tax liability will be recognized when the Company expects
that it will recover those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investment. At the end of fiscal
year 1995 the undistributed earnings of Fujimi Corporation were approximately
$42. A deferred tax liability in the amount of $17 has been provided for the
undistributed earnings subsequent to fiscal year 1993.

(6) LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Loans under revolving line of credit due November 8,
1997; interest rate at bank's prime rate (9.00% at May
31, 1995) or LIBOR plus 2% (8.06% at May 31, 1995).... $ 5,000 $ 6,500
Term loan payable in quarterly installments of $100
with final installment of $1,900 on October 31, 1997;
interest rate fixed at 9%............................. 3,200 2,800
Term loan payable in monthly installments of $26
(including interest) beginning April 1, 1994 for five
years; interest rate fixed at 9.25%................... 1,208 1,000
Term loan in the amount of (Pounds)142,507, payable in
monthly installments of (Pounds)4,700 ($8) for 15
years beginning in November 1987, interest rate of
2.25% over the bank's base rate (6.75% at April 30,
1995)................................................. 281 229
Note payable in equal annual installments of $207
through January 15, 1999; interest rate of prime less
1/2% (however, not less than 8% or greater than 12%);
an imputed interest rate of 15% results in a debt
discount of $87 at May 31, 1995....................... 1,035 828
Other.................................................. 16 --
------- -------
Total long-term debt............................... 10,740 11,357
Less current portion of long-term debt................. 899 908
Less debt discount..................................... 125 87
------- -------
Net long-term debt................................. $ 9,716 $10,362
======= =======
</TABLE>

In fiscal year 1995 the Company's U.S. subsidiary, SpeedFam Corporation,
entered into a new secured credit agreement with two U.S. banks. The credit
agreement provides a $9,500 revolving line of credit maturing November 8,
1997. The Company and subsidiary must meet certain financial objectives each
year as defined in the credit agreement and subsequent amendments. The
borrowings under the credit agreement are secured by the assets of the
subsidiary and are guaranteed by the Company.

The term loan payable in monthly installments of $26 is secured by certain
machinery of SpeedFam Corporation with a net book value of $321 at the end of
fiscal year 1995.

F-14
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

The term loan, payable in pounds sterling at April 30, 1995, is secured by
the assets of SpeedFam Limited and a (Pounds)250 ($403) keyman life insurance
policy.

During fiscal year 1990, the Company entered into a nine-year note agreement
with an individual who was then a director of SpeedFam International, Inc.,
for the purchase of common stock. The loan is secured by 1,096,800 shares of
the Company's stock held in escrow and included in treasury stock. This note
is subordinate to the Company's other short-term borrowings and long-term
debt. Any additional borrowings from the revolving line of credit,
institutional lenders, and SpeedFam Co., Ltd. up to approximately $13,000 will
also be superior to this note.

Annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
1996............................. $ 908
1997............................. 937
1998............................. 9,057
1999............................. 455
-------
$11,357
=======
</TABLE>

(7) COMMITMENTS AND CONTINGENCIES

The Company has agreed with its shareholders that, in the event of their
deaths, it will buy shares in the Company owned by them, or other specified
persons or fiduciaries, to the extent permitted by law. The share value is
determined by an established formula. Such commitments, as regards the
Company's major shareholder, will be fulfilled by the proceeds of an insurance
policy on his life and the anticipated issuance of subordinated debt and
cumulative preferred stock to the estate of the shareholder. At the end of
fiscal year 1995 the obligation to the majority shareholder in excess of the
face value of the insurance policy was approximately $16,131.

The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2000. Rental expense aggregated
approximately $559, $468, and $611 in fiscal years 1993, 1994, and 1995,
respectively.

Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1995 are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1996.............................. $ 775
1997.............................. 659
1998.............................. 446
1999.............................. 367
2000 and thereafter............... 237
------
Total......................... $2,484
======
</TABLE>

(8) FORWARD EXCHANGE CONTRACTS

The Company enters into forward foreign exchange contracts to hedge certain
firm commitments denominated principally in Japanese yen. The terms of the
contracts are rarely more than one year. The contracts are entered into at the
time an order is received to preserve the expected profit by protecting the

F-15
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
Company from the risk that those commitments will be adversely affected by
changes in exchange rates. Unrealized gains and losses on the forward
contracts are deferred until the related transaction occurs.

During fiscal year 1995, the Company incurred foreign currency transaction
losses on three purchase transactions as a result of not hedging on a timely
basis (i.e., at the purchase order date). These losses amounted to $350 and
are included in Miscellaneous, net in the accompanying consolidated statement
of earnings in fiscal year 1995. At the end of fiscal years 1994 and 1995,
deferred net gains (losses) amounted to $161 and ($310), respectively.

The table below summarizes the contractual amounts of the Company's forward
exchange contracts in U.S. dollars. The amounts represent the U.S. dollar
equivalent of commitments to purchase or sell foreign currencies.

<TABLE>
<CAPTION>
1994 1995
----------- ----------------
BUY SELL BUY SELL
------ ---- -------- -------
<S> <C> <C> <C> <C>
Japanese yen................................. $3,883 $298 $ 15,399 $10,448
====== ==== ======== =======
German mark.................................. $ -- $ -- $ 65 $ --
====== ==== ======== =======
</TABLE>

(9) SAVINGS AND PROFIT-SHARING PLANS

The Company maintains savings and profit-sharing plans for its employees.
The plans cover certain employees who meet length of service requirements.
Contribution expense under the plans, determined by the Company's Board of
Directors, aggregated $87, $180, and $60 in fiscal years 1993, 1994, and 1995,
respectively.

(10) EMPLOYEE INCENTIVE STOCK OPTION PLAN

On September 12, 1991, the shareholders approved the Employee Incentive
Stock Option Plan of 1991 reserving 1,500,000 shares of common stock for sale
or award as stock options to officers and key employees. Prior to fiscal year
1995, 822,000 stock options were granted at 100% or 110% of the value of the
Company's common stock as determined by an established formula, of which
295,440 are exercisable at the end of fiscal year 1995. The average exercise
price for the stock options granted prior to fiscal year 1995 is $2.04. In
fiscal year 1995, 281,660 stock options were granted at the fair value of the
Company's common stock as determined by an independent appraiser, none of
which are exercisable at the end of fiscal year 1995. The average exercise
price for the stock options granted in fiscal year 1995 is $5.38. The stock
options vest over five years (i.e., 20% each year) with the exception of
163,800 stock options issued in 1992 which vested immediately. The stock
options expire ten years after the grant date except for 48,600 stock options
which expire five years after the grant date. None of the stock options have
been exercised at the end of fiscal year 1995.

(11) DISPOSAL OF FAMTEC AG

During fiscal year 1993, the Company decided to shut down the operations of
FamTec AG and established a reserve of $300 for the associated estimated
costs. During January 1994, the bankruptcy of FamTec AG was announced and
published in Switzerland. The current plan of the bankruptcy administrator is
to apportion and distribute the assets of FamTec AG among the creditors to the
extent available with no possible recourse to the Company. The plan has
brought about the dissolution of FamTec AG and has caused the Company to no
longer have ownership of the entity.

F-16
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

As a result of this circumstance, the Company's net investment in FamTec AG
was written off in 1994. Since the liabilities and foreign currency
translation adjustment associated with FamTec AG exceeded its assets, the
disposal resulted in a pretax gain of $303 and an income tax benefit of $740
in fiscal year 1994. The benefit arose from the write-off and resulting
deduction of the Company's investment in FamTec AG for U.S. tax purposes.
Results of operations of FamTec AG are not included in the 1994 consolidated
statement of earnings nor are they material. The net loss of FamTec AG
included in the 1993 consolidated statements of earnings was $832.

(12) LITIGATION SETTLEMENT AND CANCELLATION CHARGE

In January 1993, the Company reached a favorable settlement with a
competitor over the infringement of a patent owned by the Company. Title to
the patent was granted to the competitor. The Company received in the
settlement a royalty free non-exclusive license to use the technology, an
immediate cash payment of $300 and a promissory note in the amount of $500
payable over five years in equal quarterly installments of $25 plus interest
at the prime rate. The total settlement amount of $800 is included as income
in miscellaneous, net in the statement of earnings for fiscal year 1993.
Additionally, the Company received a 2% royalty fee on machines sold by the
competitor to a maximum fee of $600. The royalty fee was satisfied as of
November 30, 1994.

In connection with the cancellation of an order, the Company recorded income
of $379 in fiscal year 1994. This amount is included in miscellaneous, net in
the 1994 consolidated statement of earnings.

(13) BUSINESS SEGMENT INFORMATION

The Company classifies its products into two core business segments: (i)
equipment, parts and expendables, which represent the Company's operations in
designing, manufacturing, and selling high throughput, precision surface
polishing, grinding and lapping machines and systems and (ii) slurries, which
represents distribution and sales of materials used in the customers'
manufacturing process. Information concerning the Company's business segments
in fiscal years 1993, 1994, and 1995 is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenue:
Sales to unaffiliated customers:
Equipment, Parts and Expendables............... $22,490 $24,336 $29,846
Slurries....................................... 20,052 24,911 27,175
------- ------- -------
Total sales to unaffiliated customers........ 42,542 49,247 57,021
Commissions from affiliate--Equipment, Parts and
Expendables.................................... 772 2,134 2,757
------- ------- -------
Total revenue................................ $43,314 $51,381 $59,778
======= ======= =======
Segment operating profit:
Equipment, Parts and Expendables............... $ 336 $ 1,840 $ 2,475
Slurries....................................... 1,342 1,705 1,759
------- ------- -------
Segment operating profit..................... 1,678 3,545 4,234
General corporate expense........................ (726) (1,390) (2,632)
Interest expense............................... (824) (697) (959)
------- ------- -------
Earnings from consolidated companies before
income taxes and cumulative effect of change
in accounting principle..................... $ 128 $ 1,458 $ 643
======= ======= =======
</TABLE>

F-17
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Identifiable assets:
Equipment, Parts and Expendables.................. $15,113 $21,727 $30,538
Slurries.......................................... 5,301 6,825 7,828
Investments in affiliates......................... 13,134 14,738 18,582
Corporate assets.................................. 1,979 2,419 3,081
------- ------- -------
Total identifiable assets....................... $35,527 $45,709 $60,029
======= ======= =======
Capital expenditures:
Equipment, Parts and Expendables.................. $ 251 $ 236 $ 470
Slurries.......................................... 34 15 12
Corporate......................................... 29 192 262
------- ------- -------
Total capital additions......................... $ 314 $ 443 $ 744
======= ======= =======
Depreciation expense:
Equipment, Parts and Expendables.................. $ 535 $ 496 $ 437
Slurries.......................................... 34 30 28
Corporate......................................... 27 49 73
------- ------- -------
Total depreciation expense...................... $ 596 $ 575 $ 538
======= ======= =======
</TABLE>

Intersegment sales are not material. Operating profit represents total
revenue less operating expenses, and excludes equity in net earnings (loss) of
affiliates, general corporate expenses, interest expense and income taxes.
Identifiable assets are those assets employed in each segment's operation,
including an allocated value. Corporate assets consist primarily of cash and
assets not employed in production.

Information regarding the Company's operations in the United States and
internationally are presented below:

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales:
United States................................ $35,141 $41,492 $47,587
Europe....................................... 8,913 8,559 10,355
Intercompany sales........................... (1,512) (804) (921)
------- ------- -------
Consolidated net sales......................... $42,542 $49,247 $57,021
======= ======= =======
Operating profit:
United States................................ $ 368 $ 757 $ 1,478
Europe....................................... (261) 44 165
Eliminations................................. 412 380 (47)
------- ------- -------
Operating profit............................... $ 519 $ 1,181 $ 1,596
======= ======= =======
Identifiable assets:
United States................................ $15,208 $24,768 $33,408
Europe....................................... 5,206 3,784 4,958
Corporate.................................... 15,113 17,157 21,663
------- ------- -------
Consolidated identifiable assets............... $35,527 $45,709 $60,029
======= ======= =======
</TABLE>

F-18
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Following is a summary of unaudited quarterly information:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1994:
Total revenue............................ $12,704 $10,067 $11,267 $17,343
======= ======= ======= =======
Gross margin............................. $ 3,005 $ 2,081 $ 2,559 $ 4,791
======= ======= ======= =======
Earnings (loss) before cumulative effect
of accounting change.................... $ 126 $ (592) $ 1,733 $ 1,006
Cumulative effect of accounting change... 78 -- -- --
------- ------- ------- -------
Net earnings (loss)...................... $ 204 $ (592) $ 1,733 $ 1,006
======= ======= ======= =======
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1995:
Total revenue............................ $13,953 $13,080 $13,006 $19,739
======= ======= ======= =======
Gross margin............................. $ 2,773 $ 2,660 $ 3,309 $ 5,542
======= ======= ======= =======
Net earnings (loss)...................... $ 146 $ (433) $ 403 $ 1,528
======= ======= ======= =======
</TABLE>

(15) SUBSEQUENT EVENTS

In July 1995, the Board of Directors and shareholders of the Company
approved the following matters:

. Amended the Company's articles of incorporation to increase the number of
common shares authorized to be issued to 20 million shares, to create a
class of preferred shares and authorize issuance of up to 1 million such
shares, and to authorize a 20 for 1 split of existing common shares. The
split of shares has been retroactively reflected in the consolidated
financial statements.

. Created or amended stock option and purchase plans for directors and
employees which allow for the issuance of up to 3 million shares of
common stock, pursuant to awarded options, restricted shares, units,
rights or payroll deductions.

. Changed the name of the Company to SpeedFam International, Inc. (formerly
FamTec International, Inc.).

. Approved cancellation of the treasury stock upon completion of the
Offering (see below).

. Approved termination of the agreement to buy back shares from
shareholders in the event of their deaths as described in note 7.

The Company intends to offer 2,500,000 shares of common stock in an initial
public offering (the "Offering"), the proceeds of which are to be used for
working capital and to repay the revolving line of credit and the note payable
to a former director of the Company. As a result, common and common equivalent
shares will increase from 8.2 million shares to 10.7 million shares.

F-19
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

(DOLLARS IN THOUSANDS)

(16) PRO FORMA NET EARNINGS PER SHARE (UNAUDITED)

The pro forma earnings per share information presented for the year ended
May 31, 1995 has been prepared assuming: (i) the Offering had occurred at the
beginning of the fiscal year 1995, resulting in reduced interest expense, net
of tax from the repayment of the revolving line of credit and the note payable
to a former director of the Company with the proceeds of the Offering, (ii) an
increase in common and common equivalent shares reflecting the offering of
2,500,000 shares, and (iii) an increase in common and common equivalent shares
reflecting the dilutive impact of stock options as if they were outstanding
the entire fiscal year 1995 (using the treasury stock method and the
anticipated public offering price).

F-20
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
1995 1996
------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 1,095 $10,100
Trade accounts and notes receivable, net.................... 16,971 31,159
Inventories................................................. 17,995 25,772
Other current assets........................................ 1,214 2,744
------- -------
Total current assets...................................... 37,275 69,775
Investments in affiliates..................................... 18,582 18,334
Property, plant and equipment, net............................ 3,061 8,037
Other assets.................................................. 1,111 1,410
------- -------
Total assets............................................ $60,029 $97,556
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings and current portion of long-term debt. $ 908 $ 714
Accounts payable and due to affiliates...................... 16,045 22,666
Customer deposits........................................... 5,662 9,250
Other current liabilities................................... 3,588 7,384
------- -------
Total current liabilities................................. 26,203 40,014
------- -------
Long-term liabilities:
Long-term debt.............................................. 10,362 2,783
Deferred income taxes....................................... 427 420
------- -------
Total long-term liabilities............................... 10,789 3,203
------- -------
Shareholders' equity:
Common stock, no par value, 20,000,000 shares authorized and
issued, 7,459,700 shares outstanding at May 31, 1995 and
10,397,200 shares outstanding at February 29, 1996......... 1 1
Additional paid-in capital.................................. 828 26,016
Retained earnings........................................... 17,426 24,115
Foreign currency translation adjustment..................... 7,991 4,207
Treasury stock.............................................. (3,209) --
------- -------
Total shareholders' equity................................ 23,037 54,339
------- -------
Total liabilities and shareholders' equity.............. $60,029 $97,556
======= =======
</TABLE>

F-21
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Revenue:
Net sales.......................................... $38,996 $72,353
Commissions from affiliate......................... 1,043 4,041
------- -------
Total revenue.................................... 40,039 76,394
Cost of sales........................................ 31,297 51,481
------- -------
Gross margin..................................... 8,742 24,913
------- -------
Research, development and engineering.............. 1,991 6,993
Selling, general and administrative expenses....... 7,404 12,617
------- -------
Operating profit (loss).............................. (653) 5,303
Interest expense..................................... (769) (615)
Other income, net.................................... 73 440
------- -------
Earnings (loss) from consolidated companies before
income taxes........................................ (1,349) 5,128
Income tax expense (benefit)......................... (484) 2,002
------- -------
Earnings (loss) from consolidated companies.......... (865) 3,126
Equity in net earnings of affiliates................. 981 3,563
------- -------
Net earnings......................................... $ 116 $ 6,689
======= =======
Net earnings per share............................... $ 0.01 $ 0.68
======= =======
Weighted average common and common equivalent shares. 8,148 9,790
======= =======
Pro forma net earnings per share data (Note 5):
Pro forma net earnings............................. $ 352 $ 6,893
======= =======
Pro forma net earnings per share................... $ 0.03 $ 0.62
======= =======
Pro forma common and common equivalent shares
outstanding....................................... 11,211 11,206
======= =======
</TABLE>

F-22
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings....................................... $ 116 $ 6,689
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in net earnings of affiliates............. (981) (3,563)
Depreciation and amortization.................... 470 721
Other............................................ (367) 13
Change in assets and liabilities
(Increase) decrease in trade accounts and notes
receivable.................................... 44 (14,578)
Increase in inventories........................ (4,671) (7,910)
Increase in other assets....................... (112) (1,866)
Increase in accounts payable and due to
affiliates.................................... 149 6,854
Increase in accrued expenses, customer deposits
and other liabilities......................... 4,304 7,507
------ --------
Net cash used in operating activities................ (1,048) (6,133)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital investments, net........................... (358) (5,579)
Other investing activities......................... 241 238
------ --------
Net cash used in investing activities................ (117) (5,341)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock............. -- 28,380
Treasury stock transactions........................ (1) 16
Proceeds from long-term debt....................... 1,200 3,999
Principal payments on long-term debt............... (672) (11,848)
------ --------
Net cash provided by financing activities............ 527 20,547
------ --------
Effect of foreign currency rate changes on cash...... 10 (68)
------ --------
Net increase (decrease) in cash and cash equivalents. (628) 9,005
Cash and cash equivalents at beginning of year....... 809 1,095
------ --------
Cash and cash equivalents at February 28, 1995 and
February 29, 1996................................... $ 181 $ 10,100
====== ========
</TABLE>

F-23
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(1) BASIS OF PRESENTATION

The condensed consolidated financial statements included herein have been
prepared by management without audit. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures made are adequate to make
the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended May 31, 1995, as filed with the
Securities and Exchange Commission on August 10, 1995 as part of its
Registration Statement on Form S-1. In the opinion of management the
information furnished herein reflects all adjustments (consisting of normal
recurring adjustments) necessary for a fair statement of results for the
interim periods presented. Results of operations for the nine months ended
February 29, 1996 are not necessarily indicative of results to be expected for
the full fiscal year.

(2) INVENTORIES

The components of inventory were:

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
1995 1996
------- ------------
<S> <C> <C>
Raw materials........................................ $10,383 $13,785
Work-in-process...................................... 4,930 10,657
Finished goods....................................... 2,682 1,330
------- -------
$17,995 $25,772
======= =======
</TABLE>

(3) INVESTMENT IN AFFILIATES

The Company owns a 50% interest in SpeedFam Co., Ltd. which is translated in
accordance with FAS No. 52. The Company's equity interest in SpeedFam Co.,
Ltd. was $17,108 and $16,704 at May 31, 1995 and at February 29, 1996,
respectively based on the balance sheet of SpeedFam Co., Ltd. at April 30,
1995 and January 31, 1996, respectively. The remaining equity interest
included in investments in affiliates relates to Fujimi Corporation and is not
significant to the consolidated financial statements. Condensed consolidated
financial statements of SpeedFam Co., Ltd., which are consolidated on a fiscal
year that ends April 30, are as follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
ASSETS 1995 1996
------ --------- -----------
<S> <C> <C>
Total current assets...................................... $ 83,176 $ 89,403
Investment in affiliates.................................. 1,223 997
Property, plant and equipment, net........................ 20,371 16,672
Deferred income taxes and other assets.................... 6,043 6,258
-------- --------
Total assets.......................................... $110,813 $113,330
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Total current liabilities................................. $ 59,397 $ 66,786
Long-term debt............................................ 12,528 8,305
Other long-term liabilities............................... 4,673 4,831
Stockholders' equity
Common stock............................................ 210 664
Retained earnings....................................... 18,036 24,101
Foreign currency translation adjustment................. 15,954 8,479
Unrealized gains on marketable securities............... 15 164
-------- --------
Total liabilities and stockholders' equity............ $110,813 $113,330
======== ========
</TABLE>

F-24
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JANUARY 31,
-----------------
1995 1996
------- --------
<S> <C> <C>
Net sales.................................................... $74,802 $115,325
Costs and operating expenses................................. 70,737 101,633
------- --------
Earnings before income taxes................................. 4,065 13,692
Income taxes................................................. 2,200 6,653
------- --------
Net earnings before minority interest........................ 1,865 7,039
Minority interest............................................ 105 244
------- --------
Net earnings................................................. 1,760 6,795
Beginning retained earnings.................................. 15,987 18,036
Dividends.................................................... (120) (276)
Transfers to capital......................................... -- (454)
------- --------
Ending retained earnings..................................... $17,627 $ 24,101
======= ========
</TABLE>

(4) OFFERING OF COMMON STOCK

On October 26, 1995, the Company completed its initial public offering of
common stock. In connection therewith, the Company issued 2,927,500 shares of
common stock and received proceeds of $28,380, net of underwriters' discounts
and commissions and offering expenses. Subsequent to the offering and prior to
the end of the second quarter, the Company paid off a significant portion of
its long-term debt with the proceeds from the public offering. Approximately
$10,499 was used to repay borrowings under a revolving line of credit
agreement with two U.S. banks. In addition, approximately $879 was used to
repay a note payable, including accrued interest, to a former director of the
company.

(5) PRO FORMA DATA

The pro forma earnings per share information presented for the nine months
ended February 28, 1995 and February 29, 1996 has been prepared assuming: (i)
the offering had occurred at the beginning of the periods presented, resulting
in reduced interest expense, net of tax from the repayment of the revolving
line of credit and a note payable to a former director of the Company with the
proceeds of the offering and (ii) an increase in common and common equivalent
shares reflecting the offering of 2,927,500 shares.

F-25
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
SpeedFam Co., Ltd.:

We have audited the accompanying consolidated balance sheets of SpeedFam
Co., Ltd. and consolidated subsidiaries as of April 30, 1994 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 1995.
These consolidated financial statements are the responsibility of the
management of SpeedFam Co., Ltd. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam
Co., Ltd. and consolidated subsidiaries as of April 30, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1995 in conformity with generally accepted
accounting principles.

KPMG PEAT MARWICK LLP

July 7, 1995
Chicago, Illinois

F-26
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AT THE END OF FISCAL YEARS 1994 AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS
------
APRIL 30,
------------------
1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,523 $ 7,234
Short-term investments.................................... 1,466 8,297
Trade accounts and notes receivable, less allowance for
doubtful accounts of $345 and $428 in 1994 and 1995,
respectively............................................. 39,203 46,088
Inventories............................................... 9,865 11,086
Due from affiliated companies............................. 4,792 8,759
Income taxes receivable................................... -- 44
Prepaid expenses and other current assets................. 1,529 1,478
Deferred income taxes..................................... 230 190
-------- --------
Total current assets.................................... 62,608 83,176
Investments in affiliates................................... 928 1,223
Property, plant and equipment, net.......................... 18,650 20,371
Deferred income taxes....................................... 438 512
Other assets................................................ 4,245 5,531
-------- --------
$ 86,869 $110,813
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings..................................... $ 13,207 $ 15,744
Current portion of long-term debt......................... 1,815 2,406
Accounts payable.......................................... 24,627 34,299
Accrued expenses.......................................... 3,253 4,384
Income taxes payable...................................... 1,329 2,564
-------- --------
Total current liabilities............................... 44,231 59,397
-------- --------
Long-term liabilities:
Long-term debt............................................ 12,387 12,528
Liability for employee benefits........................... 2,017 2,595
Minority interest......................................... 1,593 2,078
-------- --------
Total long-term liabilities............................. 15,997 17,201
-------- --------
Stockholders' Equity:
Common stock, $6 par value, 240,000 shares authorized,
120,000 shares issued and outstanding.................... 210 210
Retained earnings......................................... 15,987 18,036
Foreign currency translation adjustment................... 10,444 15,954
Unrealized gains on marketable securities................. -- 15
-------- --------
Total stockholders' equity.............................. 26,641 34,215
-------- --------
$ 86,869 $110,813
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-27
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Net sales.......................................... $75,747 $87,217 $108,664
Cost of sales...................................... 54,238 63,405 77,088
------- ------- --------
Gross profit....................................... 21,509 23,812 31,576
Selling, general, and administrative expenses...... 20,306 20,904 25,109
------- ------- --------
Operating profit................................... 1,203 2,908 6,467
------- ------- --------
Other income (expense):
Losses on sales of assets........................ (77) (69) (293)
Equity in net earnings (loss) of affiliates...... (69) 110 89
Interest income.................................. 210 207 317
Interest expense................................. (1,252) (1,119) (1,056)
Miscellaneous, net............................... 201 357 (434)
------- ------- --------
(987) (514) (1,377)
------- ------- --------
Earnings before income taxes, minority interest and
cumulative effect of change in accounting
principle......................................... 216 2,394 5,090
Income tax expense................................. 725 1,026 2,755
------- ------- --------
Earnings (loss) before minority interest and
cumulative effect of change in accounting
principle......................................... (509) 1,368 2,335
Minority interest.................................. (49) (241) (166)
------- ------- --------
Earnings (loss) before cumulative effect of change
in accounting principle........................... (460) 1,127 2,169
Cumulative effect of change in accounting
principle......................................... -- (43) --
------- ------- --------
Net earnings (loss)................................ $ (460) $ 1,084 $ 2,169
======= ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-28
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
COMMON RETAINED TRANSLATION GAINS ON
STOCK EARNINGS ADJUSTMENT SECURITIES TOTAL
------ -------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1992...... $210 $15,700 $ 4,938 $-- $20,848
Net loss....................... -- (460) -- -- (460)
Foreign currency translation
adjustment.................... -- -- 3,640 -- 3,640
Cash dividends................. -- (282) -- -- (282)
---- ------- ------- --- -------
Balance at April 30, 1993...... 210 14,958 8,578 -- 23,746
Net earnings................... -- 1,084 -- -- 1,084
Foreign currency translation
adjustment.................... -- -- 1,866 -- 1,866
Cash dividends................. -- (55) -- -- (55)
---- ------- ------- --- -------
Balance at April 30, 1994...... 210 15,987 10,444 -- 26,641
Net earnings................... -- 2,169 -- -- 2,169
Foreign currency translation
adjustment.................... -- -- 5,510 -- 5,510
Cash dividends................. -- (120) -- -- (120)
Unrealized gains on securities. -- -- -- 15 15
---- ------- ------- --- -------
Balance at April 30, 1995...... $210 $18,036 $15,954 $15 $34,215
==== ======= ======= === =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-29
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED APRIL
30,
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss).................................. $ (460) $1,084 $2,169
Adjustments to reconcile net earnings (loss) to net
cash provided by
(used in) operating activities:
Equity in net earnings (loss) of affiliates........ 69 (110) (89)
Depreciation and amortization...................... 2,237 2,668 2,531
Provision for deferred income taxes................ 272 (327) 76
Losses on sales of assets.......................... 77 69 293
Cumulative effect of change in accounting
principle......................................... -- 43 --
Other, net......................................... (25) 61 375
Change in assets and liabilities:
Decrease (increase) in trade accounts and notes
receivable
and due from affiliates......................... 3,737 (2,744) (1,729)
Decrease in inventories.......................... 1,154 1,813 608
(Increase) in prepaid expenses and other assets.. (418) (552) (316)
(Decrease) increase in accounts payable.......... (5,768) 2,255 4,028
(Decrease) increase in accrued expenses and other
liabilities..................................... (394) 1,215 717
(Decrease) increase in income taxes, net......... (2,446) 922 862
------ ------ ------
Net cash (used in) provided by operating activities.... (1,965) 6,397 9,525
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................. (2,364) (3,315) (1,214)
Proceeds from sales of assets........................ 166 6 354
Other investing activities........................... (149) 18 (5,676)
------ ------ ------
Net cash used in investing activities.................. (2,347) (3,291) (6,536)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid....................................... (282) (55) (120)
Increase in short-term borrowings.................... (78) (2,551) (155)
Proceeds from long-term debt......................... 2,469 3,008 247
Principal payments on long-term debt................. (480) (2,293) (2,165)
Issuance of debenture bond........................... 2,457 -- --
------ ------ ------
Net cash provided by (used in) financing activities.... 4,086 (1,891) (2,193)
------ ------ ------
Effect of foreign currency rate changes on cash........ 478 254 915
------ ------ ------
Net increase in cash and cash equivalents.............. 252 1,469 1,711
Cash and cash equivalents at beginning of year......... 3,802 4,054 5,523
------ ------ ------
Cash and cash equivalents at end of year............... $4,054 $5,523 $7,234
====== ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................... $1,239 $1,162 $1,487
====== ====== ======
Income taxes....................................... $2,674 $ 450 $1,783
====== ====== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-30
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The Company and its consolidated Japanese subsidiaries maintain their books
of account in conformity with the financial accounting standards of Japan. The
Company's non-Japan subsidiaries maintain their books of account in conformity
with the financial accounting standards of the countries in which they are
located. The consolidated financial statements presented herein in U.S.
dollars have been adjusted to conform to United States generally accepted
accounting principles.

(b) Principles of Consolidation

The outstanding capital stock of SpeedFam Co., Ltd. is owned in equal
amounts by Obara Corporation, a Japanese corporation, and SpeedFam
International, Inc., a U.S. holding company.

The consolidated financial statements include the accounts of SpeedFam Co.,
Ltd. (the "Company"), a Japanese corporation, and the following subsidiaries:

<TABLE>
<CAPTION>
PERCENTAGE FISCAL
SUBSIDIARIES OWNERSHIP LOCATION YEAR-END
------------ ---------- ----------- --------
<S> <C> <C> <C>
SpeedFam Clean System Co., Ltd............ 61.25% Japan March 31
Saku Seiki K.K............................ 53.54% Japan March 31
SpeedFam Incorporated..................... 99.90% Taiwan March 31
SpeedFam Korea Ltd........................ 100.00% South Korea March 31
SpeedFam India (Pvt.) Ltd................. 95.82% India March 31
Precision Technology, Inc................. 100.00% South Korea April 30
</TABLE>

All significant intercompany balances and transactions have been eliminated.
The Company's fiscal year ends on April 30.

The Company's investments in the common stock of affiliates, Met Coil Ltd.
(50% owned) and CRT K.K. (23.8% owned), are accounted for by the equity
method.

The investment in Clean Technology K.K., a 45.08% owned affiliate of
SpeedFam Clean System Co., Ltd., and 4.92% owned by the Company, is accounted
for by the equity method.

At the end of 1993, Precision Technology, Inc. ceased operations and
transferred certain fixed assets at their net book value to SpeedFam Korea
Ltd., which was established in October 1993.

Cash and cash equivalents include deposits in banks and highly liquid short-
term investments with original maturities of three months or less. These
short-term investments are carried at cost which approximates market.

(d) Short-term Investments

In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," (Statement 115) requiring that certain
investments in debt and equity securities be classified as held-to-maturity,
available-for-sale or trading securities. Investments classified as held-to-
maturity are reported at amortized cost, and those classified as available-
for-sale are reported at fair value with unrealized gains and losses, net of
related taxes, excluded from earnings and reported in a separate component of
stockholders' equity.

F-31
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

Effective May 1, 1994, the Company adopted Statement 115. The effect of
adoption on the consolidated financial statements was not material. Prior to
May 1, 1994, marketable equity securities were carried at the lower of cost or
market and other investment securities were carried at cost.

(e) Property, plant and equipment

Property, plant and equipment is stated at cost. Depreciation is provided on
the declining-balance method over the estimated useful lives of the assets.
Depreciation expense was $2,106, $2,512, and $2,312 in fiscal years 1993,
1994, and 1995, respectively. The estimated useful lives of the assets are as
follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 8 to 60 years
Machinery and equipment..................................... 4 to 13 years
Furniture and fixtures...................................... 2 to 20 years
Leasehold improvements...................................... 2 years
</TABLE>

(f) Inventories

Inventories are stated at the lower of cost, determined principally by the
first-in, first-out (FIFO) method, or market.

(g) Income Taxes

Effective May 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that accounting change in the fiscal year 1994
consolidated statement of earnings.

(h) Research and Development

Research and development expense amounted to approximately $1,253, $1,634
and $1,748 in fiscal years 1993, 1994, and 1995, respectively.

(i) Foreign Currency Translation

Assets and liabilities have been translated using the exchange rates in
effect at the balance sheet dates. Results of operations are translated using
the average exchange rates prevailing throughout the period. Local currencies
are considered the functional currencies of the Company's non-Japan entities.
Net foreign currency exchange gains (losses) amounted to $8, $61 and ($50), in
fiscal years 1993, 1994, and 1995, respectively.

F-32
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(j) Concentration of Credit Risk

The Company and its subsidiaries are engaged in the design, engineering,
manufacture, and distribution of capital goods and related operating supplies
used in high technology industries such as semiconductor, electronic, memory
disk substrates and other manufacturing markets. The Company had sales to a
Japanese company that amounted to approximately 15%, 7%, and 10.5% of net
sales in fiscal years 1993, 1994, and 1995, respectively.

(k) Revenue Recognition

Sales of the Company's products are recorded upon shipment.

(l) Warranty Costs

Generally, the Company provides a one-year warranty against manufacturer's
defects on all machines sold. Due to the specialized nature of the products,
warranty expense is recorded when it is probable and can be estimated rather
than on a units-produced or revenue basis.

(2) INVENTORIES

Inventories at the end of fiscal years 1994 and 1995 are summarized below:

<TABLE>
<CAPTION>
1994 1995
------ -------
<S> <C> <C>
Raw materials.............................................. $2,173 $ 1,211
Work in process............................................ 6,636 8,671
Finished goods............................................. 1,056 1,204
------ -------
Total inventories...................................... $9,865 $11,086
====== =======
</TABLE>

(3) MARKETABLE SECURITIES

Marketable securities at the end of fiscal year 1995 are summarized as
follows:

<TABLE>
<S> <C>
Available-for-sale, at fair value--equity securities............. $ 651
Held-to-maturity, at amortized cost--debt securities............. 6,096
-------
$ 6,747
=======
</TABLE>

The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value of available-for-sale and held-to-maturity securities at
the end of fiscal year 1995 are as follows:

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Available-for-sale equity
securities...................... $ 618 $45 $12 $ 651
====== === === ======
Held-to-maturity debt securities. $6,096 $-- $-- $6,096
====== === === ======
</TABLE>

Marketable debt securities are included in short-term investments and
marketable equity securities are included in other assets. Debt securities
mature within one year. Short-term investments at the end of fiscal year 1995
include time deposits of $2,201.

F-33
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

No investments classified as available-for-sale were sold during fiscal year
1995. The Company does not hold securities for trading purposes.

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at the end of fiscal years 1994 and 1995 is
summarized as follows:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Land..................................................... $ 4,721 $ 5,665
Buildings and improvements............................... 11,043 13,352
Machinery and equipment.................................. 15,360 17,929
Furniture and fixtures................................... 2,054 2,772
Leasehold improvements................................... 14 14
------- -------
33,192 39,732
Less accumulated depreciation............................ 14,542 19,361
------- -------
Net property, plant and equipment.................... $18,650 $20,371
======= =======
</TABLE>

(5) INCOME TAXES

As discussed in note 1, the Company adopted Statement No. 109 effective May
1, 1993. The cumulative effect of this change in accounting for income taxes
of $43 was determined as of May 1, 1993 and is reported separately in the
consolidated statement of earnings in fiscal year 1994.

Earnings (loss) before income taxes, minority interest and cumulative effect
of change in accounting principle are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Japan................................................ $ (92) $1,564 $3,216
Non-Japan............................................ 308 830 1,874
----- ------ ------
Total............................................ $ 216 $2,394 $5,090
===== ====== ======
</TABLE>

The provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Current:
Japan.............................................. $ 365 $1,139 $2,159
Non-Japan.......................................... 88 214 520
----- ------ ------
453 1,353 2,679
Deferred:
Japan.............................................. 272 (327) 76
----- ------ ------
Total............................................ $ 725 $1,026 $2,755
===== ====== ======
</TABLE>

F-34
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993
-----
<S> <C>
Business tax....................................................... $ 225
Undistributed earnings of affiliates............................... 61
Property, plant and equipment...................................... 28
Employee benefits.................................................. (17)
Inventory.......................................................... 26
Research and development........................................... (39)
Other.............................................................. (12)
-----
Deferred income tax expense.................................... $ 272
=====
</TABLE>

The tax effects of temporary differences that give rise to the deferred tax
assets at the end of fiscal years 1994 and 1995 are presented below:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Property, plant and equipment.............................. $(346) $(507)
Inventory.................................................. 139 (52)
Allowance for doubtful accounts............................ (36) (46)
Employee benefits.......................................... 942 1,199
Accrued vacation........................................... -- 97
Net operating losses....................................... 125 --
Other...................................................... (31) 11
Valuation allowance........................................ (125) --
----- -----
$ 668 $ 702
===== =====
</TABLE>

There is no valuation allowance for deferred tax assets at the end of fiscal
year 1995. The valuation allowance for deferred tax assets at the end of
fiscal year 1994 related to a tax loss carryforward at Saku Seiki K.K. that
was used in fiscal year 1995. Deferred tax assets are considered realizable
due to the expectation of future taxable income.

A reconciliation between the Company's effective tax rate and the "expected"
tax rate of 51% in Japan on earnings before income taxes, minority interest
and cumulative effect of change in accounting principle is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate................................ 51% 51% 51%
Expenses not deductible for tax purposes.................. 232 15 14
Equity in earnings of affiliates.......................... 16 (2) (1)
Differences of non-Japan and "expected" tax rates......... (31) (9) (5)
Utilization of tax loss carryforward...................... -- (5) (3)
Tax benefits not recognized on operating losses of
subsidiaries............................................. 93 -- --
Liquidation of PTI Korea.................................. 28 -- --
Tax credit for research and development................... (18) (6) (2)
Tax credit for non-Japan tax.............................. (46) -- --
Reduced tax rate applicable to earnings less than
threshold................................................ (7) (1) (1)
Other, net................................................ 18 -- 1
--- --- ---
Effective income tax rate................................. 336% 43% 54%
=== === ===
</TABLE>

F-35
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
No provision is made for income taxes on undistributed earnings of non-Japan
subsidiaries because it is the Company's present intention to reinvest
substantially all the earnings of these operations. At the end of fiscal year
1995, there were approximately $3,198 of accumulated undistributed earnings of
non-Japan subsidiaries. The Company believes that the amount of income taxes
that would be incurred if these earnings were remitted would not be
significant because of available tax credits.

The Company's corporate tax returns through April 30, 1987 have been
examined by the Japanese tax authorities.

(6) SHORT-TERM BORROWINGS

Short-term borrowings are summarized as follows:

<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Bank borrowings, including overdraft.................... $ 7,596 $ 7,984
Trade notes discounted at banks with recourse........... 5,611 7,760
-------- -------
$ 13,207 $15,744
======== =======
</TABLE>

Short-term borrowings are secured by trade notes receivable with a net book
value of $7,760 at the end of fiscal year 1995. The short-term borrowings had
weighted average interest rates of 3.54% and 3.28% in fiscal years 1994 and
1995, respectively.

(7) LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Mortgage debentures:
1st Series, due November 1997, fixed interest rate of
7.7%................................................. $ 984 $ 1,188
2nd Series, due September 1999, fixed interest rate of
5.7%................................................. 2,951 3,563
-------- -------
3,935 4,751
-------- -------
Loans from banks and other financial institutions,
maturing 1990-2004, with weighted average interest
rates of 4.42% and 4.2% in 1994 and 1995, respectively. 10,267 10,183
-------- -------
Total long-term debt................................ 14,202 14,934
Less current portion of long-term debt.................. 1,815 2,406
-------- -------
Net long-term debt.................................. $ 12,387 $12,528
======== =======
</TABLE>

The mortgage debentures are secured by land, buildings and machinery and
other assets with a net book value of $13,893 at the end of fiscal year 1995.

At the end of fiscal year 1995, the Company has provided guarantees for up
to $1,188 and $207 of bank borrowings by Met-Coil Ltd., Japan, a 50% owned
affiliate, and SpeedFam India (Pvt.) Ltd., a subsidiary of the Company,
respectively. The Company does not anticipate any loss from these
arrangements.

F-36
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
Annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
1996........................... $ 2,406
1997........................... 3,398
1998........................... 1,797
1999........................... 4,965
2000 and thereafter............ 2,368
-------
$14,934
=======
</TABLE>

(8) COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2001. Rental expense aggregated
approximately $1,153, $1,471, and $1,500 in fiscal years 1993, 1994 and 1995,
respectively.

Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1995 are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1996.............................. $ 762
1997.............................. 596
1998.............................. 350
1999.............................. 283
2000 and thereafter............... 248
------
Total......................... $2,239
======
</TABLE>

At the end of fiscal year 1995, outstanding commitments for the purchase of
property, plant and equipment were approximately $647.

(9) PENSION AND SEVERANCE BENEFITS

The Company maintains pension and severance benefit plans for its employees.
Employees who leave the Company upon retirement because of age or sever their
connection with the Company for reasons other than dismissal for cause are
entitled to lump-sum payments based on their current rate of pay and length of
service.

Effective June 1, 1984 the Company adopted an insured pension plan which
also covers employees of SpeedFam Clean Systems Co., Ltd., the terms of which
provide for the ultimate funding of retirement benefits when due. Premiums
paid under the insured plan constitute the funding of the current costs of the
liability under the plan and the funding of the related past service costs
over a 15-year period.

A separate retirement benefits program for directors and statutory auditors
is not covered by the pension plan described above. The program provides
directors and statutory auditors who retire or sever their connection with the
Company lump-sum payments based on current rates of pay, determined according
to their title and the length of service. Directors and statutory auditors may
also be granted, at the discretion of the Company, additional lump-sum
payments for meritorious service. It is not the policy of the Company to fund
these

F-37
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
retirement and severance benefits, but provision has been made in the
financial statements for the estimated accrued liabilities under the plan. The
liability related to these retirement benefits included in the accompanying
consolidated balance sheets at the end of fiscal years 1994 and 1995 amounted
to $1,765 and $2,256, respectively. The retirement benefits expense amounted
to $158, $165, and $181 in fiscal years 1993, 1994 and 1995, respectively.

Two subsidiaries of the Company have separate employee retirement and
severance plan arrangements. Payments with respect to voluntary severance are
less in amount and vary with length of service than payments for involuntary
severance and retirement. The subsidiaries have recorded estimated liabilities
in the accompanying consolidated balance sheets at the end of fiscal years
1994 and 1995 of $252 and $338, respectively, based upon the amount, net of
the benefits to be paid by a government-sponsored small enterprise mutual aid
retirement fund, which would be payable if all employees had to retire
voluntary. Plan assets plus the accrued liability approximate vested benefits.
The expense related to these employee retirement and severance plans amounted
to $34, $20 and $20 in fiscal years 1993, 1994 and 1995, respectively. The
Company believes that the effect of not adopting Statement of Financial
Accounting Standard No. 87, "Employers' Accounting for Pensions" for these
plans is not material to the consolidated financial statements.

The funded status of the insured pension plan at the end of fiscal years
1994 and 1995 is as follows:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $(1,018) $(1,338)
Nonvested benefits.................................... (49) (46)
------- -------
Accumulated benefit obligation.......................... (1,067) (1,384)
------- -------
Projected benefit obligation............................ (1,569) (2,015)
Plan assets at fair value............................... 1,304 1,785
------- -------
Projected benefit obligation in excess of plan assets... (265) (230)
Unrecognized net loss................................... 127 76
Unrecognized net obligation at transition............... 223 251
------- -------
Prepaid pension cost.................................... $ 85 $ 97
======= =======
</TABLE>

The components of net periodic pension cost for the insured pension plan are
shown below:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year........ $128 $167 $204
Interest cost on projected benefit obligation........... 51 69 89
Actual return on plan assets............................ (32) (41) (46)
Net amortization and deferral........................... 22 25 19
---- ---- ----
$169 $220 $266
==== ==== ====
Significant actuarial assumptions:
Discount rate......................................... 5.5% 5.5% 5.5%
Rate of salary increase............................... 3.0% 3.0% 3.0%
Expected long-term return on plan assets.............. 3.0% 3.0% 3.0%
</TABLE>

Plan assets represent the Company's share of funds invested by a trustee in
pooled accounts comprised of cash in banks, securities, and real estate.

F-38
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(10) LEGAL RESERVE AND CASH DIVIDENDS

The Japanese Commercial Code provides that earnings in an amount equal to at
least 10% of retained earnings be appropriated as a legal reserve until such
reserve equals 25% of stated common stock. This legal reserve is not available
for dividends but may be used to reduce a deficit or may be transferred to
stated common stock. Certain foreign subsidiaries are also required to
appropriate their earnings to legal reserves under the laws of the respective
countries. The legal reserve included as a component of retained earnings at
the end of fiscal year 1995 amounted to $310.

The accompanying consolidated financial statements do not reflect dividends
of $356 ($3 per share) declared subsequent to fiscal year 1995 by the Board of
Directors related to fiscal year 1995.

On July 20, 1995, shareholders approved the capitalization of a portion of
fiscal year 1995 earnings available for dividends amounting to $463 through
the issuance of 78,000 shares of new common stock with a par value of $6 (0.65
new share against each issued and outstanding share at the end of fiscal year
1995).

(11) RELATED PARTY TRANSACTIONS

The following is a summary of SpeedFam Co., Ltd. and consolidated
subsidiaries' transactions with SpeedFam International, Inc.

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam International, Inc. .............. $2,786 $3,121 $2,984
====== ====== ======
Purchases from SpeedFam International, Inc. ........ $ 377 $ 134 $ 251
====== ====== ======
Commission income................................... $ 164 $ 91 $ 125
====== ====== ======
Commission expense.................................. $ 892 $1,999 $2,952
====== ====== ======
</TABLE>

Commission expense is the amount earned by SpeedFam International, Inc.
related to the Company's sales of machines in the U.S. and Europe, which sales
amounted to $2,759, $5,497 and $8,772 in fiscal years 1993, 1994 and 1995.

The following is a summary of SpeedFam Co., Ltd. transactions with Met-Coil
Ltd., a 50% owned affiliate accounted for by the equity method:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Sales to Met-Coil Ltd. ................................... $ -- $281 $148
==== ==== ====
Purchases from Met-Coil Ltd. ............................. $ -- $767 $836
==== ==== ====
Interest income........................................... $ 50 $ 50 $ 14
==== ==== ====
Interest expense.......................................... $ -- $ 3 $ 5
==== ==== ====
</TABLE>

F-39
<PAGE>

Polishing pads are an
essential component of the
polishing process.

The Company supplies
a wide variety of
abrasives that are
used in polishing and
lapping processes.

The Company provides
specialized
carriers, precision-
shaped backing
films, retainer
rings, and other
processspecific
fixturing to secure
the memory disk,
semiconductor wafer
or component during
the polishing
process.

In order to provide a total
solution to its customers'
surface processing
requirements,the Company
supplies a full complement of
process specific materials
including slurries, pads,
abrasives, carriers, backing
films,grinding stones, and
other items.
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CRE-ATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.

---------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 14
Use of Proceeds........................................................... 14
Price Range of Common Stock and Dividend Policy........................... 15
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 26
Joint Venture Arrangements................................................ 41
Management................................................................ 46
Certain Transactions...................................................... 56
Principal and Selling Shareholders........................................ 57
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 62
Index to Consolidated Financial Statements................................ F-1
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

2,660,000 SHARES

LOGO

SPEEDFAM INTERNATIONAL, INC.

COMMON STOCK

-----------------

PROSPECTUS
, 1996

-----------------

LEHMAN BROTHERS

ALEX. BROWN & SONS
INCORPORATED

NEEDHAM & COMPANY, INC.

- --------------------------------------------------------------------------------
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