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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1996
COMMISSION FILE NUMBER 0-26784
SPEEDFAM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-2421613
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7406 WEST DETROIT 85226
CHANDLER, ARIZONA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER: (602) 961-2175
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $69,177,956 as of August 9, 1996.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 10,570,077 as of August 9, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III, Proxy Statement relating to 1996 Annual Meeting of Shareholders
(except for the Report of the Compensation Committee of the Board of Directors
and the Performance Graph).
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TABLE OF CONTENTS
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ITEM
NO. CAPTION PAGE
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PART I
<C> <S> <C>
1. Business...........................................................
2. Properties.........................................................
3. Legal Proceedings..................................................
4. Submission of Matters to a Vote of Security Holders................
PART II
5. Market for Common Equity and Related Shareholder Matters...........
6. Selected Financial Data............................................
Management's Discussion and Analysis of Financial Condition and
7. Results of Operations..............................................
8. Financial Statements and Supplementary Data........................
Changes in and Disagreements with Accountants on Accounting and
9. Financial Disclosure...............................................
PART III
10. Directors and Executive Officers of the Company....................
11. Executive Compensation.............................................
12. Security Ownership of Certain Beneficial Owners and Management.....
13. Certain Relationships and Related Transactions.....................
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...
Signatures.........................................................
List of Exhibits...................................................
</TABLE>
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PART I
ITEM 1. BUSINESS.
SpeedFam International, Inc. (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, SpeedFam Co., Ltd.
(the "Far East Joint Venture") and Fujimi Corporation (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.
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.
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."
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 1996, 54.5% and 78.5%,
respectively, of the Company's total revenue (including commissions) was
attributable to the sale of capital equipment, parts and expendables and 45.5%
and 21.5%, respectively, of the Company's total revenue was attributable to
the sale of slurries.
Applications. 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
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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.
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.
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.
Semiconductor Wafers. The Company supplies chemical mechanical polishing,
double-sided lapping and, more recently, edge polishing systems to the
semiconductor substrates market.
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.
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.
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.
Semiconductor Chemical Mechanical Polishing (CMP). The Company's CMP-V is a
five head, two polishing table CMP system. 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.
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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.
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.
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.
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.
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
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1994, 1995 and 1996 in the thin film memory disk media, semiconductor wafer,
general industrial application, semiconductor CMP and slurries markets are
listed below.
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SEMICONDUCTOR GENERAL
THIN FILM WAFER INDUSTRIAL
MEMORY DISK MEDIA ---------------- APPLICATIONS
----------------- --------------
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Akashic MEMC Coors Ceramics
HMT Siltec Hayward Quartz
IBM Sumitomo Sitix Motorola
Komag Wacker Siltronic Pilkington
Seagate
StorMedia
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SEMICONDUCTOR CMP* SLURRIES
------------------ --------
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AMD Akashic
Digital Equipment HMT
Hewlett-Packard IBM
Mosel Vitelic Komag
Motorola Seagate
Rockwell
Siemens
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* Through May 31, 1996, the Company had shipped an aggregate of 28 CMP-V
systems to the seven customers listed.
One customer, Komag, accounted for 20.8%, 20.6% and 17.8% of the Company's
total revenue in fiscal years 1994, 1995 and 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 69.3%, 66.9% and 64.4% of the Company's total revenue in fiscal
years 1994, 1995 and 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
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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 $52.1 million at July 31, 1996, from approximately
$13.3 million at July 31, 1995, as a result of an increase in overall demand
for the Company's products. Approximately $40.6 million, or 77.8% of the total
backlog at July 31, 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
1994, 1995 and 1996, were approximately $2.3 million, $2.7 million and $11.5
million, respectively.
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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.
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 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.
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 47.1%, 43.4% and 19.7% of the Company's
total revenue in fiscal 1994, 1995 and 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.
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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.
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.
Intellectual Property
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. The
Company holds numerous United States and foreign patents and has a number of
patent applications pending in the United States and in foreign countries. The
Company owns nine U.S. trademark registrations and has one application for
trademark registration pending. The Company also owns numerous foreign
trademarks.
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
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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.
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 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
8
<PAGE>
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 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 1994, 1995 and 1996 fiscal
years, the Company's share of the net earnings of the Far East Joint Venture
was $450,000, $1.1 million and $4.8 million, respectively, representing 19.1%,
66.9% and 40.3%, respectively, of the Company's net earnings. 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 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 1994, 1995 and 1996, 4.0%, 4.5% and 5.2% 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 May 31, 1996, the Company's equity interest in the Far East Joint
Venture was $18.5 million, representing 17.2% of the Company's total assets
and 30.9% 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.
9
<PAGE>
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>
YEAR ENDED APRIL 30,
-------------------------
1994 1995 1996
------- -------- --------
(in thousands)
Consolidated Statement of Earnings Data:
<S> <C> <C> <C> <C>
Net sales........................................ $87,217 $108,664 $161,169
Gross profit..................................... 23,812 31,576 54,257
Operating profit................................. 2,908 6,467 19,959
Net earnings(1).................................. 1,084 2,169 9,637
Consolidated Balance Sheet Data (at period end):
Working capital.................................. $18,377 $ 23,779 $ 23,526
Total assets..................................... 86,869 110,813 126,551
Long-term debt, less current portion............. 12,387 12,528 9,106
Stockholders' equity............................. 26,641 34,215 37,091
</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).
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 1994, 1995 and 1996, sales to certain customers through Fujimi
Incorporated, acting as a distributor, accounted for approximately 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
10
<PAGE>
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 1996, commissions paid to the Company relating to such
distribution amounted to approximately $2.8 million and $6.3 million,
respectively. Further, the Company purchases certain components used in its
machines from the Far East Joint Venture. During fiscal 1995 and 1996,
purchases of components from the Far East Joint Venture totaled approximately
$3.0 million and $5.6 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)39.2 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.
11
<PAGE>
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 $12.3 million in
fiscal 1994, $15.8 million in fiscal 1995 and $19.7 million in fiscal 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.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
HELD PRESENT OTHER POSITIONS HELD
NAME AND POSITION AGE OFFICE SINCE DURING PAST FIVE YEARS
----------------- --- ------------ ----------------------
<S> <C> <C> <C>
James N. Farley..................... 67 1993 President
Chairman of the Board and Chief Ex-
ecutive Officer
Makoto Kouzuma...................... 56 1993 Executive Vice President
President and Chief Operating Offi-
cer
Roger K. Marach..................... 50 1988
Treasurer, Chief Financial Officer
and Assistant Secretary
Christopher E. Augur................ 36 1993 Executive Vice President
of SpeedFam Corporation
and General Manager of
SpeedFam Corporation
President of SpeedFam Corporation
Robert R. Smith..................... 53 1974
Managing Director of SpeedFam Lim-
ited
</TABLE>
12
<PAGE>
ITEM 2. PROPERTIES.
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 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.
ITEM 3. 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.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDERS OF
RECORD AS OF
TITLE OF CLASS MAY 31, 1996
- -------------- ---------------
<S> <C>
Common Stock, no par value...................................... 93
===
</TABLE>
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 1996
First Quarter (through August 9, 1996)........................ $20 1/8 $12
</TABLE>
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.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of earnings data for the years ended May 31,
1994, 1995 and 1996 and the consolidated balance sheet data as of May 31, 1995
and 1996 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 herein. The consolidated
statement of earnings data for the years ended May 31, 1992 and 1993 and the
consolidated balance sheet data as of May 31, 1992, 1993 and 1994 are derived
from the Company's consolidated financial statements which have been audited
by KPMG Peat Marwick LLP but are not included herein. 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 herein.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Net sales...................... $36,178 $42,542 $49,247 $57,021 $113,880
Commissions.................... 3,431 772 2,134 2,757 6,290
------- ------- ------- ------- --------
Total revenue.................. 39,609 43,314 51,381 59,778 120,170
Cost of sales.................. 28,059 32,472 38,945 45,494 78,661
------- ------- ------- ------- --------
Gross margin................. 11,550 10,842 12,436 14,284 41,509
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research, development
and engineering........ 1,032 1,778 2,267 2,740 11,496
Selling, general and
administrative
expenses............... 10,687 8,545 8,988 9,948 18,922
------- ------- ------- ------- --------
Operating profit (loss). (169) 519 1,181 1,596 11,091
Interest expense........ (878) (824) (697) (959) (691)
Other income, net....... 442 433(2) 974 6 483
------- ------- ------- ------- --------
Earnings (loss) from
consolidated companies
before income taxes and
cumulative effect of
change in accounting
principle.............. (605) 128 1,458 643 10,883
Income tax expense
(benefit)............... 171 573 (160)(3) 186 4,266
------- ------- ------- ------- --------
Earnings (loss) from
consolidated companies
before cumulative
effect of change in
accounting principle... (776) (445) 1,618 457 6,617
Equity in net earnings
(loss) of
affiliates(1).......... 1,830 (45) 655 1,187 5,204
Cumulative effect of
change in accounting
principle for income
taxes.................. -- -- 78 -- --
------- ------- ------- ------- --------
Net earnings (loss)..... $ 1,054 $ (490) $ 2,351 $ 1,644 $ 11,821
======= ======= ======= ======= ========
Net earnings (loss) per
share................... $ 0.14 $ (0.06) $ 0.31 $ 0.20 $ 1.16
======= ======= ======= ======= ========
Weighted average common
and common equivalent
shares................. 7,632 7,615 7,619 8,146 10,159
======= ======= ======= ======= ========
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $ 6,503 $ 5,944 $ 9,980 $11,072 $ 31,193
Total assets............ 35,136 35,715 45,709 60,029 107,984
Long-term obligations,
less current
maturities............. 8,358 8,133 9,716 10,362 2,593
Shareholders' equity.... 14,339 15,669 18,576 23,037 60,039
</TABLE>
- --------
(1) Includes $1,584,000, ($285,000), $450,000, $1,100,000 and $4,759,000 for
the 1992 through 1996 fiscal years, respectively, attributable to the
Company's share of net earnings (loss) from the Far East Joint Venture,
accounted for on the equity method. See "Business--Joint Venture
Arrangements," the consolidated financial statements of the Far East Joint
Venture included elsewhere herein. The remainder represents the Company's
share of net earnings 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.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
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, 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 1994, 1995
and 1996, 49.4%, 52.3% and 77.3%, 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 1994,
1995 and 1996, 50.6%, 47.7% and 22.7%, respectively, of the Company's net
sales was attributable to the sale 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 1994, 1995 and 1996,
commissions accounted for 4.2%, 4.6% and 5.2%, 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 10.1% of total revenue
in fiscal 1996. Approximately 54% and 59% of the Company's total revenue in
Europe in fiscal 1995 and 1996 were attributable to the sale of slurries. In
fiscal 1994, as a result of the bankruptcy of FamTec AG, the Company wrote off
its investment in FamTec AG, formerly a wholly owned subsidiary of the
Company. 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 "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 Joint Venture were
approximately $20.9 million at April 30, 1996 (the end 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 of the Far East Joint Venture and the Fujimi Joint Venture appear
in the
16
<PAGE>
"Equity in net earnings 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 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 May 31, 1996, the Company's equity interest in
the Far East Joint Venture was $18.5 million, representing 17.2% of the
Company's total assets and 30.9% 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 "Business--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 34.7% of net sales for fiscal 1996, as compared to 7.9% of net sales for
fiscal 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.
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,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
REVENUE:
Net sales................................................. 95.8% 95.4% 94.8%
Commissions............................................... 4.2 4.6 5.2
----- ----- -----
Total revenue............................................. 100.0 100.0 100.0
Cost of sales............................................. 75.8 76.1 65.5
----- ----- -----
Gross margin............................................ 24.2 23.9 34.5
OPERATING EXPENSES:
Research, development and engineering..................... 4.4 4.6 9.6
Selling, general and administrative expenses.............. 17.5 16.6 15.7
----- ----- -----
Operating profit.......................................... 2.3 2.7 9.2
Interest expense.......................................... (1.4) (1.6) (0.6)
Other income, net......................................... 1.9 -- 0.4
----- ----- -----
Earnings from consolidated companies before income taxes
and cumulative effect of change in accounting principle.. 2.8 1.1 9.0
Income tax expense (benefit).............................. (0.3) 0.3 3.5
----- ----- -----
Earnings from consolidated companies before cumulative
effect of change in accounting principle................. 3.1 0.8 5.5
Equity in net earnings of affiliates...................... 1.3 2.0 4.3
Cumulative effect of change in accounting principle for
income tax............................................... 0.2 -- --
----- ----- -----
Net earnings.............................................. 4.6% 2.8% 9.8%
===== ===== =====
</TABLE>
17
<PAGE>
FISCAL 1996 COMPARED WITH FISCAL 1995
Net Sales. Net sales for the fiscal year ended May 31, 1996 were $113.9
million, up 99.7% over net sales of $57.0 million in fiscal 1995. This
increase was primarily attributable to a $58.2 million increase in sales of
equipment, parts and expendables to $88.1 million in fiscal 1996 from $29.8
million in fiscal 1995. CMP-V sales accounted for a significant portion of
this sales growth. In addition, net sales 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 also increased in fiscal
1996 over fiscal 1995. Sales of slurries decreased to $25.8 million in fiscal
1996 from $27.2 million in fiscal 1995 primarily due to pricing pressure in an
extremely competitive market. European sales increased slightly to $10.9
million in fiscal 1996 from $10.4 million in fiscal 1995 primarily due to
increased sales of slurries to semiconductor manufacturers.
Commissions from Affiliate. Commissions from affiliate increased to $6.3
million in the year ended May 31, 1996, compared to $2.8 million in the year
ended May 31, 1995. The increase in fiscal 1996, as compared to fiscal 1995,
was due primarily to the 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. In fiscal 1996, gross margin was $41.5 million or 34.5% of
total revenue compared to $14.3 million or 23.9% of total revenue in 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 year ended May 31, 1996,
research, development and engineering expense increased to $11.5 million or
9.6% of total revenue compared to $2.7 million or 4.6% of total revenue in
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 sales growth.
Selling, General and Administrative. In fiscal 1996, selling general and
administrative expense increased 90.2% to $18.9 million from $9.9 million in
fiscal 1995. In fiscal 1996, selling, general and administrative expense
decreased as a percent of total revenue to 15.7% compared to 16.6% in 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 year ended May 31, 1996, interest expense decreased
27.9% to $691,000 from $959,000 in 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. As a percentage of
total revenue, interest expense decreased to 0.6% in 1996 from 1.6% in 1995.
Other Income, Net. Other income increased to $483,000 in fiscal 1996 from
$6,000 in fiscal 1995. In fiscal 1995, the Company incurred a $350,000 foreign
exchange loss on several import equipment orders. The remaining 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.
Provision for Income Taxes. The Company's effective tax rate in fiscal 1996
was 39%, compared to 29% in fiscal 1995. The Company's effective income tax
rate in fiscal 1996 differs from the Federal statutory rate primarily as a
result of state taxes, net of the U.S. federal benefit. The fiscal 1995
effective tax rate differs from the statutory rate primarily as a result of
the tax benefit from the foreign sales corporation.
18
<PAGE>
Equity in Net Earnings of Affiliate. For the year ended May 31, 1996, equity
in net earnings of affiliates increased to $5.2 million compared to $1.2
million in the year ended May 31, 1995. The increase is primarily 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.
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
19
<PAGE>
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.
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 $28.3 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.
As of July 31, the Company has spent $3.6 million in land and construction
costs for a new corporate headquarters and manufacturing facility in Chandler,
Arizona. The Company presently estimates the total costs to be incurred for
the project will be approximately $16.5 million.
On April 15, 1996, the Company entered into a new unsecured $22.5 million
credit facility which replaced the former secured bank line of credit for its
U.S. operations. This increased from $10.2 million at May 31, 1995. As of May
31, 1996, $2.4 million was outstanding under the line of credit.
For the year ended May 31, 1996, the Company used $2.1 million in cash from
operating activities compared to $10,000 in the 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.
The Company believes that anticipated funds provided by operations and
borrowings available under its revolving line of credit agreement, will be
sufficient to meet the Company's working capital requirements during at least
the next 12 months. The Company is seeking to obtain long-term financing for
its new facility in Chandler, Arizona through bank financing, a sale-leaseback
transaction, or the sale of debt or equity securities.
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.
20
<PAGE>
CERTAIN FACTORS AFFECTING THE COMPANY'S BUSINESS
Discussed below are certain factors which may affect the Company's business.
This discussion is not exclusive of other factors that may also affect the
Company's business and should be read in conjunction with the other
information contained in this Annual Report including, without limitation,
information provided in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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
21
<PAGE>
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.
MARKET ACCEPTANCE OF THE COMPANY'S CMP SYSTEM
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. 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 accomplish these
objectives would have a material adverse effect on the Company. See "--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 and thin film memory disk industries are currently
experiencing downturns which have led many semiconductor and memory disk
manufacturers to delay or cancel capital expenditures. The Company's business
and results of operations will be materially adversely affected by continued
downturns in the semiconductor market and 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.
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
22
<PAGE>
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" and
"--Dependence on New Product Development; Rapid Technological Change."
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
to develop and introduce enhanced versions of its CMP system. In addition, the
Company is 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."
RELOCATION OF MANUFACTURING FACILITY
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
23
<PAGE>
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.
INTERNATIONAL BUSINESS
In fiscal 1994, 1995 and 1996, 16.7%, 17.3% and 21.7%, 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.
Certain statements in "Management's Discussion and Analysis" and "Certain
Factors Affecting the Company's Business" 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.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
<S> <C>
ANNUAL
Independent Auditors' Report.............................................. 22
Consolidated Balance Sheets--at the end of fiscal years 1995 and 1996..... 23
Consolidated Statements of Earnings--for the fiscal years 1994, 1995 and
1996..................................................................... 24
Consolidated Statements of Stockholders' Equity--for the fiscal years
1994, 1995 and 1996...................................................... 25
Consolidated Statements of Cash Flows--for the fiscal years 1994, 1995 and
1996..................................................................... 26
Notes to Consolidated Financial Statements................................ 27
SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES
ANNUAL
Independent Auditors' Report.............................................. 40
Consolidated Balance Sheets--at the end of fiscal years 1995 and 1996..... 41
Consolidated Statements of Earnings--for the fiscal years 1994, 1995 and
1996..................................................................... 42
Consolidated Statements of Shareholders' Equity--for the fiscal years
1994, 1995 and 1996...................................................... 43
Consolidated Statements of Cash Flows--for the fiscal years 1994, 1995 and
1996..................................................................... 44
Notes to Consolidated Financial Statements................................ 45
</TABLE>
The above consolidated financial statements of SpeedFam Co., Ltd. and
consolidated subsidiaries are included herein pursuant to Rule 3-09 of
Regulation S-X.
25
<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, 1995 and 1996,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1996.
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, 1995 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended May 31, 1996 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 3, 1996
Chicago, Illinois
26
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1995 1996
------ ------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 1,095 $ 10,871
Trade accounts and notes receivable, less allowance for
doubtful accounts of $187 and $495 at May 31, 1995 and
1996, respectively........................................ 16,971 34,693
Inventories................................................ 17,995 27,931
Deferred income taxes...................................... 147 1,229
Prepaid expenses and other current assets.................. 1,067 1,241
------- --------
Total current assets..................................... 37,275 75,965
Investments in affiliates.................................... 18,582 20,450
Property, plant and equipment, net........................... 3,061 9,969
Other assets................................................. 1,111 1,600
------- --------
Total assets............................................. $60,029 $107,984
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.......................... $ 908 $ 727
Accounts payable........................................... 7,138 14,704
Customer deposits.......................................... 5,662 4,814
Due to affiliates.......................................... 8,907 11,756
Accrued expenses........................................... 3,083 8,005
Income taxes payable....................................... 505 4,766
------- --------
Total current liabilities................................ 26,203 44,772
------- --------
Long-term liabilities:
Long-term debt............................................. 10,362 2,593
Deferred income taxes...................................... 427 580
------- --------
Total long-term liabilities.............................. 10,789 3,173
------- --------
Stockholders' equity:
Common stock, no par value, 20,000,000 shares authorized,
7,459,700 and 10,514,868 shares issued and outstanding at
May 31, 1995 and 1996, respectively....................... 1 1
Additional paid-in capital................................. 828 26,174
Retained earnings.......................................... 17,426 29,247
Foreign currency translation adjustment.................... 7,991 4,617
Treasury stock............................................. (3,209) --
------- --------
Total stockholders' equity............................... 23,037 60,039
------- --------
Total liabilities and stockholders' equity............... $60,029 $107,984
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED MAY 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Revenue:
Net sales....................................... $49,247 $57,021 $113,880
Commissions from affiliate...................... 2,134 2,757 6,290
------- ------- --------
Total revenue................................. 51,381 59,778 120,170
Cost of sales..................................... 38,945 45,494 78,661
------- ------- --------
Gross margin.................................. 12,436 14,284 41,509
------- ------- --------
Operating expenses:
Research, development and engineering........... 2,267 2,740 11,496
Selling, general, and administrative expenses... 8,988 9,948 18,922
------- ------- --------
Total operating expenses...................... 11,255 12,688 30,418
------- ------- --------
Operating profit.................................. 1,181 1,596 11,091
------- ------- --------
Other income (expense):
Gains on sales of assets........................ 19 246 9
Royalty income.................................. 245 264 --
Interest income................................. 34 52 454
Interest expense................................ (697) (959) (691)
Disposal of FamTec AG........................... 303 -- --
Miscellaneous, net.............................. 373 (556) 20
------- ------- --------
277 (953) (208)
------- ------- --------
Earnings from consolidated companies before income
taxes and cumulative effect of change in
accounting principle............................. 1,458 643 10,883
Income tax expense (benefit)...................... (160) 186 4,266
------- ------- --------
Earnings from consolidated companies before
cumulative of effect of change in accounting
principle........................................ 1,618 457 6,617
Equity in net earnings of affiliates.............. 655 1,187 5,204
------- ------- --------
Earnings before cumulative effect of change in
accounting principle............................. 2,273 1,644 11,821
Cumulative effect of change in accounting
principle for income taxes....................... 78 -- --
------- ------- --------
Net earnings...................................... $ 2,351 $ 1,644 $ 11,821
======= ======= ========
Net earnings per share............................ $ 0.31 $ 0.20 $ 1.16
======= ======= ========
Weighted average common and common equivalent
shares........................................... 7,619 8,146 10,159
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1994, 1995 AND 1996
(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, 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
Net earnings............ -- -- 11,821 -- -- 11,821
Foreign currency
translation adjustment. -- -- -- (3,374) -- (3,374)
Sale of treasury stock.. -- 16 -- -- 1 17
Retirement of treasury
stock.................. -- (3,208) -- -- 3,208 --
Issuance of common
stock.................. -- 28,284 -- -- -- 28,284
Exercise of stock
options................ -- 254 -- -- -- 254
---- ------- ------- ------ ------- -------
Balance at May 31, 1996. $ 1 $26,174 $29,247 $4,617 $ -- $60,039
==== ======= ======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings....................................... $ 2,351 $1,644 $11,821
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in net earnings of affiliates............. (655) (1,187) (5,204)
Depreciation and amortization.................... 675 635 1,326
Provision for losses on accounts receivable...... 7 3 316
Provision for deferred income taxes.............. (220) (120) (922)
Gains on sale of assets.......................... (19) (246) (10)
Increase in cash surrender value of life
insurance....................................... (119) (138) (142)
Gain on disposal of FamTec AG.................... (298) -- --
Cumulative effect of change in accounting
principle....................................... (78) -- --
Change in assets and liabilities:
Increase in trade accounts and notes
receivable.................................... (7,782) (2,271) (18,226)
Increase in inventories........................ (3,297) (7,067) (10,078)
(Increase) decrease in prepaid expenses and
other assets.................................. 50 (452) 23
Increase in accounts payable and due to
affiliates.................................... 5,569 4,149 10,621
Increase in accrued expenses, customer deposits
and other liabilities......................... 1,670 4,474 4,102
Increase (decrease) in income taxes payable.... (368) 566 4,290
------- ------ -------
Net cash used in operating activities................ (2,514) (10) (2,083)
------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (443) (744) (8,121)
Proceeds from sales of assets...................... 46 431 24
Dividends from affiliates.......................... 77 90 163
Other investing activities......................... (81) (83) (542)
------- ------ -------
Net cash used in investing activities................ (401) (306) (8,476)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions........................ 8 (35) 17
Net proceeds from issuance of common stock......... -- -- 28,284
Proceeds from exercise of stock options............ -- -- 254
Proceeds from long-term debt....................... 3,750 1,500 3,999
Principal payments on long-term debt............... (778) (899) (12,025)
------- ------ -------
Net cash provided by financing activities............ 2,980 566 20,529
------- ------ -------
Effect of foreign currency rate changes on cash...... (21) 36 (194)
------- ------ -------
Net increase in cash and cash equivalents............ 44 286 9,776
Cash and cash equivalents at beginning of year....... 765 809 1,095
------- ------ -------
Cash and cash equivalents at end of year............. $ 809 $1,095 $10,871
======= ====== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest......................................... $ 664 $ 866 $ 810
======= ====== =======
Income taxes..................................... $ 412 $ 125 $ 860
======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Speedfam International, Inc. (the Company), an Illinois corporation,
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. In
addition, the Company markets and distributes slurries, parts and expendables
used in its customers' manufacturing processes. The Company's customers are
primarily located in the United States, Europe, and the Far East.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
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.
(c) Property, Plant and Equipment
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 $575, $538 and $1,172 in fiscal years 1994, 1995 and
1996, 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 required a change to the asset
31
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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.
Effective June 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that accounting change in the 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 affiliates 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 $200 and $2,485 at the end of fiscal years 1995 and 1996,
respectively.
(h) Foreign Currency Translation
Assets and liabilities of the Company' 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
----------------------------------
1994 1995 1996
----------- ---------- -----------
<S> <C> <C> <C>
Rates at balance sheet date:
Pound sterling ((Pounds))............ .66 .62 .66
Deutsche mark (DM)................... 1.65 1.39 1.53
Japanese yen ((Yen))................. 101.65 84.20 105.07
</TABLE>
(i) Treasury Stock
The Company accounts for treasury stock using the cost method. In fiscal
year 1994, the Company sold 6,000 shares of treasury stock. There were no
sales of treasury stock in fiscal year 1995. The Company sold 8,000 shares of
treasury stock in fiscal year 1996. In fiscal years 1994 and 1995 the number
of shares of treasury stock purchased by the Company amounted to 1,800 and
14,680, respectively. There were no purchases of treasury stock in fiscal year
1996. All of the company's treasury stock was retired upon completion of the
Company's initial public offering of common stock on October 26, 1995 (see
note 15).
(j) Net Earnings Per Share
Net earnings per share data has been computed using the weighed 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 initial public offering
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 initial public offering price).
32
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(k) Significant Customers and Concentration of Credit Risk
Presented below is a summary of net sales to and commissions earned from
significant customers as a percentage of total revenue. Net sales to and
commissions earned from these customers are from both of the Company's
segments.
<TABLE>
<CAPTION>
CUSTOMER 1994 1995 1996
-------- ---- ---- ----
<S> <C> <C> <C>
A........................................................ 21% 21% 18%
B........................................................ 10% 11% *
C........................................................ 11% * *
</TABLE>
- --------
*Less than 10%.
Amounts due from three customers represented 14%, 15%, and 25% of total
trade accounts and notes receivable at May 31, 1996.
(l) Patents and Trademarks
Patents and trademarks included in other assets, in the net amount of $311
and $463 at the end of fiscal years 1995 and 1996, 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.
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(2) INVENTORIES
Inventories at the end of fiscal years 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Raw materials............................................. $10,383 $14,626
Work-in-process........................................... 4,930 10,777
Finished goods............................................ 2,682 2,528
------- -------
Total inventories..................................... $17,995 $27,931
======= =======
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of fiscal years 1995 and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land.................................................... $ 188 $ 2,275
Buildings............................................... 2,013 2,054
Machinery and equipment................................. 2,448 7,667
Furniture and fixtures.................................. 1,125 1,039
Leasehold improvements.................................. 522 767
Construction in progress................................ -- 495
------- -------
6,296 14,297
Less accumulated depreciation........................... (3,235) (4,328)
------- -------
Net property, plant and equipment....................... $ 3,061 $ 9,969
======= =======
</TABLE>
33
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(4)INVESTMENTS IN AFFILIATES
The Company owns a 50 percent interest in SpeedFam Co., Ltd. The Company's
equity investment in SpeedFam Co., Ltd. was $17,108 and $18,545 in 1995 and
1996, 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
</TABLE>
Significant intercompany balances and transactions have been eliminated.
SpeedFam Co., Ltd.'s investments in three affiliated Japanese companies, Met-
Coil Ltd., CRT K.K., and Xevios Corporation 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 1995 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and short-term investments......................... $ 15,531 $ 14,323
Trade accounts receivable, net.......................... 46,088 50,420
Inventories............................................. 11,086 19,961
Due from affiliates..................................... 8,759 10,924
Prepaid expenses........................................ 1,712 2,864
-------- --------
Total current assets.................................. 83,176 98,492
Investments in affiliates................................. 1,223 891
Property, plant and equipment, net........................ 20,371 20,161
Deferred income taxes and other assets.................... 6,043 7,007
-------- --------
Total assets.......................................... $110,813 $126,551
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings................................... $ 15,744 $ 8,088
Current portion of long-term debt....................... 2,406 2,252
Accounts payable........................................ 34,299 48,326
Accrued expenses........................................ 4,384 7,122
Income taxes payable.................................... 2,564 9,178
-------- --------
Total current liabilities............................. 59,397 74,966
Long-term debt............................................ 12,528 9,106
Liability for employee benefits........................... 2,595 3,421
Minority interest......................................... 2,078 1,967
-------- --------
Total long-term liabilities........................... 17,201 14,494
Stockholders' equity:
Common stock............................................ 210 664
Retained earnings....................................... 18,036 26,943
Foreign currency translation adjustment................. 15,954 9,346
Unrealized gains on marketable securities............... 15 138
-------- --------
Total stockholders' equity............................ 34,215 37,091
-------- --------
Total liabilities and stockholders' equity............ $110,813 $126,551
======== ========
</TABLE>
34
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Net sales...................................... $87,217 $108,664 $161,169
Costs and operating expenses................... 84,823 103,574 141,752
------- -------- --------
Earnings before income taxes................... 2,394 5,090 19,417
Income taxes................................... 1,026 2,755 9,479
------- -------- --------
Net earnings before minority interest.......... 1,368 2,335 9,938
Minority interest.............................. (241) (166) (301)
------- -------- --------
Net earnings before cumulative effect of change
in accounting principle....................... 1,127 2,169 9,637
Cumulative effect of change in accounting
principle..................................... (43) -- --
------- -------- --------
Net earnings................................... 1,084 2,169 9,637
Retained earnings at beginning of year......... 14,958 15,987 18,036
Common stock dividend.......................... -- -- (454)
Dividends...................................... (55) (120) (276)
------- -------- --------
Retained earnings at end of year............... $15,987 $ 18,036 $ 26,943
======= ======== ========
</TABLE>
The following is a summary of SpeedFam International, Inc. and consolidated
subsidiaries' transactions with SpeedFam Co., Ltd.
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam Co., Ltd............................. $ 67 $ 259 $1,737
====== ====== ======
Purchases from SpeedFam Co., Ltd....................... $2,555 $3,046 $7,612
====== ====== ======
Commission revenue..................................... $2,134 $2,757 $6,290
====== ====== ======
Commission expense..................................... $ 91 $ 196 $ 582
====== ====== ======
</TABLE>
Net amounts due to SpeedFam Co., Ltd. included in the consolidated balance
sheets at the end of fiscal years 1995 and 1996 are $8,698 and $11,591,
respectively.
The Company owns a 50% interest in Fujimi Corporation. The Company's equity
investment in Fujimi Corporation was $1,474 and $1,905 in 1995 and 1996,
respectively. Summary financial information relating to Fujimi Corporation is
as follows:
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $12,301 $15,783 $19,734
Costs and operating expenses........................ 11,595 15,536 18,235
------- ------- -------
Earnings before income taxes........................ 706 247 1,499
Income taxes........................................ 296 72 589
------- ------- -------
Net earnings........................................ $ 410 $ 175 $ 910
======= ======= =======
</TABLE>
35
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The Company received dividends from Fujimi Corporation of $50, $30, and $25
in 1994, 1995, and 1996, respectively. Purchases from Fujimi Corporation
approximated $775, $1,301, and $952 in 1994, 1995, and 1996, respectively.
Amounts due to Fujimi Corporation included in the consolidated balance sheets
at the end of fiscal years 1995 and 1996 are $208 and $165, 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
domestic subsidiary. Operations in the United Kingdom and Germany file local
income tax returns. Earnings from consolidated companies before income taxes
and cumulative effect of change in accounting principle are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ---- -------
<S> <C> <C> <C>
U.S..................................................... $ 1,165 $183 $ 9,380
Non-U.S................................................. 293 460 1,503
------- ---- -------
Total............................................... $ 1,458 $643 $10,883
======= ==== =======
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ---- ------
<S> <C> <C> <C>
Current:
U.S. Federal...................................... $ (72) $112 $3,693
State............................................. -- 12 965
Non-U.S........................................... 132 182 537
------ ---- ------
60 306 5,195
------ ---- ------
Deferred:
U.S. Federal and State............................ (214) (92) (915)
Non-U.S........................................... (6) (28) (14)
------ ---- ------
(220) (120) (929)
------ ---- ------
Income tax expense (benefit)........................ $ (160) $186 $4,266
====== ==== ======
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets (liabilities) at the end of fiscal years 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Property, plant and equipment............................. $(478) $(616)
Inventory................................................. (257) 166
Allowance for doubtful accounts........................... 73 164
Trademark amortization.................................... 66 80
Warranty reserve.......................................... 81 984
Alternative minimum tax credit carryforward............... 47 47
Unrealized foreign currency losses........................ 141 --
Other..................................................... 47 (176)
----- -----
Net deferred tax asset (liability)........................ $(280) $ 649
===== =====
</TABLE>
36
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
There is no valuation allowance for deferred tax assets at the end of fiscal
years 1995 or 1996. 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 34% on earnings before income taxes and cumulative effect of
change in accounting principle is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate.............................. 34% 34% 34%
Officers' life insurance................................ 2 4 --
U.S. tax benefit on disposal of FamTec AG............... (51) -- --
Difference of non-U.S. and "expected" tax rates......... 2 -- --
Dividend income from non-U.S. affiliates................ 1 3 --
State taxes, net of U.S. Federal benefit................ (1) -- 4
Foreign sales corporation............................... (2) (13) --
Other................................................... 4 1 1
--- --- ---
Effective income tax rate............................... (11)% 29% 39%
=== === ===
</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 1996 there were approximately $15,943 of
accumulated 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 1996 the undistributed earnings of Fujimi Corporation were approximately
$123. A deferred tax liability in the amount of $49 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>
1995 1996
----- ------
<S> <C> <C>
Loans under revolving line of credit due April 14, 1999;
interest rate at bank's prime rate (8.25% at May 31, 1996)
or LIBOR plus 1.25% (6.75% at May 31, 1996)............... $ -- $2,400
Loans under revolving line of credit due November 8, 1997;
interest rate at bank's prime rate or LIBOR plus 2%....... 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%.......................................... 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%....................................... 1,000 772
</TABLE>
37
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Term loan payable in monthly installments of (Pounds)4.7
($8) for 15 years beginning in November 1987, interest
rate of 2.25% over the bank's base rate (8.25% at April
30, 1996)............................................... 229 148
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.................................. 828 --
------- ------
Total long-term debt..................................... 11,357 3,320
Less current portion of long-term debt................... 908 727
Less debt discount....................................... 87 --
------- ------
Net long-term debt....................................... $10,362 $2,593
======= ======
</TABLE>
In fiscal year 1996 the Company entered into a new unsecured credit
agreement with two U.S. banks. The credit agreement includes a $22,500
revolving line of credit maturing April 14, 1999. The Company must meet
certain financial objectives each year as defined in the credit agreement.
The term loan payable in monthly installments of $26 is secured by certain
machinery of SpeedFam Corporation with a net book value of $193 at May 31,
1996.
The term loan, payable in pounds sterling is secured by the assets of
SpeedFam Limited and a (Pounds)250 ($377) keyman life insurance policy.
During fiscal year 1996 the revolving line of credit due November 8, 1997,
the term loan payable in quarterly installments of $100, and the note payable
were paid.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1997.............................................................. $ 727
1998.............................................................. 744
1999.............................................................. 1,849
------
$3,320
======
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
During fiscal year 1996 the Company entered into a technology license
agreement related to the development of a new product expected to be
introduced during fiscal year 1997. The agreement required the payment of $400
upon signing and a final payment of $300 due in June 1996. The agreement also
obligates the Company to make annual royalty payments of 5.5% of the Company's
net sales of products using the licensed technology for ten years. The annual
royalty payments are subject to a minimum payment of $150 beginning in fiscal
year 1998 and $200 for fiscal years 1999 to 2006.
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 $468, $611, and $917 in 1994, 1995, and 1996, respectively.
During fiscal year 1996, the Company entered into certain agreements with a
general contractor, project manager and architect relating to the construction
of a new office and manufacturing facility in Chandler, Arizona. The
agreements specify the amounts and timing of payments to be made by the
Company and the work to be performed by the other parties to the agreements.
38
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997............................................................... $1,071
1998............................................................... 784
1999............................................................... 609
2000............................................................... 334
2001 and thereafter................................................ 12
------
Total.......................................................... $2,810
======
</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
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. At the end of
fiscal years 1995 and 1996, deferred net losses amounted to $310 and $228,
respectively.
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.
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>
1995 1996
--------------- --------------
BUY SELL BUY SELL
------- ------- ------- ------
<S> <C> <C> <C> <C>
Japanese yen............................... $15,399 $10,448 $17,980 $1,224
======= ======= ======= ======
Deutsche 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.
Expense under the plans, determined by the Company's Board of Directors,
aggregated $180, $60, and $1,443 in 1994, 1995, and 1996, 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, stock options were granted at 100% to 110% of the value of the Company's
common stock as determined by an established formula. In fiscal year 1995,
stock options were granted at 100% to 110% of the fair value of the Company's
common stock as determined by an independent appraiser. Subsequent to
39
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
fiscal year 1995, stock options are granted at a price not less than the fair
market value on the date of grant. 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 119,700 stock options which expire five years after the
grant date. The following table summarizes the activity in common shares
subject to options for the two years ended May 31, 1996:
<TABLE>
<CAPTION>
SHARES OPTION PRICE PER SHARE
--------- ----------------------
<S> <C> <C>
Balance, June 1, 1994.................... 822,000 $ 2.0365 - $ 2.2600
Granted................................ 281,660 2.4130 - 6.4100
Exercised.............................. -- -
Canceled or Expired.................... -- -
Balance, May 31, 1995.................... 1,103,660 2.0365 - 6.4100
Granted................................ 330,976 10.7500 - 20.5000
Exercised.............................. 119,668 2.0365 - 5.8250
Canceled or Expired.................... 33,900 2.0365 - 5.8250
Balance, May 31, 1996.................... 1,281,068 $ 2.0365 - $20.5000
</TABLE>
At May 31, 1996, 347,364 shares were exercisable.
(11)DISPOSAL OF FAMTEC AG
During fiscal year 1993, the Company terminated the operations of FamTec AG,
incorporated under the laws of Switzerland. A voluntary petition for
bankruptcy was filed, announced and published in Switzerland in fiscal year
1994. 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.
FamTec AG was dissolved and the Company no longer has ownership of the entity.
As a result of this circumstance, the Company's net investment in FamTec AG
was written off in 1994. Since the liabilities and reserve 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.
(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 the five years in equal quarterly installments of $25 plus
interest at the prime rate. 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.
40
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(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, developing manufacturing, marketing and servicing high throughput,
precision surface processing systems and (ii) slurries, which represents the
distribution and sale of materials used in the customers' manufacturing
process. Information concerning the Company's business segments in fiscal
years 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Revenue:
Sales to unaffiliated customers:
Equipment, parts and expendables............ $24,336 $29,846 $ 88,050
Slurries.................................... 24,911 27,175 25,830
------- ------- --------
Total sales to unaffiliated customers..... 49,247 57,021 113,880
Commissions from affiliate--Equipment, parts
and expendables.............................. 2,134 2,757 6,290
------- ------- --------
Total revenue............................. $51,381 $59,778 $120,170
======= ======= ========
Segment operating profit:
Equipment, parts and expendables.............. $ 1,840 $ 2,475 $ 14,585
Slurries...................................... 1,705 1,759 572
------- ------- --------
Segment operating profit........................ 3,545 4,234 15,157
General corporate expense....................... (1,390) (2,632) (3,583)
Interest expense................................ (697) (959) (691)
------- ------- --------
Earnings from consolidated companies before
income taxes and cumulative effect of change in
accounting principle........................... $ 1,458 $ 643 $ 10,883
======= ======= ========
Identifiable Assets:
Equipment, parts and expendables.............. $21,727 $30,538 $ 62,177
Slurries...................................... 6,825 7,828 8,836
Investment in affiliates...................... 14,738 18,582 20,450
Corporate assets.............................. 2,419 3,081 16,521
------- ------- --------
Total identifiable assets................. $45,709 $60,029 $107,984
======= ======= ========
Capital expenditures:
Equipment, parts and expendables.............. $ 236 $ 470 $ 5,197
Slurries...................................... 15 12 35
Corporate..................................... 192 262 2,889
------- ------- --------
Total capital additions................... $ 443 $ 744 $ 8,121
======= ======= ========
Depreciation expense:
Equipment, parts and expendables.............. $ 496 $ 437 $ 1,044
Slurries...................................... 30 28 29
Corporate..................................... 49 73 99
------- ------- --------
Total depreciation expense................ $ 575 $ 538 $ 1,172
======= ======= ========
</TABLE>
41
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Intersegment sales are not material. Operating profit represents total
revenue less operating expenses, and excludes equity in net earnings of
affiliates, 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>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Net sales:
United States............................... $41,492 $47,587 $103,698
Europe...................................... 8,559 10,355 10,855
Intercompany sales.......................... (804) (921) (673)
------- ------- --------
Consolidated net sales........................ $49,247 $57,021 $113,880
======= ======= ========
Operating profit:
United States............................... $ 757 $ 1,478 $ 10,184
Europe...................................... 44 165 917
Eliminations................................ 380 (47) (10)
------- ------- --------
Operating profit.............................. $ 1,181 $ 1,596 $ 11,091
======= ======= ========
Identifiable assets:
United States............................... $24,768 $33,408 $ 66,059
Europe...................................... 3,784 4,958 4,954
Corporate................................... 17,157 21,663 36,971
------- ------- --------
Consolidated identifiable assets.............. $45,709 $60,029 $107,984
======= ======= ========
</TABLE>
(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, 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
======= ======= ======= =======
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1996:
Total revenue............................. $17,816 $25,438 $33,140 $43,776
======= ======= ======= =======
Gross margin.............................. $ 5,050 $ 7,018 $12,845 $16,596
======= ======= ======= =======
Net earnings.............................. $ 704 $ 1,625 $ 4,359 $ 5,133
======= ======= ======= =======
</TABLE>
42
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN THOUSANDS)
(15) 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 $28,284, net of underwriters' discounts
and commissions and offering expenses.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments at May 31, 1995 and 1996 include cash
equivalents, trade receivables, trade payables, noncurrent receivables and
long-term debt. The carrying value of cash equivalents, trade receivables and
trade payables approximates fair value because of the short maturity of these
instruments. The fair value of the Company's noncurrent receivables and long-
term debt are not materially different from their financial statement carrying
values.
43
<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, 1995 and 1996, 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, 1996.
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.
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
Co., Ltd. and consolidated subsidiaries as of April 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1996 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 3, 1996
Chicago, Illinois
44
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1995 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 7,234 $ 10,993
Short-term investments..................................... 8,297 3,330
Trade accounts and notes receivable, less allowance for
doubtful accounts of $428 and $676 in 1995 and 1996,
respectively.............................................. 46,088 50,420
Inventories................................................ 11,086 19,961
Due from affiliated companies.............................. 8,759 10,924
Income taxes receivable.................................... 44 42
Deferred income taxes...................................... 190 1,089
Prepaid expenses and other current assets.................. 1,478 1,733
-------- --------
Total current assets..................................... 83,176 98,492
Investments in affiliates.................................... 1,223 891
Property, plant and equipment, net........................... 20,371 20,161
Deferred income taxes........................................ 512 640
Other assets................................................. 5,531 6,367
-------- --------
$110,813 $126,551
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings...................................... $ 15,744 $ 8,088
Current portion of long-term debt.......................... 2,406 2,252
Accounts payable........................................... 34,299 48,326
Accrued expenses........................................... 4,384 7,122
Income taxes payable....................................... 2,564 9,178
-------- --------
Total current liabilities................................ 59,397 74,966
-------- --------
Long-term liabilities:
Long-term debt............................................. 12,528 9,106
Liability for employee benefits............................ 2,595 3,421
Minority interest.......................................... 2,078 1,967
-------- --------
Total long-term liabilities.............................. 17,201 14,494
-------- --------
Stockholders' equity:
Common stock, $6 par value, 240,000 shares authorized,
120,000 and 198,000 shares issued and outstanding, at
April 30, 1995 and 1996, respectively..................... 210 664
Retained earnings.......................................... 18,036 26,943
Foreign currency translation adjustment.................... 15,954 9,346
Unrealized gains on marketable securities.................. 15 138
-------- --------
Total stockholders' equity............................... 34,215 37,091
-------- --------
$110,813 $126,551
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Net sales......................................... $87,217 $108,664 $161,169
Cost of sales..................................... 63,405 77,088 106,912
------- -------- --------
Gross profit...................................... 23,812 31,576 54,257
Selling, general, and administrative expenses..... 20,904 25,109 34,298
------- -------- --------
Operating profit.................................. 2,908 6,467 19,959
------- -------- --------
Other income (expense):
Losses on sales of assets....................... (69) (293) (710)
Equity in net earnings (loss) of affiliates..... 110 89 (203)
Interest income................................. 207 317 407
Interest expense................................ (1,119) (1,056) (851)
Miscellaneous, net.............................. 357 (434) 815
------- -------- --------
(514) (1,377) (542)
------- -------- --------
Earnings before income taxes, minority interest
and cumulative effect of change in accounting
principle........................................ 2,394 5,090 19,417
Income tax expense................................ 1,026 2,755 9,479
------- -------- --------
Earnings before minority interest and cumulative
effect of change in accounting principle......... 1,368 2,335 9,938
Minority interest................................. (241) (166) (301)
------- -------- --------
Earnings before cumulative effect of change in
accounting principle............................. 1,127 2,169 9,637
Cumulative effect of change in accounting
principle........................................ (43) -- --
------- -------- --------
Net earnings...................................... $ 1,084 $ 2,169 $ 9,637
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(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, 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
Net earnings................... -- 9,637 -- -- 9,637
Common stock dividend.......... 454 (454) -- -- --
Foreign currency translation
adjustment.................... -- -- (6,608) -- (6,608)
Cash dividends................. -- (276) -- -- (276)
Unrealized gains on securities. -- -- -- 123 123
---- ------- ------- ---- -------
Balance at April 30, 1996...... $664 $26,943 $ 9,346 $138 $37,091
==== ======= ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................... $ 1,084 $ 2,169 $ 9,637
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in net (earnings) loss of affiliates.... (110) (89) 203
Depreciation and amortization.................. 2,668 2,531 2,267
Provision (benefit) for deferred income taxes.. (327) 76 (1,368)
Losses on sales of assets...................... 69 293 710
Cumulative effect of change in accounting
principle..................................... 43 -- --
Other, net..................................... 61 375 364
Change in net assets and liabilities:
Increase in trade accounts and notes
receivable and due from affiliates.......... (2,744) (1,729) (18,608)
(Increase) decrease in inventories........... 1,813 608 (11,661)
Increase in prepaid expenses and other
assets...................................... (552) (316) (2,462)
Increase in accounts payable................. 2,255 4,028 22,102
Increase in accrued expenses and other
liabilities................................. 1,215 717 5,482
Increase in income taxes, net................ 922 862 7,509
------- ------- --------
Net cash provided by operating activities.......... 6,397 9,525 14,175
------- ------- --------
Cash flows from investing activities:
Capital expenditures............................. (3,315) (1,214) (7,129)
Proceeds from sales of assets.................... 6 354 283
Other investing activities....................... 18 (5,676) 3,435
------- ------- --------
Net cash used in investing activities.............. (3,291) (6,536) (3,411)
------- ------- --------
Cash flows from financing activities:
Dividends paid................................... (55) (120) (276)
Decrease in short-term borrowings................ (2,551) (155) (4,824)
Proceeds from long-term debt..................... 3,008 247 2,528
Principal payments on long-term debt............. (2,293) (2,165) (3,176)
------- ------- --------
Net cash used in financing activities.............. (1,891) (2,193) (5,748)
------- ------- --------
Effect of foreign currency rate changes on cash.... 254 915 (1,257)
------- ------- --------
Net increase in cash and cash equivalents.......... 1,469 1,711 3,759
Cash and cash equivalents at beginning of year..... 4,054 5,523 7,234
------- ------- --------
Cash and cash equivalents at end of year........... $ 5,523 $ 7,234 $ 10,993
======= ======= ========
Supplemental cash flow information--cash paid
during the year for:
Interest......................................... $ 1,162 $ 1,487 $ 720
======= ======= ========
Income taxes..................................... $ 450 $ 1,783 $ 3,389
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SpeedFam Co., Ltd. (the "Company") was incorporated in 1971 as a joint
venture owned equally by the two corporate shareholders, Obara Corporation, a
Japanese company and SpeedFam International, Inc., a U.S. company.
The Company and its domestic subsidiaries and affiliated companies conduct
operations primarily in Japan but have subsidiaries and branches in Taiwan,
South Korea, India, Singapore, Hong Kong and China.
The Company and its subsidiaries and affiliates are engaged in the design,
engineering, manufacture, and distribution mainly of lapping and polishing
equipment and consumables, through-feed grinders, cleaning machines and
measuring equipment used in high technology industries.
(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 dollars
have been adjusted to conform to U.S. generally accepted accounting
principles.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
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........................... 100.00 Taiwan March 31
SpeedFam Korea Ltd.............................. 100.00 South Korea March 31
SpeedFam India (Pvt.) Ltd....................... 82.00 India March 31
</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), CRT K.K. (23.08% owned) and Xevios Corporation (50% owned,
acquired in fiscal year 1996) are accounted for by the equity method.
The investment in Clean Technology K.K., a 27.5% (1995--45.08%) owned
affiliate of SpeedFam Clean System Co., Ltd., and 22.5% (1995--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. Precision Technology, Inc. was
liquidated on May 31, 1994.
49
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(c) 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. 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.
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 $2,512, $2,312, and $2,148 in fiscal years 1994, 1995
and 1996, respectively. The estimated useful lives of the assets are as
follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5 to 60 years
Machinery and equipment..................................... 3 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
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Statement 109 required 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.
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.
50
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(h) Revenue Recognition
Sales of the Company's products are recorded upon shipment.
(i) 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.
(j) 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-Japanese
entities.
(k) Significant Customer
The Company had sales to a Japanese company that amounted to approximately
7.3%, 10.5%, and 11.2% of net sales in fiscal years 1994, 1995, and 1996,
respectively.
(l) Research and Development
Research and development expense amounted to approximately $1,634, $1,748
and $6,651 in fiscal years 1994, 1995, and 1996, respectively. Such
expenditures are expensed as incurred.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(n) Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 financial statement presentation.
(2) INVENTORIES
Inventories at the end of fiscal years 1995 and 1996 are summarized below:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Raw materials............................................. $ 1,211 $ 723
Work-in-process........................................... 8,671 16,340
Finished goods............................................ 1,204 2,898
------- -------
Total inventories..................................... $11,086 $19,961
======= =======
</TABLE>
51
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(3) INVESTMENTS
Investments at the end of fiscal years 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Held-to-maturity, debt securities, at amortized cost....... $6,096 $ 133
Time deposits.............................................. 2,201 3,197
------ ------
Total short-term investments........................... 8,297 3,330
Available-for-sale, equity securities, at fair value,
included in other assets.................................. 651 779
------ ------
Total investments...................................... $8,948 $4,109
====== ======
</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 years 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1995:
Available-for-sale equity
securities....................... $ 618 $ 45 $12 $ 651
Held-to-maturity debt securities.. $6,096 $ -- $-- $6,096
1996:
Available-for-sale equity
securities....................... $ 515 $265 $(1) $ 779
Held-to-maturity debt securities.. $ 133 $ -- $-- $ 133
</TABLE>
No investments classified as available-for-sale were sold during fiscal
years 1995 and 1996. The Company does not hold securities for trading
purposes.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of fiscal years 1995 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Land.................................................... $ 5,665 $ 4,560
Buildings and improvements.............................. 13,352 11,361
Machinery and equipment................................. 17,929 13,615
Furniture and fixtures.................................. 2,772 2,486
Leasehold improvements.................................. 14 13
Construction in progress................................ -- 3,468
-------- -------
39,732 35,503
Less accumulated depreciation........................... 19,361 15,342
-------- -------
Net property, plant and equipment....................... $ 20,371 $20,161
======== =======
</TABLE>
52
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(5) INCOME TAXES
As discussed in note 1, the Company adopted Statement 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 before income taxes, minority interest and cumulative effect of
change in accounting principle are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Japan............................................... $1,564 $3,216 $15,135
Non-Japan........................................... 830 1,874 4,282
------ ------ -------
Total........................................... $2,394 $5,090 $19,417
====== ====== =======
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Current:
Japan........................................... $1,139 $2,159 $ 9,546
Non-Japan....................................... 214 520 1,301
------ ------ -------
1,353 2,679 10,847
Deferred:
Japan........................................... (327) 76 (1,360)
Non-Japan....................................... -- -- (8)
------ ------ -------
Total......................................... $1,026 $2,755 $ 9,479
====== ====== =======
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets (liabilities) at the end of fiscal years 1995 and 1996 are presented
below:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Property, plant and equipment............................ $ (507) $ (333)
Inventory................................................ (52) 74
Allowance for doubtful accounts.......................... (46) (60)
Employee benefits........................................ 1,199 1,093
Accrued vacation......................................... 97 166
Business tax............................................. 248 890
Other.................................................... (237) (101)
------ ------
$ 702 $1,729
====== ======
</TABLE>
There is no valuation allowance for tax assets at the end of fiscal years
1995 and 1996. Deferred tax assets are considered realizable due to the
expectation of future taxable income. Income tax expense as a component of
stockholders' equity related to unrealized gains and losses on marketable
securities, aggregated $15 and $129 at the end of fiscal years 1995 and 1996,
respectively.
53
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate................................ 51% 51% 51%
Expenses not deductible for tax purposes.................. 15 14 4
Equity in earnings of affiliates.......................... (2) (1) 1
Differences of non-Japan and "expected" tax rates......... (9) (5) (5)
Utilization of tax loss carryforward...................... (5) (3) --
Tax credit for research and development................... (6) (2) (3)
Reduced tax rate applicable to earnings less than
threshold................................................ (1) (1) --
Other, net................................................ -- 1 1
--- --- ---
Effective income tax rate................................. 43% 54% 49%
=== === ===
</TABLE>
No provision is made for income taxes on undistributed earnings of non-Japan
subsidiaries and affiliates because it is the Company's present intention to
reinvest substantially all the earnings of these operations. 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, 1994 have been
examined by the Japanese tax authorities.
(6) SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Bank borrowings, including overdraft...................... $ 7,984 $ 926
Trade notes discounted at banks with recourse............. 7,760 7,162
------- ------
$15,744 $8,088
======= ======
</TABLE>
Short-term borrowings are secured by trade notes receivable with a net book
value of $7,162 at the end of fiscal year 1996. The short-term borrowings had
weighted average interest rates of 3.54%, 3.28% and 2.34% in fiscal years
1994, 1995 and 1996, respectively.
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Mortgage debentures:
1st Series, due November 1997, fixed interest rate of
7.7%................................................... $ 1,188 $ 952
2nd Series, due September 1999, fixed interest rate of
5.7%................................................... 3,563 2,855
Loans from banks and other financial institutions,
maturing 1995 to 2004, with weighted average interest
rates of 4.2% and 3.46% in 1995 and 1996, respectively... 10,183 7,551
------- ------
Total long-term debt...................................... 14,934 11,358
Less current portion of long-term debt.................... 2,406 2,252
------- ------
Net long-term debt........................................ $12,528 $9,106
======= ======
</TABLE>
54
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The mortgage debentures are secured by land and buildings with a net book
value of $3,776 at the end of fiscal year 1996.
At the end of fiscal year 1996, the Company has provided guarantees for up
to $952 and $181 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.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
1997.............................................................. $ 2,252
1998.............................................................. 2,916
1999.............................................................. 1,445
2000.............................................................. 3,621
2001 and thereafter............................................... 1,124
-------
$11,358
=======
</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 $1,471, $1,500 and $1,635 in fiscal years 1994, 1995 and 1996,
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 1996 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1997............................................................... $ 799
1998............................................................... 643
1999............................................................... 546
2000............................................................... 397
2001 and thereafter................................................ 133
------
Total.......................................................... $2,518
======
</TABLE>
At the end of fiscal year 1996, outstanding commitments for the purchase of
property, plant and equipment were approximately $5,024.
55
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(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.
The funded status of the insured pension plan at the end of fiscal years
1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $(1,338) $(1,205)
Nonvested benefits.................................... (46) (26)
------- -------
Accumulated benefit obligation.......................... (1,384) (1,231)
------- -------
Projected benefit obligation............................ (2,015) (1,775)
Plan assets at fair value............................... 1,785 1,656
------- -------
Projected benefit obligation in excess of plan assets... (230) (119)
Unrecognized net loss................................... 76 19
Unrecognized net obligation at transition............... 251 185
------- -------
Prepaid pension cost.................................... $ 97 $ 85
======= =======
</TABLE>
The components of net periodic pension cost for the insured pension plan are
shown below:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year........ $167 $204 $176
Interest cost on projected benefit obligation........... 69 89 87
Actual return on plan assets............................ (41) (46) (39)
Net amortization and deferral........................... 25 19 10
---- ---- ----
$220 $226 $234
==== ==== ====
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 bank and real estate.
A separate retirement benefits program for directors and statutory auditors
is not covered by the pension plan described above. The program provides that
directors and statutory auditors who retire or sever their connection with the
Company are entitled to 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 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
56
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
the accompanying consolidated balance sheets at the end of fiscal years 1995
and 1996 amounted to $2,256 and $3,150, respectively. The plan was amended
during fiscal year 1996 and the resulting past service cost of $1,104 is being
amortized over a period of five years. Unamortized past service cost at the
end of fiscal year 1996 amounting to $883 is classified as other assets in the
accompanying consolidated balance sheets. The retirement benefits expense
amounted to $165, $181, and $520 in fiscal years 1994, 1995 and 1996,
respectively.
Two subsidiaries of the Company have separate employee retirement and
severance plan arrangements. Payments with respect to voluntary severance are
less in amount 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 1995 and 1996 of $338
and $272, 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 voluntarily. Plan assets plus
the accrual liability approximate vested benefits. The expense related to
these employee retirement and severance plans amounted to $20, $20 and $222 in
fiscal years 1994, 1995 and 1996, 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.
(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 years 1995 and 1996 amounted to $310 and $513, respectively.
On July 20, 1995, shareholders approved the capitalization of a portion of
fiscal year 1995 earnings through an in-substance stock dividend amounting to
$454 by issuing 78,000 shares of new common stock with a par value of six U.S.
dollars per share (0.65 new share against each issued and outstanding share at
the end of fiscal year 1995).
The accompanying consolidated financial statements do not reflect dividends
of $942 ($4.76 per share) declared subsequent to fiscal year 1996 by the Board
of Directors related to fiscal year 1996.
(11)RELATED PARTY TRANSACTIONS
The following is a summary of SpeedFam Co., Ltd. and consolidated
subsidiaries' transactions with SpeedFam International, Inc.
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam International, Inc................ $3,121 $2,984 $7,140
Purchases from SpeedFam International, Inc.......... $ 134 $ 251 $1,696
Commission income................................... $ 91 $ 125 $ 355
Commission expense.................................. $1,991 $2,952 $6,458
</TABLE>
The following is summary of SpeedFam Co., Ltd. transactions with Met-Coil
Ltd., a 50% owned affiliate accounted for by the equity method:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Sales to Met-Coil Ltd............................... $ 281 $ 148 $ 865
Purchases from Met-Coil Ltd......................... $ 767 $ 836 $1,026
Interest income..................................... $ 50 $ 14 $ 28
Interest expense.................................... $ 3 $ 5 $ --
</TABLE>
57
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN THOUSANDS)
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments at April 30, 1995 and 1996 include cash
equivalents, trade receivables, short-term investments, short-term loans,
trade payables, noncurrent receivables and long-term debt. The carrying amount
of cash equivalents, trade receivables, short-term loans and trade payables
approximates fair value because of the short maturity of these instruments.
The fair value of short-term investments has been determined based on quoted
market prices and approximate their financial statement carrying values. The
fair value of the Company's noncurrent receivables and long-term debt has been
determined based on discounted cash flows using current interest rates of
similar instruments and are not materially different from their financial
statement carrying values.
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10, 11, 12 AND 13. These items, constituting Part III of the Form 10-K,
have been omitted from this annual report pursuant to the provisions of
Instruction G to Form 10-K, because a definitive proxy statement, which is
incorporated herein by reference, except for the report of the compensation
committee of the board of directors and the performance graph, will be filed on
or about September 9, 1996. Information required for executive officers is
included in Part I, Item 1.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
See Part II, Item 8
(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................. S-1
Schedule I........................................................... S-2
Schedule II.......................................................... S-4
</TABLE>
(3) Exhibits filed:
See Exhibit Index.
(b)Reports filed on Form 8-K:
None.
(c)Exhibits filed:
See Exhibit Index.
(d)Financial Statements Omitted from Annual Report to Security Holders:
None.
59
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SpeedFam International, Inc.
/s/ James N. Farley
_____________________________________
James N. Farley
Chairman of the Board and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ James N. Farley Chairman, Chief Executive August 13, 1996
____________________________________ Officer and Director
James N. Farley
/s/ Makoto Kouzuma President, Chief Operating August 13, 1996
____________________________________ Officer and Director
Makoto Kouzuma
/s/ Roger K. Marach Treasurer, Assistant August 13, 1996
____________________________________ Secretary and Chief
Roger K. Marach Financial Officer
(Principal financial and
accounting officer)
/s/ Neil R. Bonke Director August 13, 1996
____________________________________
Neil R. Bonke
/s/ Thomas J. McCook Director August 13, 1996
____________________________________
Thomas J. McCook
/s/ Stuart Meyer Director August 13, 1996
____________________________________
Dr. Stuart Meyer
/s/ Robert Miller Director August 13, 1996
____________________________________
Robert Miller
/s/ Carl S. Pedersen Director August 13, 1996
____________________________________
Carl S. Pedersen
</TABLE>
60
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SpeedFam International, Inc.:
Under date of July 3, 1996, we reported on the consolidated balance sheets
of SpeedFam International, Inc. and consolidated subsidiaries as of May 31,
1995 and 1996, 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, 1996, which are included in the Form 10-K. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedules as listed
in Item 14(a)(2) of the Form 10-K. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick llp
July 3, 1996
Chicago, Illinois
S-1
<PAGE>
SCHEDULE I
SPEEDFAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
SPEEDFAM INTERNATIONAL, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
---------------
1995 1996
------- -------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 1 $ 7,228
Due from affiliated companies................................ 173 16,699
Prepaid expenses and other current assets.................... 536 1,762
------- -------
Total current assets........................................... 709 25,689
Investments in subsidiaries and affiliates..................... 27,468 35,595
Property, plant and equipment, net............................. 54 2,624
Other assets................................................... 670 820
------- -------
$28,901 $64,728
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt............................ $ 207 $ 400
Accounts payable............................................. 156 149
Due to affiliates............................................ 4,486 2
Accrued expenses............................................. 328 770
Income taxes................................................. 317 1,381
------- -------
Total current liabilities...................................... 5,494 2,702
Long-term debt................................................. 534 2,000
Deferred income taxes.......................................... 253 420
Stockholders' equity........................................... 22,620 59,606
------- -------
$28,901 $64,728
======= =======
</TABLE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED,
-----------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Revenue................................................ $ 71 $ 96 $ 22
Cost and operating expenses............................ 798 648 251
Other income (expense)................................. 251 (151) 342
------ ------ -------
Earnings (loss) before income taxes and equity in net
earnings of subsidiaries and affiliates............... (476) (703) 113
Income tax expense (benefit)........................... (379) (3) 51
Equity in net earnings of subsidiaries and affiliates.. 2,325 2,275 11,664
------ ------ -------
Net earnings........................................... $2,228 $1,575 $11,726
====== ====== =======
</TABLE>
S-2
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
SPEEDFAM INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED,
--------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................... $ 2,228 $ 1,575 $ 11,726
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in net earnings of subsidiaries and
affiliates.................................... (2,325) (2,275) (11,664)
Depreciation and amortization.................. 90 92 117
Provision for deferred income taxes............ (302) (75) (1,121)
Gains on sales of assets....................... (7) (15) --
Increase in cash surrender value............... (119) (138) (142)
Gain on disposal of FamTec A.G................. (411) -- --
Change in assets and liabilities............... 1,055 1,037 (19,368)
------- ------- --------
Cash flows (used in) provided by operating
activities...................................... 209 201 (20,452)
------- ------- --------
Cash flows from investing activities:
Capital expenditures........................... (80) (42) (2,589)
Proceeds from sales of assets.................. 21 42 --
Dividends from subsidiaries and affiliates..... 77 90 163
Other investing activities..................... (28) (32) (22)
------- ------- --------
Net cash provided by (used in) investing
activities........................................ (10) 58 (2,448)
------- ------- --------
Cash flows from financing activities:
Treasury transactions, net....................... 8 (35) 17
Net proceeds from issuance of common stock....... -- -- 28,284
Proceeds from exercise of stock options.......... -- -- 254
Proceeds from long-term debt..................... -- -- 2,500
Principal payments on long-term debt............. (267) (224) (928)
------- ------- --------
Net cash provided by (used in) financing
activities........................................ (259) (259) 30,127
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... (60) -- 7,227
Cash and cash equivalents at beginning of year..... 61 1 1
------- ------- --------
Cash and cash equivalents at end of year........... $ 1 $ 1 $ 7,228
======= ======= ========
</TABLE>
S-3
<PAGE>
SCHEDULE II
SPEEDFAM INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED MAY 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED CHARGED TO
TO OTHER ACCOUNTS DEDUCTIONS
BALANCE AT COSTS (TRANSLATION (WRITE-OFFS BALANCE
BEGINNING AND ADJUSTMENT AND AND AT END
DESCRIPTION OF YEAR EXPENSE RECOVERIES) ADJUSTMENTS) OF YEAR
----------- ---------- ------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1994.................. $209 7 (7) 17 $ 192
1995.................. $192 3 7 15 $ 187
1996.................. $187 314 -- 6 $ 495
<CAPTION>
CHARGED
TO CHARGED TO DEDUCTIONS
BALANCE AT COSTS OTHER ACCOUNTS (WRITE- BALANCE
BEGINNING AND (TRANSLATION OFFS OF AT END
DESCRIPTION OF YEAR EXPENSE ADJUSTMENTS) INVENTORY) OF YEAR
----------- ---------- ------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Inventory obsolescence:
1994.................. $826 4 (4) 665 $ 161
1995.................. $161 305 7 121 $ 352
1996.................. $352 1,804 -- 1,097 $1,059
<CAPTION>
CHARGED
TO
BALANCE AT COSTS BALANCE
BEGINNING AND CHARGED TO DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSE OTHER ACCOUNTS FROM RESERVE OF YEAR
----------- ---------- ------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Warranty reserve:
1994.................. $160 420 -- 100 $ 480
1995.................. $480 (145) -- 135 $ 200
1996.................. $200 2,285 -- -- $2,485
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, File No. 33-95628).
3.2 Amended Bylaws of the Registrant.
10.1 Revolving Credit Agreement between the Registrant and The First
National Bank of Chicago and Firstar Bank Milwaukee, N.A. dated
April 15, 1996.
10.2 Joint Venture Agreement between the Registrant and Obara
Corporation, dated November 14, 1970 (incorporated by reference
to Exhibit 10.3 to the Registrant's Registration Statement on
Form S-1, File No. 33-95628).
10.3 License and Technical Service Agreement between the Registrant
and SpeedFam Co., Ltd., dated November 14, 1970 (incorporated
by reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1, File No. 33-95628).
10.4 Amendment to License and Technical Service Agreement between
the Registrant and SpeedFam Co., Ltd., dated July 24, 1995
(incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, File No. 33-95628).
10.5 Joint Venture Agreement between the Registrant and Fujimi
Incorporated, dated September 7, 1984 (incorporated by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1, File No. 33-95628).
10.6 Distributorship Agreement between the Registrant and Fujimi
Incorporated, dated October 1, 1994 (incorporated by reference
to Exhibit 10.7 to the Registrant's Registration Statement on
Form S-1, File No. 33-95628).
10.7 Amendment to Distributorship Agreement between the Registrant
and Fujimi Incorporated, dated August 3, 1995 (incorporated by
reference to Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1, File No. 33-95628).
10.8 Registrant's 1991 Stock Option Plan ("1991 Plan") (incorporated
by reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1, File No. 33-95628).
10.9 Registrant's 1995 Stock Option Plan ("1995 Plan") (incorporated
by reference to Exhibit 10.10 to the Registrant's Registration
Statement on Form S-1, File No. 33-95628).
10.10 Registrant's 1995 Stock Purchase Plan (incorporated by
reference to Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1, File No. 33-95628).
10.11 SpeedFam Employees' Savings and Profit Sharing Plan and Trust,
as amended and restated June 1, 1989 (incorporated by reference
to Exhibit 10.12 to the Registrant's Registration Statement on
Form S-1, File No. 33-95628).
10.12 Employment Agreement between the Registrant and James N. Farley
(incorporated by reference to Exhibit 10.13 to the Registrant's
Registration Statement on Form S-1, File No. 33-95628).
10.13 Employment Agreement between the Registrant and Makoto Kouzuma
(incorporated by reference to Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1, File No. 33-95628).
10.14 Employment Agreement between the Registrant and Roger K. Marach
(incorporated by reference to Exhibit 10.15 to the Registrant's
Registration Statement on Form S-1, File No. 33-95628).
10.15 Employment Agreement between the Registrant's subsidiary and
Christopher E. Augur (incorporated by reference to Exhibit
10.16 to the Registrant's Registration Statement on Form S-1,
File No. 33-95628).
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.16 Employment Agreement between the Registrant's subsidiary and
Robert F. Smith (incorporated by reference to Exhibit 10.17 to
the Registrant's Registration Statement on Form S-1,
File No. 33-95628).
11.1 Statement Re Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Registrant's Registration Statement on Form
S-1, File No. 33-95628).
23.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
2
<PAGE>
AMENDED AND RESTATED AS OF JULY 27, 1995
BY-LAWS
OF
SPEEDFAM INTERNATIONAL, INC.
(FORMERLY KNOWN AS FAMTEC INTERNATIONAL, INC.)
ARTICLE I
OFFICES
The principal office of the corporation shall be located in Chandler,
Arizona. The corporation may have such other offices, either within or without
the States of Arizona or Illinois, as the business of the corporation may
require from time to time.
The registered office of the corporation required by the Business
Corporation Act of 1983 to be maintained in the State of Illinois may be, but
need not be, identical with the principal office in the State of Illinois, and
the address of the registered office may be changed from time to time by the
board of directors.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meetings. The annual meeting of the shareholders
shall be held on the second Thursday in September in each year, beginning with
the year 1995 at the hour of 9:00 A.M., for the purpose of electing directors
and for the transaction of such other business as may come before the meeting.
If the day fixed for the annual meeting shall be a legal holiday, such meeting
shall be held on the next succeeding business day. If the election of directors
shall not be held on the day designated herein for any annual meeting, or at any
adjournment thereof, the board of directors shall cause the election to be held
at a meeting of the shareholders as soon thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the shareholders
may be called by the chairman or chief executive officer, the president or chief
operating officer, the board of directors or by the holders of not less than
one-fifth of all the outstanding shares of the corporation entitled to vote on
the matter for which the meeting is called.
Section 3. Place of Meeting. The board of directors may designate
any place, either within or without the State of Illinois, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. A waiver of notice signed by all shareholders may designate any
place, either within or without the State of Illinois, as the place for the
holding of such meeting. If no designation is made, or if a special meeting be
<PAGE>
otherwise called, the place of meeting shall be the registered office of the
corporation in the State of Illinois, except as otherwise provided in Section 5
of this Article.
Section 4. Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the meeting, or in the case
of a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets, not less than twenty nor more than sixty days before the
meeting, either personally or by mail, by or at the direction of the president
or chief operating officer, the secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at the shareholder's address as it
appears on the records of the corporation, with postage thereon prepaid. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken.
Section 5. Meeting of All Shareholders. If all of the shareholders
shall meet at any time and place, either within or without the State of
Illinois, and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting any corporate
action may be taken.
Section 6. Closing of Transfer Books and Fixing of Record Date. For
the purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than sixty days and, for a meeting of shareholders, not
less than ten days, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty days,
immediately preceding such meeting. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the board of directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof. If any shareholder meeting is adjourned, the
shareholders entitled to notice of or to a vote at the adjourned meeting shall
remain the same.
Section 7. Voting Lists. The officer or agent having charge of the
transfer books for shares of the corporation shall make, within twenty days
after the record date for a meeting of shareholders or ten days before such
meeting, whichever is earlier, a complete list of the shareholders entitled to
vote at such meeting, arranged in alphabetical order, with the address of and
the number of shares held by each, which list, for a period of ten days prior to
such meeting, shall be kept on file at the registered office of the corporation
and
-2-
<PAGE>
shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof
kept in the State of Illinois, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of shareholders. Failure to comply with the requirements
of this Section shall not affect the validity of any action taken at such
meeting.
Section 8. Quorum. A majority of the outstanding shares of the
corporation, entitled to vote on a matter, represented in person or by proxy,
shall constitute a quorum for consideration of such matter at any meeting of
shareholders; provided, that if less than a majority of the outstanding shares
entitled to vote on such matter are represented at said meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on a matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by applicable law or the Articles of Incorporation of the
corporation. At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the original
meeting. Withdrawal of shareholders from any meeting shall not cause the
failure of a duly constituted quorum at that meeting.
Section 9. Proxies. (a) A shareholder may appoint a proxy to vote or
otherwise act for such shareholder by signing an appointment form and delivering
it to the person so appointed.
(b) No proxy shall be valid after the expiration of eleven months from
the date thereof unless otherwise provided in the proxy. Every proxy continues
in full force and effect until revoked by the person executing it prior to the
vote pursuant thereto, except as otherwise provided in this Section. Such
revocation may be effected by a writing delivered to the corporation stating
that the proxy is revoked or by a subsequent proxy executed by, or by attendance
at the meeting and voting in person by, the person executing the proxy. The
dates contained on the forms of proxy presumptively determine the order of
execution, regardless of the postmark dates on the envelopes in which they are
mailed.
(c) An appointment of a proxy is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest in the shares or in the corporation
generally.
(d) The death or incapacity of the shareholder appointing a proxy does
not revoke the proxy's authority unless notice of the death or incapacity is
received by the officer or agent who maintains the corporation's share transfer
book before the proxy exercises his or her authority under the appointment.
(e) An appointment made irrevocable under subsection (c) hereof
becomes revocable when the interest in the proxy terminates.
-3-
<PAGE>
(f) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if the transferee was ignorant of its
existence when the shares were acquired and both the existence of the
appointment and its revocability were not noted conspicuously on the certificate
(or information statement for shares without certificates) representing the
shares.
(g) Unless the appointment of a proxy contains an express limitation
on the proxy's authority, the corporation may accept the proxy's vote or other
action as that of the shareholder making the appointment. If the proxy appointed
fails to vote or otherwise act in accordance with the appointment, the
shareholder is entitled to such legal or equitable relief as is appropriate in
the circumstances.
Section 10. Voting of Shares. Each outstanding share, regardless of
class, which is entitled to vote, shall be entitled to one vote upon each matter
submitted to a vote at a meeting of shareholders.
Section 11. Voting of Shares by Certain Holders. (a) Shares
registered in the name of another corporation, domestic or foreign, may be voted
by any officer, agent, proxy or other legal representative authorized to vote
such shares under the law of incorporation of said corporation. The corporation
may treat the president or other person holding the position of chief executive
officer of such other corporation as authorized to vote such shares, together
with any other person indicated by the corporate shareholder to the corporation
as a person or an officer authorized to vote such shares. Such persons and
officers indicated shall be registered by the corporation on the transfer books
for shares and included in any voting list prepared in accordance with Section 7
hereof.
(b) Shares registered in the name of a deceased person, a minor ward
or a person under legal disability may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy, without a
transfer of such shares into the name of such administrator, executor or court
appointed guardian. Shares registered in the name of a trustee may be voted by
such trustee, either in person or by proxy.
(c) Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver, without the transfer thereof into the name of such receiver if
authority so to do be contained in an appropriate order of the court by which
such receiver was appointed.
(d) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Shares of its own stock belonging to the corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares entitled to vote at any given
time, but shares of the corporation held by the corporation in a fiduciary
capacity may be voted and shall be counted in determining the total number of
outstanding shares entitled to vote at any given time.
-4-
<PAGE>
(f) Any number of shareholders may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote or otherwise
represent their shares, for a period not to exceed ten years from the time
shares subject thereto are transferred to such trustee or trustees, by entering
into a written voting trust agreement specifying the terms and conditions of the
voting trust, and by transferring their shares to such trustee or trustees for
the purpose of the agreement. Any such trust agreement shall not become
effective until a counterpart of the agreement is deposited with the corporation
at its registered office. The counterpart of the voting trust agreement so
deposited with the corporation shall be subject to the same right of examination
by a shareholder of the corporation, in person or by agent or attorney, as are
the books and records of the corporation, and shall be subject to examination by
any holder of a beneficial interest in the voting trust, either in person or by
agent or attorney, at any reasonable time for any proper purpose.
Section 12. Inspectors. (a) At any meeting of shareholders, the
chairperson of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting.
(b) Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders.
(c) Each report of an inspector shall be in writing and signed by the
inspector or by a majority of them if there be more than one inspector acting at
such meeting. If there is more than one inspector, the report of a majority
shall be the report of the inspectors. The report of the inspector or inspectors
on the number of shares represented at the meeting and the results of the voting
shall be prima facie evidence thereof.
Section 13. Informal Action by Shareholders. Unless otherwise
provided in the Articles of Incorporation of the corporation, any action
required to be taken at any annual or special meeting of the shareholders, or
any other action which may be taken at a meeting of the shareholders, may be
taken without a meeting and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed (i) by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting or (ii) by all of the shareholders entitled
to vote with respect to the subject matter thereof. If such consent is signed
by less than all of the shareholders entitled to vote, then such consent shall
be come effective only if at least five days prior to the execution of the
consent a notice in writing is delivered to all the shareholders entitled to
vote with respect to the subject matter thereof and, after the effective date of
the consent, prompt notice of the taking of the corporation action without a
meeting by less than unanimous written consent shall be delivered in writing to
those shareholders who have not consented in writing.
-5-
<PAGE>
Section 14. Voting by Ballot. Voting on any question or in any
election may be viva voce unless the chairperson of the meeting shall order or
any shareholder shall demand that voting be by ballot.
Section 15. Action by Shareholders. Any contract, transaction or act
of the corporation or of the directors, which shall be ratified by a majority of
a quorum of the shareholders of the corporation at any annual meeting, or at any
special meeting called for such purpose, shall, insofar as permitted by
applicable law or the Articles of Incorporation of the corporation, be as valid
and as binding as though ratified by every shareholder of the corporation;
provided, however, that any failure of the shareholders to approve or ratify any
such contract, transaction or act, when and if submitted, shall not be deemed in
any way to invalidate the same or deprive the corporation, its directors,
officers or employees of its or their right to proceed with such contract,
transaction or act.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the
corporation shall be managed by its board of directors.
Section 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be not less than five and not more than nine,
the exact number to be fixed from time to time by the Board of Directors. Each
director shall hold office until the next annual meeting of shareholders or
until his or her successor shall have been elected and qualified. Directors
need not be residents of Illinois or shareholders of the corporation. The
number of directors may be increased or decreased from time to time by the
amendment of this Section; but no decrease shall have the effect of shortening
the term of any incumbent director.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Section, immediately
after, and at the same place as, the annual meeting of shareholders. The board
of directors may provide by resolution the time and place, either within or
without the State of Illinois, for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the chairman or chief executive
officer, the president or chief operating officer or any director. The person
or persons authorized to call special meetings of the board of directors may fix
any place, either within or without the State of Illinois, as the place for
holding any special meeting of the board of directors called by them.
Section 5. Notice. Notice of any special meeting shall be given at
least two (2) business days previous thereto by written notice delivered
personally or mailed to each director at his or her business address. If
mailed, such notice shall be deemed to be given two business days after it is
deposited in the United States mail so addressed, with postage thereon prepaid.
Notice given by any other method shall only be deemed to be delivered
-6-
<PAGE>
when actually received by the director for whom it was intended. Any director
may waive notice of any meeting. The attendance of a director at any meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice of
such meeting.
Section 6. Quorum. A majority of the number of directors fixed by
these by-laws shall constitute a quorum for the transaction of business at any
meeting of the board of directors, provided, that if less than a majority of
such number of directors are present at said meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice.
Section 7. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless the act of a greater number is required by
statute, these By-laws or the Articles of Incorporation.
Section 8. Vacancies. Any vacancy occurring in the board of
directors and any directorship to be filled by reason of an increase in the
number of directors may be filled by election at an annual meeting or at a
special meeting of shareholders called for that purpose. In the event that one
or more vacancies occur between meetings of shareholders, whether by increase in
the number of directors or otherwise, the board of directors by majority vote of
the directors then in office may fill such vacancy or vacancies and any such
director so selected shall serve until the next annual meeting of shareholders.
At no time shall the number of directors so selected to fill vacancies during
any interim period between meetings of shareholders exceed 33-1/3% of the total
membership of the board of directors.
Section 9. Removal. Except as otherwise provided by applicable law
or the Articles of Incorporation of the corporation, one or more of the
directors may be removed, with or without cause, at a meeting of the
shareholders by the affirmative vote of the holders of a majority of the
outstanding shares then entitled to vote at an election of directors; provided,
however, that no director shall be removed at a meeting of the shareholders
unless the notice of such meeting shall state that a purpose of the meeting is
to vote upon the removal of one or more directors named in the notice and only
the named director or directors may be removed at such meeting.
Section 10. Informal Action by Directors. Unless specifically
prohibited by the Articles of Incorporation of the corporation or these by-laws,
any action required to be taken at a meeting of the board of directors, or any
other action which may be taken at a meeting of the board of directors or a
committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all the directors entitled
to vote with respect to the subject matter thereof, or by all the members of
such committee, as the case may be. Any such consent signed by all the
directors or all the members of a committee shall have the same effect as a
unanimous vote, and may be stated as such in any document filed with the
Secretary of State.
-7-
<PAGE>
Section 11. Compensation. The board of directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise. By resolution of the board of directors, the directors
may be paid their expenses, if any, of attendance at each meeting of the board
and for any other expenses incurred in the performance of their duties.
Section 12. Presumption of Assent. A director of the corporation who
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken unless his or her dissent shall be entered in the minutes of the
meeting or unless he or she shall file his or her written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered or certified mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
Section 13. Interest of Directors in Certain Transactions. (a) If a
transaction is fair to the corporation at the time it is authorized, approved,
or ratified, the fact that a director of the corporation is directly or
indirectly a party to the transaction is not grounds for invalidating the
transaction.
(b) In a proceeding contesting the validity of a transaction described
in subsection (a) above, the person asserting validity has the burden of
providing fairness unless: (i) the material facts of the transaction and the
director's interest or relationship were disclosed or known to the board of
directors or a committee of the board of directors and the board of directors or
committee authorized, approved or ratified the transaction by the affirmative
vote of a majority of disinterested directors, even though the disinterested
directors be less than a quorum or (ii) the material facts of the transaction
and the director's interest or relationship were disclosed or known to the
shareholders entitled to vote and they authorized, approved or ratified the
transaction without counting the vote of any shareholder who is an interested
director.
(c) The presence of the director, who is directly or indirectly a
party to the transaction described in subsection (a) above, or a director who is
otherwise not disinterested, may be counted in determining whether a quorum is
present but may not be counted when the board of directors or a committee of the
board of directors takes action on the transaction.
(d) For purposes of this Section, a director is "indirectly" a party
to a transaction if the other party to the transaction is an entity in which the
director has a material financial interest or of which the director is an
officer, director or general partner; provided, however, that any director of
the corporation may vote upon any transaction between the corporation and any
subsidiary or affiliated corporation without regard to the fact that he or she
is also a director or officer of such subsidiary or affiliated corporation.
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Section 14. Committees. A majority of the directors, by a resolution
or resolutions duly adopted, may create one or more committees and appoint two
or more directors to serve on the committee or committees, which committee or
committees, to the extent provided in such resolution or resolutions, shall have
and may exercise all of the authority of the board of directors in the
management of the corporation, provided such committee or committees may not:
(i) authorize distributions, except for dividends to be paid with respect to
shares of any preferred or special classes or any series thereof; (ii) approve
or recommend to shareholders any act applicable law requires to be approved by
shareholders; (iii) fill vacancies on the board or any of its committees; (iv)
elect or remove officers or fix the compensation of any member of the committee;
(v) adopt, amend or repeal these by-laws; (vi) approve a plan of merger not
requiring shareholder approval; (vii) authorize or approve reacquisition of
shares, except according to a general formula or method prescribed by the board
of directors; (viii) authorize or approve the issuance or sale, or contract for
sale, of shares or determine the designation and relative rights, preferences,
and limitations of a series of shares, except that the board of directors may
direct a committee to fix the specific terms of the issuance or sale or contract
for sale or the number of shares to be allocated to particular employees under
an employee benefit plan; or (ix) amend, alter, repeal or take action
inconsistent with any resolutions or action of the board of directors when the
resolution or action of the board of directors provides by its terms that it
shall not be amended, altered or repealed by action of a committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be a (i)
chairman or chief executive officer, (ii) a president or chief operating
officer, (iii) a treasurer or chief financial officer and (iv) a secretary. In
addition, the corporation shall have any such other officers or assistant
officers as may be elected or appointed from time to time by the board of
directors, with such duties as designated by the board of directors. Any two or
more offices may be held by the same person and the board of directors may elect
more than one individual to share the duties of a particular office.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices filled at any meeting of the board of
directors. Each officer shall hold office until his or her successors shall
have been duly elected and shall have qualified or until his or her death or
until he or she shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer or agent shall not
of itself create contract rights.
Section 3. Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
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Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Chairman/Chief Executive Officer. The chairman or chief
executive officer shall preside at all meetings of the board of directors, and
he or she shall have and perform such other duties as from time to time may be
assigned to him or her by the board of directors.
Section 6. President/Chief Operating Officer. The president or chief
operating officer of the corporation shall in general supervise and control all
of the business and affairs of the corporation. The president or chief
operating officer shall preside at all meetings of the shareholders and the
board of directors, in the absence of the chairman or chief executive officer.
The president or chief operating officer may sign, with the secretary or any
other proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, evidences of indebtedness or other instruments in the usual
and regular course of business or which the board of directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the board of directors or by these by-laws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties as may be prescribed
by the board of directors from time to time.
Section 7. Vice-Presidents. In the absence of the president or chief
operating officer or in the event of his or her inability or refusal to act, the
vice-president, if one shall have been appointed (or in the event there be more
than one vice-president, the vice-presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the president and chief operating officer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
president or chief operating officer. Any vice-president may sign, with the
secretary or an assistant secretary, certificates for shares of the corporation;
and shall perform such other duties as from time to time may be assigned to him
or her by the president or chief operating officer or by the board of directors.
Section 8. Treasurer/Chief Financial Officer. If required by the
board of directors, the treasurer or chief financial officer shall give a bond
for the faithful discharge of his or her duties in such sum and with such surety
or sureties as the board of directors shall determine. The treasurer or chief
financial officer shall: (a) have charge and custody of and be responsible for
all funds and securities of the corporation, receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositaries as shall be selected in accordance with the
provisions of Article V of these by-laws; and (b) in general perform all the
duties incident to the office of treasurer or chief financial officer and such
other duties as from time to time may be assigned to the treasurer or chief
financial officer by the president or chief operating officer or by the board of
directors.
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Section 9. Secretary. The secretary shall: (a) keep the minutes of
the shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all certificates for shares prior to the
issuance thereof and to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized in accordance with the provisions
of these by-laws; (d) keep a register of the post office address of each
shareholder which shall be furnished to the secretary by such shareholder; (e)
sign with the president or chief operating officer certificates for shares of
the corporation, the issuance of which shall have been authorized by resolution
of the board of directors; (f) have general charge of the stock transfer books
of the corporation; (g) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to the
secretary by the president or chief operating officer or by the board of
directors.
Section 10. Assistant Treasurers and Assistant Secretaries. If any
assistant treasurers or assistant secretaries shall have been appointed, they
shall respectively, if required by the board of directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
board of directors shall determine. The assistant secretaries as thereunto
authorized by the board of directors may sign with the president or chief
operating officer or vice-president certificates for shares of the corporation,
the issuance of which shall have been authorized by a resolution of the board of
directors. The assistant treasurers and assistant secretaries, in general,
shall perform such duties as shall be assigned to them by the treasurer or chief
financial officer or the secretary, respectively, or by the president or chief
operating officer or the board of directors.
Section 11. Salaries. The salaries of the officers shall be fixed
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he or she is also a
director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The board of directors may authorize any
officer or officers, agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
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Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositaries as the board of directors
may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. (a) The issued shares of the
corporation shall be represented by certificates or shall be uncertificated
shares. If represented by certificates, such certificates shall be in such form
as may be determined by the board of directors. Such certificates shall be
signed by the chairman, president or chief operating officer or a vice-president
and by the secretary or an assistant secretary and may be sealed with the seal,
or a facsimile of the seal, of the corporation, if the corporation utilizes a
seal. All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the corporation. All certificates surrendered to the corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the board of directors may prescribe.
(b) The board of directors of the corporation may provide by
resolution that some or all of any or all classes and series of its shares shall
be uncertificated shares, provided that such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth or
stated on certificates pursuant to Section 6.35 of the Business Corporation Act
of 1983. Except as otherwise expressly provided by law, the rights and
obligations of the holders of uncertificated shares and the rights and
obligations of the holders of certificates representing shares of the same class
and series shall be identical.
Section 2. Lost Certificates. If a certificate representing shares
has allegedly been lost, destroyed or mutilated, the board of directors may, in
its discretion, except as may be required by law, direct that a new certificate
be issued therefor upon such terms, indemnification to the corporation and other
reasonable requirements as it may impose.
Section 3. Transfer of Shares. Transfers of shares of the
corporation shall be made only on the books of the corporation by the holder of
record thereof or by such holder's legal representative, who shall furnish
proper evidence of authority to transfer, or by such holder's attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed the owner thereof for all purposes as regards the corporation.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
June in each year and end on the last day of May of each year.
ARTICLE VIII
DIVIDENDS
The board of directors may from time to time, declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and the Articles of Incorporation of
the corporation.
ARTICLE IX
SEAL
The board of directors may provide for a corporate seal which shall be
in the form of a circle and shall have inscribed thereon the name of the
corporation and the words, "Corporate Seal, Illinois."
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
(a) Any person who was or is a party, or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or who is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise shall be indemnified by the corporation against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation or, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party,
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that
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such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of the
corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
corporation, unless, and only to the extent that, the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful, on the merits or otherwise, in the defense of
any action, suit or proceeding referred to in subsections (a) and (b) above, or
in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) above (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case, upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in subsections (a) or (b)
above. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or even
if obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the shareholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
corporation as authorized in this Article X.
(f) The indemnification and advancement of expenses provided by or
granted under the other provisions of this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under these by-laws, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
(g) The corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer, employee or agent of another
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corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of this Article X.
(h) If the corporation has paid indemnity or has advanced expenses to
a director, officer, employee or agent, the corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
(i) For purposes of this Article X, references to "the corporation"
shall include, in addition to the surviving corporation, any merging corporation
(including any corporation having merged with a merging corporation) absorbed in
a merger which, if its separate existence had continued, would have had the
power and authority to indemnify its directors, officers, employees or agents,
so that any person who was a director, officer, employee or agent of such
merging corporation, or was serving at the request of such merging corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article X with respect to the surviving corporation as
such person would have with respect to such merging corporation if its separate
existence had continued.
(j) For purposes of this Article X, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by such director, officer, employee, or
agent with respect to any employee benefit plan, its participants, or
beneficiaries. A person who acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" as referred to in
this Article X.
(k) The indemnification and advancement of expenses provided by or
granted under this Article X shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of that person.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given under the
provisions of these by-laws or under the provisions of the Articles of
Incorporation of the corporation or under the provisions of applicable law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
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ARTICLE XII
AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may
be adopted by the shareholders or the board of directors of the corporation.
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REVOLVING CREDIT AGREEMENT
Dated as of April 15, 1996
by and among
SPEEDFAM INTERNATIONAL, INC.,
as the Company
and
THE FIRST NATIONAL BANK OF CHICAGO AND
FIRSTAR BANK, MILWAUKEE, N.A.,
as the Banks
and
FIRSTAR BANK MILWAUKEE, N.A.
as the Agent
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1 DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting and Financial Determinations . . . . . . . . . . . . . . 9
1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4 Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2 AMOUNTS AND TERMS OF OBLIGATIONS . . . . . . . . . . . . . . . . 10
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Funding Procedures . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Interest After Default . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.8 Effect of Regulatory Change . . . . . . . . . . . . . . . . . . . . 15
2.9 No Obligation to Extend or Forbear . . . . . . . . . . . . . . . . 16
SECTION 3 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 16
3.1 Organization, Qualification and Subsidiaries . . . . . . . . . . . 16
3.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4 Absence of Conflicting Obligations . . . . . . . . . . . . . . . . 17
3.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.6 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . . 18
3.7 Accuracy of Information. . . . . . . . . . . . . . . . . . . . . . 18
3.8 Ownership of Property. . . . . . . . . . . . . . . . . . . . . . . 18
3.9 Federal Reserve Regulations. . . . . . . . . . . . . . . . . . . . 19
3.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.11 Places of Business . . . . . . . . . . . . . . . . . . . . . . . . 19
3.12 Other Names . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.13 Not an Investment Company . . . . . . . . . . . . . . . . . . . . 19
3.14 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.15 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . 20
3.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.17 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4 CONDITIONS PRECEDENT TO OBLIGATIONS . . . . . . . . . . . . . . 20
4.1 Initial Obligations . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Subsequent Obligations . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 22
5.1 Corporate Existence; Compliance With Laws;
Maintenance of Business; Taxes . . . . . . . . . . . . . . . . . . 22
5.2 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . 22
5.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 Inspection of Property and Records . . . . . . . . . . . . . . . . 24
5.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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5.6 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 Comply With, Pay and Discharge All Notes,
Mortgages, Deeds of Trust and Leases . . . . . . . . . . . . . . . 25
5.8 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . 25
5.9 Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.10 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.11 Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.12 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.13 Certain Lender Notices . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1 Sale of Assets, Consolidation, Merger, Etc. . . . . . . . . . . . 29
6.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 Loans, Investments . . . . . . . . . . . . . . . . . . . . . . . . 30
6.7 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . 31
6.8 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.9 Interest Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . 31
6.10 Funded Debt to Cash Flow . . . . . . . . . . . . . . . . . . . . . 32
6.11 Funded Debt to Capitalization . . . . . . . . . . . . . . . . . . 32
6.12 Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.13 Certain Lender Amendments. . . . . . . . . . . . . . . . . . . . . 32
SECTION 7 DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 32
7.1 Events of Default Defined . . . . . . . . . . . . . . . . . . . . 32
7.2 Remedies Upon Event of Default . . . . . . . . . . . . . . . . . . 34
SECTION 8 RELATIONSHIP OF AGENT AND BANKS . . . . . . . . . . . . . . . . . 35
8.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3 Action on Instructions of Banks . . . . . . . . . . . . . . . . . 35
8.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Application of Payments . . . . . . . . . . . . . . . . . . . . . 37
8.6 General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.7 No Responsibility for Loans, Recitals, Etc. . . . . . . . . . . . 37
8.8 Employment of Agents and Counsel . . . . . . . . . . . . . . . . . 38
8.9 Reliance on Documents, Counsel . . . . . . . . . . . . . . . . . . 38
8.10 Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.11 Agent's Reimbursement and Indemnification . . . . . . . . . . . . 38
8.12 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . 39
8.13 Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . 39
8.14 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.15 Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Assignability; Successors . . . . . . . . . . . . . . . . . . . . 40
9.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.4 Counterparts; Headings . . . . . . . . . . . . . . . . . . . . . . 40
9.5 Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . 40
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9.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 42
9.9 Conflicts and Ambiguities . . . . . . . . . . . . . . . . . . . . 42
9.10 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . 42
9.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 42
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LIST OF EXHIBITS
Exhibit A-1 - Revolving Credit Note from Company to Firstar
Exhibit A-2 - Revolving Credit Note from Company to First Chicago
Exhibit B - Guaranty of SpeedFam Corp.
Exhibit C - Opinion Letter
LIST OF SCHEDULES
Schedule 1 - Intentionally Omitted
Schedule 2 - Subsidiaries, Securities Disclosures
Schedule 3 - Real Estate
Schedule 4 - Liens/Capital Leases
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REVOLVING CREDIT AGREEMENT
--------------------------
THIS CREDIT AGREEMENT is made and entered into as of this 15th day of
April, 1996, by and among SPEEDFAM INTERNATIONAL, INC., an Illinois corporation
(f/k/a FamTec International, Inc.) (the "Company"), which has its principal
office at 7406 West Detroit Street, Chandler, Arizona 85226, and THE FIRST
NATIONAL BANK OF CHICAGO ("First Chicago"), a national banking association,
which has its principal office at One First National Plaza, Chicago, Illinois
60670, and FIRSTAR BANK MILWAUKEE, N.A. ("Firstar"), a national banking
association, formerly known as First Wisconsin National Bank of Milwaukee, which
has its principal office at 777 East Wisconsin Avenue, Milwaukee, Wisconsin
(First Chicago and Firstar in its capacity as a bank shall each be individually
referred to as "Bank" and collectively as the "Banks"), and Firstar in its
capacity as agent for the Banks (the "Agent").
RECITALS
--------
The Company has requested that the Banks extend to it a credit not to
exceed $22,500,000 in the form of Revolving Loans (including Letters of Credit
in an aggregate principal amount not to exceed $5,000,000). The Banks have
agreed separately and independently (and not jointly) to extend credit to the
Company upon all of the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
AGREEMENT
---------
SECTION 1 DEFINITIONS AND TERMS
1.1 Definitions. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" of a Person shall mean any (a) director, officer or employee of
the Person, or (b) Person directly or indirectly controlling or controlled by,
or under direct or indirect common control with, another Person. A Person shall
be deemed to control another Person if the controlling Person directly or
indirectly, either individually or together with (in the case of an individual)
his spouse, lineal descendants and ascendants and brothers or sisters by blood
or adoption or spouses of such descendants, ascendants, brothers and sisters,
owns five percent or more of any class of voting securities of the controlled
Person or possesses, directly or indirectly, the power to direct, or cause the
direction of, the management or policies of the controlled Person, whether
through the ownership of voting securities, through common directors, trustees
or officers, by contract or otherwise.
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"Agreement" shall mean this Credit Agreement, as amended, supplemented,
modified or extended from time to time.
"Borrowing Date" shall have the meaning assigned in Section 2.1(c).
"Business Day" shall mean a day other than a Saturday or Sunday on which
banks are open for business in Milwaukee, Wisconsin; provided, however, that for
purposes of LIBOR Rate Loans, the term "Business Day" shall mean only those days
on which dealings in U.S. dollar deposits are carried out by U.S. financial
institutions in the London interbank Eurodollar market.
"Capitalization" shall mean, as of any time of determination thereof, the
sum of Funded Debt and Net Worth.
"Cash Flow" shall mean Net Income plus each of the following items, to the
extent deducted by the Company in the calculation of Net Income for the
applicable period in conformity with GAAP: (a) interest expense incurred; (b)
income tax expense accrued, (c) depreciation, (d) amortization and (e) other
non-cash charges not specified in clauses (c) or (d).
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute, together with the regulations and published interpretations
thereunder, in each case as in effect from time to time.
"Default" shall mean an Event of Default or an event which with the giving
of notice or the passage of time or both would constitute an Event of Default.
"Employee Plan" shall mean any savings, profit sharing, or retirement plan
or any deferred compensation contract or other plan maintained for employees of
the Company and covered by Title IV of ERISA, including, without limitation, any
"multiemployer plan" as defined in ERISA.
"Environmental Law" shall mean any local, state or federal law or other
statute, law, ordinance, rule, code, regulation, decree or order governing,
regulating or imposing liability or standards of conduct concerning the use,
treatment, generation, storage, disposal or other handling or release of any
Hazardous Substance.
"Environmental Liability" shall mean all liability arising under, resulting
from or imposed by any Environmental Law.
"Equity in Net Earnings of Affiliates" shall be determined on a
consolidated basis in accordance with GAAP and mean
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the amount reflected on the Company's current Form 10-Q or Form 10-K, as
applicable, for Equity in net earnings of affiliates.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute, together with the regulations and published
interpretations thereunder, in each case as in effect from time to time.
"Event of Default" shall have the meaning assigned in Section 7.1.
"Foreiqn Currency Translation Adjustment" shall be determined on a
consolidated basis in accordance with GAAP and mean the amount reflected on the
Company's current Form 10-Q or Form 10-K, as applicable, for Foreign currency
translation adjustment.
"Funded Debt" shall mean Indebtedness which matures more than one year
from the date of creation or is directly or indirectly renewable or extendible
at the option of the Company to a date more than one year from the date of
creation, including the current maturities of such Indebtedness but excluding
deferred income taxes.
"GAAP" shall mean those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through appropriate boards or committees thereof and
which are consistently applied for all periods so as to properly reflect the
financial condition, results of operations and cash flows of the Company and its
Subsidiaries.
"Government Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantor" shall mean SpeedFam Corporation, an Illinois Corporation.
"Guaranty" shall mean the Guaranty of the Guarantor to NBD and to Firstar,
dated the date hereof in the form of EXHIBIT B, as amended, supplemented,
modified, or extended from time to time.
"Hazardous Substance" shall mean any pollutant, contaminant, waste or toxic
or hazardous chemicals, wastes or substances, including, without limitation,
asbestos, urea formaldehyde insulation, petroleum, PCB's, air pollutants, water
pollutants, and other substances defined as hazardous substances or toxic
substances in the Comprehensive Environmental Response,
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Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9061 et seq.,
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1802, the Resource
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Toxic Substance
Control Act of 1976, as amended, 15 U.S.C. (S) 2601 et seq., the Solid Waste
Disposal Act, 42 U.S.C. (S) 3251 et seq., the Clean Air Act, 42 U.S.C. (S) 1857
et seq., the Clean Water Act, 33 U.S.C. (S) 1251 et seq., Chapter 144 of the
Wisconsin Statutes, or any other statute, rule, regulation or order of any
Government Authority having jurisdiction over the control of such wastes or
substances, including without limitation the United States Environmental
Protection Agency, the United States Nuclear Regulatory Agency, the State of
Illinois and the Cook County Department of Health.
"Indebtedness" shall mean all (a) indebtedness for borrowed money; (b)
indebtedness for the deferred purchase price of property or services for which
the Company or a Subsidiary is liable, contingently or otherwise, as obligor,
guarantor or otherwise; (c) commitments by which the Company or a Subsidiary
assures a creditor against loss, including, without limitation, contingent
reimbursement obligations with respect to letters of credit; (d) obligations
which are evidenced by notes, acceptances or other instruments; (e) indebtedness
guaranteed in any manner by the Company or a Subsidiary, including, without
limitation, guaranties in the form of an agreement to repurchase or reimburse;
(f) obligations under leases which are or should be, in accordance with GAAP,
recorded as capital leases for which obligations the Company or a Subsidiary is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which obligations the Company or a Subsidiary assures a creditor
against loss; (g) unfunded obligations of the Company or a Subsidiary to any
Employee Plan; (h) liabilities secured by any Lien on any Property owned by the
Company or any Subsidiary even though it has not assumed or otherwise become
liable for the payment thereof; and (i) other liabilities or obligations of the
Company and its Subsidiaries which would, in accordance with GAAP, be included
on the liability portion of a balance sheet.
"Letters of Credit" shall mean the face amount (in United States dollars or
their United States dollar equivalent as calculated by the Agent) of all standby
and documentary letters of credit issued by the Agent on behalf of the Banks at
the request of the Company for its account pursuant to Section 2.2.
"LIBOR Index Rate" shall mean with respect to a LIBOR Rate Loan for any
Loan Period, the rate of interest per annum determined by the Agent to be the
average offered rate for deposits in U.S. dollars for the applicable Loan Period
(rounded up to the next whole multiple of 1/100 of 1%) which appear on the
Reuters Screen LIBO Page (or such other page on which the appropriate
information may be displayed), on the electronic communications
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<PAGE>
terminals in the Agent's money center as of 10:00 a.m. (London time) for the day
two Business Days prior to the first day of the applicable Loan Period. If fewer
than two offered rates appear for a Loan Period, then the applicable LIBOR Rate
shall be the average of the rates per annum (rounded up to the next whole
multiple of 1/100 of 1%) at which deposits for a period of time equal or
comparable to the applicable Loan Period in immediately available funds in
United States dollars are offered to the Agent two Business Days prior to the
beginning of such Loan Period by at least four major banks in the London
interbank eurodollar market at or about 10:00 a.m. London time for delivery on
the first day of such Loan Period.
"LIBOR Interest Margin" shall mean 1.25% per annum, subject to adjustment
pursuant to Section 2.1(b)(ii).
"LIBOR Rate" for any Loan Period shall mean a rate per annum equal to the
sum of (a) the quotient of the LIBOR Index Rate divided by the difference
(expressed as a decimal) computed by subtracting the LIBOR Reserve Requirement
from one, plus (b) the LIBOR Interest Margin.
"LIBOR Rate Loans" shall mean Revolving Loans for which the Company has
selected the LIBOR Rate as the base rate of interest under Section 2.1.
"LIBOR Reserve Requirement" shall mean, with respect to each Loan Period,
the stated rate of all reserve requirements (including all basic, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements during such Loan Period) that
is specified on the first day of such Loan Period by the Board of Governors of
the Federal Reserve System for determining the reserve requirement with respect
to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D) applicable to the Agent.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), deed of trust, charge,
preference, priority, security interest or other security agreement or
preferential arrangement of any kind or nature whatsoever including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the UCC or comparable
law of any jurisdiction.
"Loan Account" shall mean an account on the books of the Agent in which the
Agent will record, pursuant to Section 2.5, Obligations of the Company to the
banks, payments made upon such
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<PAGE>
Obligations and other advances, debits and credits pertaining to the
Obligations.
"Loan Period" shall mean with respect to each LIBOR Rate Loan, the period
commencing on the date of such LIBOR Rate Loan and ending one, two or three
months thereafter, as the Company may elect in the notice of borrowing under
Section 2.1(c), provided that (a) any Loan Period which would otherwise end on a
day which is not a Business Day shall be extended to the next succeeding
Business Day unless the Loan Period would thereby be extended into the next
calendar month, in which case the Loan Period shall end on the preceding
Business Day, and (b) no Loan Period shall extend beyond the Termination Date.
"Material Adverse Effect" shall mean (a) a Default, (b) a material adverse
change in the business, prospects or condition (financial or otherwise) of the
Company or the Guarantor or in any Property, (c) the termination of any material
agreement to which the Company or the Guarantor is a party, (d) any material
impairment of the right to carry on the business as now or proposed to be
conducted by the Company or the Guarantor, or (e) any material impairment of the
ability of the Company or the Guarantor to perform its obligations under this
Agreement or the Related Documents.
"Maximum Available Commitment" shall mean an amount equal to the excess (if
any) of (a) the Revolving Loan Commitment, minus (b) the aggregate unpaid
principal amount outstanding of all Revolving Loans made by the Banks and the
face amount of all outstanding Letters of Credit.
"Maximum Credit" shall mean the extension by the Banks to the Company of
aggregate Obligations up to the Revolving Loan Commitment; provided that each
Bank's independent obligation to extend credit is limited to the following
amounts:
First Chicago $9,000,000
Firstar $13,500,000
"Net Income" or "Net Loss" shall mean, for any period, the net after-tax
income (or net loss) of a Person on a consolidated basis determined in
accordance with GAAP, excluding the after-tax effect of the sum of (a) any net
earnings of any Subsidiary which are unavailable for the payment of dividends,
(b) interest in any net earnings of Persons in which a Person has an ownership
interest, other than Subsidiaries, not actually received (but not excluding
Equity in Net Earnings of Affiliates), (c) gains arising from a write-up of
assets (d) gains arising from the acquisition of any securities of the Person or
any Subsidiary, (e) gains resulting from the sale of any investments or capital
assets (except gains upon the disposition of machinery and equipment and
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laboratory equipment used by the Company for demonstration purposes and shown on
the Company's books as fixed assets), (f) amortization of any deferred credit
arising from the acquisition of any Person or in the property or assets of any
Person, (g) earnings of any Subsidiary prior to the date it became a Subsidiary,
(h) earnings acquired by the Person or any Subsidiary through purchase, merger
or consolidation or otherwise for any period prior to the date of acquisition,
and (i) proceeds of any life insurance policies payable to the Person or any
Subsidiary.
"Net Worth" shall be determined on a consolidated basis in accordance with
GAAP and mean Total Shareholder's Equity for the applicable period minus the
Foreign Currency Translation Adjustment (gain or loss) for the applicable
period.
"Obligations" shall mean the Revolving Loans, the Letters of Credit, all
mandatory prepayments, all costs and expenses and all other Indebtedness of the
Company to the Agent or the Banks, including, without limitation, all
liabilities under interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements, and all other agreements designed to
protect against fluctuations in interest rates or currency exchange rates.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Liens" shall have the meaning assigned in Section 6.3.
"Person" shall mean an individual, partnership, corporation, firm,
enterprise, business trust, joint stock company, trust, unincorporated
association, joint venture, Government Authority or other entity of whatever
nature.
"Prime Rate" shall mean the interest rate publicly announced by the Agent
from time to time in Milwaukee, Wisconsin as its prime rate for interest rate
determinations, which is solely a reference rate and may be at, above or below
the rate or rates at which the Agent lends to other Persons. Any change in the
Prime Rate shall become effective as of the opening of business on the day on
which such change is publicly announced by the Agent.
"Property" shall mean any interest of the Company or the Guarantor of any
kind in property or assets, whether real, personal, mixed, tangible or
intangible, wherever located, and whether now owned or subsequently acquired or
arising and in the products, proceeds, additions and accessions thereof or
thereto.
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"Pro Rata" shall mean ratably among the Banks in proportion to the ratio
that their respective Maximum Credits bear to the aggregate Maximum Credit.
"Regulatory Change" shall mean the adoption or amendment, after the date of
this Agreement, of any federal or state law, regulation, interpretation,
direction, policy, guideline or court decision applicable to any Bank or the
London interbank eurodollar market which increases the cost to such Bank of
making or maintaining the Obligations or reduces the rate of return to such Bank
(by reduction of principal, interest or otherwise) on the Obligations by
subjecting such Bank to any tax, duty or other charge with respect to the
Obligations, imposing any reserve requirement (except any reserve requirement
reflected in the LIBOR Rate or the LIBOR Reserve Requirement), affecting the
treatment of any Obligation for purposes of calculating the appropriate amount
of capital to be maintained by such Bank or any Person controlling such Bank, or
imposing on such Bank any other condition affecting the Obligations.
"Related Documents" shall mean the Revolving Credit Notes, the Guaranty and
all other certificates, resolutions, or other documents required or contemplated
hereunder.
"Requirements of Law" shall mean as to any matter or Person, the
Certificate or Articles of Incorporation and Bylaws or other organizational or
governing documents of such Person, and any law (including, without limitation,
any Environmental Law), ordinance, treaty, rule, regulation, order, decree,
determination or other requirement having the force of law relating to such
matter or Person and, where applicable, any interpretation thereof by any
Government Authority.
"Required Banks" shall mean Banks whose Maximum Credits aggregate 100% of
the aggregate Maximum Credits.
"Restricted Payments" shall mean (a) dividends or other distributions by
the Company or the Guarantor, as the case may be, based upon the stock of the
Company or the Guarantor, as the case may be (except dividends payable solely in
stock of the Company or the Guarantor, as the case may be), (b) purchases,
redemptions or other acquisitions, direct or indirect, by the Company or the
Guarantor, as the case may be, of stock of the Company or the Guarantor, as the
case may be, whether now or hereafter outstanding, and (c) any other
distribution by the Company or the Guarantor, as the case may be, in respect of
stock of the Company or the Guarantor, as the case may be, whether now or
hereafter outstanding, either directly or indirectly, whether in cash or
property or otherwise.
"Revolving Credit Notes" shall mean the promissory notes from the Company
to Firstar and to First Chicago in the form
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of Exhibit A-1 and Exhibit A-2, respectively, evidencing the Revolving Loans, as
amended, supplemented, modified or extended from time to time.
"Revolving Loan Commitment" shall mean an aggregate principal amount not to
exceed $22,500,000.
"Revolving Loans" shall mean the loans to the Company pursuant to Section
2.1 evidenced by the Revolving Credit Notes.
"Subsidiary" shall mean as to any Person, a corporation of which shares of
stock having voting power (other than stock having such power only by reason of
the happening of a contingency that has not occurred) sufficient to elect a
majority of the board of directors or other managers of such corporation are at
the time owned, or the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by such Person.
"Termination Date" shall mean April 14, 1999 or such earlier date on which
the Obligations shall terminate as provided in Section 7.2.
"Total Shareholders' Equity" shall be determined on a consolidated basis in
accordance with GAAP and mean the amount reflected on the Company's current Form
10-Q or Form 10-K, as applicable, for Total shareholders' equity.
"UCC" shall mean the Uniform Commercial Code of the State of Wisconsin, as
amended from time to time.
1.2 Accounting and Financial Determinations. Where the character or amount
of any asset or liability or item of income or expense is required to be
determined, or any accounting computation is required to be made, for the
purpose of this Agreement, except as specifically provided otherwise herein,
such determination or calculation shall be made on a consolidated basis so as to
include the Company and its Subsidiaries, if any, in each such calculation and,
to the extent applicable and except as otherwise specified in this Agreement,
shall be made in accordance with GAAP; provided, however, that if any change in
GAAP from those applied in the preparation of the financial statements referred
to in Section 5.3 is occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the American Institute of
Certified Public Accountants (or its boards or committees or successors thereto
or agencies with similar functions), the initial announcement of which change is
made after the date hereof, results in a change in the method of calculation of
financial covenants, standards or terms found in Section 6, the parties hereto
agree to enter into good faith negotiations in order to amend such provisions so
as to reflect such changes with the desired result that the criteria for
evaluating the Company's financial condition shall be the same after such
changes as if such
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changes had not been made; and provided, further, that until such time as the
parties hereto agree upon such amendments, such financial covenants, standards
and terms shall be construed and calculated as though no change had taken place.
When used herein, the term "financial statement" shall include balance sheets,
statements of earnings, statements of stockholders' equity, statements of cash
flows and the notes and schedules thereto, and each reference herein to a
balance sheet or other financial statement of the Company shall be to a
statement prepared on a consolidated and consolidating basis, unless otherwise
specified.
1.3 Interpretation. The words "hereof," "herein" and "hereunder" and words
of a similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement. Section, Schedule
and Exhibit references contained in this Agreement are references to sections,
schedules and exhibits in or to this Agreement unless otherwise specified. Any
reference in any Section or definition to any clause is, unless otherwise
specified, to such clause of such Section or definition.
1.4 Other Terms. Except as otherwise specifically provided, each accounting
term used herein shall have the meaning given to it under GAAP, and all other
terms contained in this Agreement (and which are not otherwise specifically
defined herein) shall have the meanings provided in the UCC to the extent the
same are used or defined therein unless the context otherwise requires. Terms
defined in other Sections of this Agreement shall have the meanings set forth
therein.
SECTION 2 AMOUNTS AND TERMS OF OBLIGATIONS
--------------------------------
2.1 Revolvinq Loans.
(a) Prior to the Termination Date and so long as no Default has
occurred, the Banks agree separately and independently (and not jointly) on
the terms and conditions set forth in this Agreement to extend to the
Company Revolving Loans from time to time in amounts not to exceed in the
aggregate at any one time outstanding the Revolving Loan Commitment less
the face amount of all outstanding Letters of Credit. Revolving Loans shall
be made by the Banks Pro Rata. Subject to the terms of this Agreement, the
Company may borrow, repay (in whole or in part) and reborrow the Revolving
Loans prior to the Termination Date. The Revolving Loans made by each Bank
shall be evidenced by their respective Revolving Credit Notes.
(b) (i) From the date of the first Revolving Loan and until all
Revolving Loans are paid in full, the Company shall pay all accrued and
unpaid interest on the Revolving Loans on the first day of each month.
Prior to an Event of
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Default, interest shall accrue on the aggregate unpaid principal amount
from time to time outstanding under the Revolving Credit Notes at a rate
per annum equal to (a) the applicable LIBOR Rate on each LIBOR Rate Loan,
and (b) the Prime Rate on Revolving Loans which are not LIBOR Rate Loans.
Interest shall be computed and adjusted daily based on the actual number of
days elapsed in a year of 360 days. All outstanding unpaid principal and
accrued interest on the Revolving Loans shall be due and payable on the
Termination Date for the Revolving Loans.
(ii) The initial LIBOR Interest Margin shall be 1.25% per annum. If,
at the end of any fiscal quarter after the date hereof, the ratio of Funded
Debt, as of the end of each fiscal quarter, to Cash Flow, for the four
quarters then ended, as shown on the Company's financial statements for
such quarters delivered to the Banks pursuant to Sections 5.3(a) or (b), is
less than 1.0 : 1.0, then the LIBOR Interest Margin for all LIBOR Rate
Loans shall be 1.0% per annum, effective on the date of receipt of such
financial statements by the Banks. If, at the end of any fiscal quarter
after the date hereof, the ratio of Funded Debt, as of the end of each
fiscal quarter, to Cash Flow, for the four quarters then ended, is at least
2.0 : 1.0, as shown on the Company's financial statements for such quarters
delivered to the Banks pursuant to Sections 5.3(a) or (b), then the LIBOR
Interest Margin for all LIBOR Rate Loans shall be equal to 1.50% per annum,
effective on the date of receipt of such financial statements by the Banks.
If, at the end of any fiscal quarter after the date hereof, the ratio of
Funded Debt, as of the end of each fiscal quarter, to Cash Flow, for the
four quarters then ended, is equal to or greater than 1.0 : 1.0 but less
than 2.0 : 1.0, as shown on the Company's financial statements for such
quarters delivered to the Banks pursuant to Sections 5.3(a) or (b), then
the LIBOR Interest Margin for all LIBOR Rate Loans shall be equal to 1.25%
per annum, effective on the date of receipt of such financial statements by
the Banks. The Agent shall promptly notify the Banks of any applicable
reduction or increase in the LIBOR Interest Margin.
(c) The Company may obtain Revolving Loans by making a request
therefor to the Agent, orally or in writing. Such request shall specify a
Business Day prior to the Termination Date on which such Revolving Loans
are to be made (the "Borrowing Date"), shall be received by the Agent by
12:00 Noon (Milwaukee time) three Business Days before the Borrowing Date
in the case of LIBOR Rate Loans or otherwise by 12:00 Noon (Milwaukee time)
of the Borrowing Date, and shall specify the amount of the Revolving Loans
requested, whether the Revolving Loans are to be LIBOR Rate Loans and, if
so, the requested Loan Period; provided, however, that within three days
after any oral request for a Revolving Loan which is a
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LIBOR Rate Loan, the Agent shall receive from the Company a written
confirmation in form acceptable to the Agent confirming the Company's LIBOR
Rate Loan request, and the Banks' obligation to make further Revolving
Loans hereunder shall be suspended until such confirmation has been
received by the Agent. In the event of any inconsistency between the
telephonic notice and the written confirmation thereof, the telephonic
notice shall control. The Company shall be obligated to repay all Revolving
Loans notwithstanding the failure of the Agent to receive written
confirmation, and notwithstanding the fact that the person requesting the
Revolving Loan was not in fact authorised to do so. No Revolving Loan
request shall be modified, altered or amended without the prior written
consent of the Agent. Each Revolving Loan shall be in the principal amount
of the lesser of (i) $10,000 or a multiple thereof or (ii) the Maximum
Available Commitment; provided, however, that the Company may not request
LIBOR Rate Loans in an amount less than $500,000 per request. The Agent
shall promptly inform each Bank of each Revolving Loan request. Each Bank
shall make available to the Agent at its principal office in Milwaukee,
Wisconsin, in immediately available funds and not later than 3:00 p.m.
Milwaukee time on the Borrowing Date, the amount of such Bank's Pro Rata
share of such Revolving Loans. Upon receipt by the Agent of the amount of a
Bank's Revolving Loan and fulfillment of the conditions specified in
Section 4.2, the Agent shall promptly deposit the amount of such Revolving
Loan in the general deposit account of the Company maintained at the Agent.
(d) Revolving Loans which are not LIBOR Rate Loans may be converted
(in amounts not less than $500,000 and additional increments of $100,000)
into LIBOR Rate Loans by notice from the Company to the Agent meeting the
requirements of Section 2.1(c). At the end of each respective Loan Period,
LIBOR Rate Loans shall become Revolving Loans which are not LIBOR Rate
Loans unless and until the Company converts such Revolving Loans to LIBOR
Rate Loans.
(e) The Company may request LIBOR Rate Loans only so long as the
outstanding LIBOR Rate Loans bear no more than ten different LIBOR Rates.
The Agent may require any LIBOR Rate Loans to be repaid prior to the
Termination Date and may refuse to make LIBOR Rate Loans in the event the
Agent determines that (i) maintenance of the LIBOR Rate Loans would violate
any applicable Requirements of Law, (ii) the interest rates on LIBOR Rate
Loans do not accurately reflect the cost of making such Revolving Loans, or
(iii) deposits in the amount of any LIBOR Rate Loan are not available to
the Agent in the London eurodollar interbank market.
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(f) In the event any Bank shall incur any loss, cost, expense or
premium (including, without limitation, any loss of profit or loss, cost,
expense or premium incurred by reason of the liquidation or reemployment of
deposits or other funds acquired or contracted to be acquired by such Bank
to fund or maintain LIBOR Rate Loans or the relending or reinvesting of
such deposits or other funds or amounts paid or prepaid to such Bank), as a
result of:
(i) any payment of any LIBOR Rate Loans on a date other than the
last day of the then applicable Loan Period for any reason, whether
before or after Default, and whether or not such payment is required
by any provisions of this Agreement; or
(ii) any failure by the Company to create, borrow, continue or
effect by conversion any LIBOR Rate Loans on the date specified in a
notice given pursuant to this Agreement;
then upon the demand of such Bank, the Company shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost, expense or premium.
If a Bank requests such a reimbursement it shall provide the Company with a
certificate setting forth the computation of the loss, cost, expense or
premium giving rise to the request for reimbursement in reasonable detail
and such certificate shall be deemed prima facie correct.
(g) The Company may, upon one Business Day's prior written notice to
the Agent, permanently reduce the aggregate amount of the Revolving Loan
Commitment; provided that no such reduction shall reduce the aggregate
amount of the Revolving Loan Commitment to an amount less than the
aggregate unpaid principal balance of the Revolving Credit Notes on the
effective date of such reduction. Each reduction in the Revolving Loan
Commitment shall be in a minimum amount of $100,000 and in integral
multiples of $100,000 above such minimum.
2.2 Letters of Credit. Prior to the Termination Date and so long as no
Default has occurred, the Agent may from time to time, in the sole and absolute
discretion of the Required Banks, issue Letters of Credit requested by the
Company. The Company shall execute and deliver to the Agent the Agent's standard
forms of agreements for irrevocable or standby documentary Letters of Credit
evidencing the Company's reimbursement obligation to the Agent and the Banks.
All outstanding Letters of Credit shall expire not later than the earlier of one
year from the date of issuance or the Termination Date. In no event shall the
aggregate amount of outstanding Letters of Credit exceed $5,000,000. Drafts
drawn upon Letters of Credit shall be treated as Revolving Loans
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and shall bear interest at the rate of interest payable upon the Revolving Loans
which are not LIBOR Rate Loans.
2.3 Fundinq Procedures. Unless the Company or a Bank, as the case may be,
notifies the Agent prior to the date on which it is scheduled to make payment to
the Agent, of (i) in the case of a Bank, the proceeds of a Revolving Loan or
draw under a Letter of Credit as required hereunder or (ii) in the case of the
Company, a payment of principal, interest, fees or charges to the Agent for the
account of the Banks, that it does not intend to make such payment, the Agent
may assume that such payment has been made. The Agent may, but shall not be
obligated to, make the amount of such payment available to the intended
recipient in reliance upon such assumption. If such Bank or the Company, as the
case may be, has not in fact made such payment to the Agent, the recipient of
such payment shall, on demand by the Agent, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (a)
in the case of payment by a Bank, the federal funds rate for each of the first
three business days after the date of funding (as determined by the Agent) and
thereafter at the interest rate applicable to the relevant Obligation, or (b) in
the case of payment by the Company, the interest rate applicable to the relevant
Obligation. A statement of the Agent submitted to the Company or any Bank with
respect to any amounts owing under this Section 2.3 shall be conclusive, in the
absence of manifest error. The failure of one of the Banks to make any Revolving
Loan or loan respecting a draw under a Letter of Credit as required hereunder
shall not relieve any other Bank of its obligation to lend its Pro Rata share of
such Revolving Loan or Letter of Credit, hereunder, and in no event shall such
other Banks or the Agent be liable in any way whatsoever to the Company for such
failure of any Bank to make any Revolving Loan or loan respecting a Letter of
Credit hereunder.
2.4 Interest After Default. After an Event of Default, each of the
Obligations shall bear interest at the rate of 2% per annum in excess of the
applicable rates set forth herein; provided, that in the case of a LIBOR Rate
Loan the maturity of which is accelerated, such LIBOR Rate Loan shall bear
interest for the remainder of the applicable Loan Period at a rate equal to 2%
plus the higher of the rate on the LIBOR Rate Loan or the rate on Revolving
Loans which are not LIBOR Rate Loans. In no event shall the interest rate on the
Obligations exceed the highest rate permitted by law.
2.5 Loan Account. The Agent will enter as a debit to the Loan Account the
aggregate principal amount of each Obligation as disbursed or issued from time
to time by the Agent. The Agent shall also record in the Loan Account, in
accordance with the
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Agent's customary accounting practices: accrued interest and all other charges,
expenses and other items properly chargeable to the Company hereunder or under
the Related Documents; all payments made by the Company with respect to the
Obligations, if any; and all other appropriate debits and credits. The debit
balance of the Loan Account shall reflect the amount of the Obligations and
other appropriate charges hereunder. Not more frequently than once each month,
the Agent shall render a statement of account of the Loan Account including,
with respect to Revolving Loans, a statement of the outstanding principal
balance, Loan Period and applicable LIBOR Rate for each LIBOR Rate Loan, which
statement shall be considered correct and accepted by the Company and
conclusively binding upon the Company unless it notifies the Agent to the
contrary within 30 days of the mailing of such statement by the Agent to the
Company; provided, however, that the failure of the Agent to record any of the
foregoing items in the Loan Account shall not limit or otherwise affect the
Company's obligation to repay the Obligations.
2.6 Payments. Whenever any payment to be made hereunder shall be stated to
be due on a day which is not a Business Day, such payment may be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest on the Obligations. Payments
made by the Company to the Agent after 1:00 p.m. Milwaukee time shall be
credited on the next Business Day. The Agent may debit to the depository
accounts maintained by the Company with the Agent all payments on the
Obligations when due without prior notice to or consent of the Company, provided
that upon any such debit, the Agent will notify the Company of such debit
promptly.
2.7 Prepayments.
(a) Optional Prepayments. The Company may at its option, at any time
and from time to time, prepay the Obligations, in whole or in part. Partial
prepayments shall be in the principal amount of $1,000 or a multiple
thereof, together with accrued interest to the Prepayment Date on the
amount prepaid. There shall be no prepayment premium or penalty except as
provided in Section 2.1(f).
(b) Mandatory Prepayment. At any time that the aggregate principal
amount of Revolving Loans outstanding and face amount of Letters of Credit
outstanding hereunder exceeds the Revolving Loan Commitment, the Company
shall immediately pay the amount of such excess in immediately available
funds, together with interest accrued on the amount of the payment.
2.8 Effect of Requlatory Change. In the event of a Regulatory Change deemed
by any Bank in good faith to be material, the Company shall pay to such Bank
(within ten days after notice by such Bank to the Company of such Regulatory
Change such notice
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which shall include a reasonably detailed description of such Regulatory Change)
such amounts as such Bank deems reasonably necessary to compensate such Bank for
the increase in the cost of making or maintaining the Obligations or the
reduction in the rate of return to such Bank on the Obligations resulting from
the Regulatory Change.
2.9 No Obligation to Extend or Forbear. The Company acknowledges and agrees
that the Agent and the Banks (a) upon execution hereof, have no duty or
obligation of any kind to, and have made no representations of any kind or
nature that the Banks will, extend credit or any other kind of financial
accommodations to the Company after the Termination Date, or forbear at any time
from the exercise of any of their rights or remedies under this Agreement, the
Related Documents and applicable law, and (b) may at any time, in their sole and
absolute discretion, exercise whatever rights and remedies the Agent and the
Banks may have under this Agreement, the Related Documents and applicable law.
All Obligations shall be due in full on the Termination Date without further
demand.
SECTION 3 REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and make and
incur the Obligations as herein provided, the Company hereby represents and
warrants to the Agent and the Banks as follows:
3.1 Organization, Qualification and Subsidiaries. The Company and the
Guarantor each is a corporation duly organized and validly existing and in good
standing under the laws of the state or jurisdiction of its incorporation. The
Company and the Guarantor each has the corporate power and authority and all
necessary licenses, permits and franchises to borrow hereunder and to own its
assets and conduct its business as presently conducted. The Company and the
Guarantor each is duly licensed or qualified to do business and is in good
standing in all jurisdictions in which the Company and the Guarantor each has
substantial property or business operations, and to the best of the Company's
knowledge, the Company and the Guarantor each has no material liabilities as a
result of a failure to qualify to do business as a foreign corporation in any
jurisdiction. All of the issued and outstanding capital stock of the Company and
the Guarantor has been validly issued and is fully paid and non-assessable.
Except as set forth on Schedule 2, (a) the Company has no Subsidiaries, (b) the
Company does not own, directly or indirectly, more than 1% of the total
outstanding shares of any class of capital stock of any other Person, and (c)
there are no outstanding options, warrants or other rights to subscribe for or
purchase from the Company any capital stock of the Company or securities
convertible into or exchangeable for capital stock of the Company.
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3.2 Financial Statements.
(a) The Company has furnished to the Banks year-end consolidated and
consolidating financial statements for the Company for its fiscal years
ended May 31, 1994 and May 31, 1995, audited by KPMG Peat, Marwick, and the
financial statements prepared by the Company for the 9-month period ended
February 29, 1996. All such financial statements are accurate and complete
and were prepared in accordance with GAAP (except that the interim
financial statements are subject to normal year-end audit adjustments)
consistently applied throughout the applicable periods, and present fairly
the financial condition of the Company as of such dates and the results of
its operations and cash flows for the periods then ended. The balance
sheets and footnotes thereto show all known liabilities, direct or
contingent, of the Company and Subsidiaries as of the respective dates
thereof in accordance with GAAP. There has been no Material Adverse Effect
since the date of the latest of such statements. The Company's fiscal year
begins on June 1.
(b) The financial forecasts dated January 24, 1996 and furnished to
the Banks by the Company are based on information and assumptions that are
accurate and reasonable as of the date hereof.
3.3 Authorization. The making, execution, delivery and performance of this
Agreement and the Related Documents by the Company have each been duly
authorized by all necessary corporate action. The valid execution, delivery and
performance of this Agreement, the Related Documents and the transactions
contemplated hereby and thereby, are not and will not be subject to any
approval, consent or authorization of any Government Authority. This Agreement
and the Related Documents are the valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms.
3.4 Absence of Conflicting Obligations. The making, execution, delivery and
performance of this Agreement and the Related Documents and compliance with
their respective terms do not violate or constitute a default, breach or
violation under any Requirements of Law or any covenant, indenture, deed, lease,
contract, agreement, mortgage, deed of trust, note or instrument to which the
Company or the Guarantor is a party or by which it or the Guarantor is bound.
3.5 Taxes. The Company and the Guarantor have filed all federal, state,
foreign and local tax returns which were required to be filed, except those
returns for which the due date has been validly extended. The Company and the
Guarantor have paid or made provisions for the payment of all taxes,
assessments, fees and other governmental charges owed, and no tax deficiencies
have been
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proposed, threatened or assessed against the Company, which should have a
Material Adverse Effect on the Company or the Guarantor. The federal income tax
liability of the Company and the Guarantor has been finally determined by the
Internal Revenue Service and satisfied for all taxable years up to and including
the taxable year ended May 31, 1993 and there is no pending or, to the best of
the Company's knowledge, threatened tax controversy or dispute as of the date
hereof.
3.6 Absence of Litigation. There is no pending or, to the knowledge of the
Company, threatened litigation or administrative proceeding at law or in equity
against the Company or the Guarantor which would, if adversely determined,
result in a Material Adverse Effect, and, to the best of the Company's knowledge
after diligent inquiry, there are no presently existing facts or circumstances
likely to give rise to any such litigation or administrative proceeding.
3.7 Accuracy of Information. All information, certificates or statements
given by the Company to the Banks under this Agreement and the Related Documents
were accurate, true and complete in all material respects when given, continue
to be accurate, true and complete as of the date hereof, and do not contain any
untrue statement or omission of a material fact necessary to make the statements
herein or therein not misleading. There is no fact known to the Company which is
not set forth in this Agreement, the Related Documents or other documents,
certificates or statements furnished to the Banks by or on behalf of the Company
in connection with the transactions contemplated hereby and which will, or which
in the future may (so far as the Company can reasonably foresee), cause a
Material Adverse Effect.
3.8 Ownership of Property. The Company and the Guarantor each has good and
marketable title to all of its Property, including without limitation the
Property reflected in the balance sheets referred to in Section 3.2. There are
no Liens of any nature on any of the Property except Permitted Liens. All
Property useful or necessary in the Company's and the Guarantor's business,
whether leased or owned, is in good condition, repair (ordinary wear and tear
excepted) and working order and, to the best of the Company's knowledge after
diligent inquiry, conforms to all applicable Requirements of Law. The Company
and the Guarantor each owns (or is licensed to use) and possesses all such
patents, trademarks, trade names, service marks, copyrights and rights with
respect to the foregoing as are reasonably necessary for the conduct of the
business(es) of the Company and the Guarantor as now conducted and proposed to
be conducted without, individually or in the aggregate, any infringement upon
rights of other Persons. Schedule 3 contains a true, correct and complete list
of all real estate owned by the Company and the Guarantor.
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3.9 Federal Reserve Regulations. The Company will not, directly or
indirectly use any proceeds of the Obligations to: (a) purchase or carry any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System (12 C.F.R. 221, as amended); (b) extend credit to
other Persons for any such purpose or refund indebtedness originally incurred
for any such purpose; or (c) otherwise take or permit any action which would
involve a violation of Section 7 of the Securities Exchange Act of 1934, as
amended, or any regulation of the Board of Governors of the Federal Reserve
System.
3.10 ERISA. The Company and anyone under common control with the Company
under Section 4001(b) of ERISA is in compliance in all material respects with
the applicable provisions of ERISA and: (a) no "prohibited transaction" as
defined in Section 406 of ERISA or Section 4975 of the Code has occurred; (b) no
"reportable event" as defined in Section 4043 of ERISA has occurred; (c) no
"accumulated funding deficiency" as defined in Section 302 of ERISA (whether or
not waived) has occurred; (d) there are no unfunded vested liabilities of any
Employee Plan administered by the Company; and (e) the Company or the plan
sponsor has timely filed all returns and reports required to be filed for each
Employee Plan.
3.11 Places of Business. The principal place of business and chief
executive office of the Company is located at the address specified in Section
9.6 for the Company, and the books and records of the Company and all records of
account are located and hereafter shall continue to be located at such principal
place of business and chief executive office.
3.12 Other Names. The business conducted by the Company has not been
conducted under any corporate, trade or fictitious name other than the names of
the Company, the Guarantor, FamTec International, Inc., Spitfire, a division of
the Guarantor, and Rogers & Clarke, a division of the Guarantor, and following
the date hereof the Company will not conduct its business under any corporate,
trade or fictitious name unless the Company shall have delivered at least 30
days' prior written notice to the Agent of such name change.
3.13 Not an Investment Company. The Company is not (a) an "investment
company" or a company "controlled by an investment company" within the meaning
of the Investment Company Act of 1940, as amended, or (b) a "holding company" or
a "subsidiary" of a "holding company" or an "affiliate of a "holding company" or
a "subsidiary" of a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
3.14 No Defaults. To the best of the Company's knowledge, neither the
Company nor the Guarantor is in default
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under or in violation of (a) any Requirements of Law, (b) any covenant,
indenture, deed, lease, agreement, mortgage, deed of trust, note or other
instrument to which the Company or the Guarantor is a party or by which the
Company or the Guarantor is bound, or to which any Property is subject, or (c)
any Indebtedness; or if any default or violation under Sections 3.14(a), (b) or
(c) exists, it is an immaterial default or violation and the failure to cure
such default or violation would not result in a Material Adverse Effect.
3.15 Environmental Laws. To the best of the Company's knowledge, the
business of the Company and the Guarantor has been operated in full compliance
with all Environmental Laws noncompliance with which would result in a Default
and neither the Company nor the Guarantor is subject to any Environmental
Liability relating to the conduct of its business or the ownership of its
Property and no facts or circumstances exist which could give rise to such
Environmental Liabilities. No notice has been served on the Company or the
Guarantor claiming any violation of Environmental Laws, asserting Environmental
Liability or demanding payment or contribution for Environmental Liability or
violation of Environmental Laws.
3.16 Labor Matters. There are no labor disputes between the Company or the
Guarantor and any of their respective employees which individually or in the
aggregate, if resolved in a manner adverse to the Company or the Guarantor,
would result in a Material Adverse Effect.
3.17 Restricted Payments. Except for the payment of cash dividends from the
Guarantor to the Company from time to time, the Company and the Guarantor have
not, since the date of the most recent financial statements referred to in
Section 3.2, made any Restricted Payments.
SECTION 4 CONDITIONS PRECEDENT TO OBLIGATIONS
4.1 Initial Obligations. In addition to the terms and conditions otherwise
contained herein, the Company shall deliver or cause to be delivered to the
Agent, prior to or on the date of the Banks' first extension of credit, each of
the following items in form, detail and content satisfactory to the Agent:
(a) the executed Revolving Credit Notes;
(b) the executed Guaranty;
(c) a certificate of the secretary or an assistant secretary of the
Company, and the Guarantor certifying (i) an attached complete and correct
copy of its bylaws; (ii) an attached complete and correct copy of
resolutions duly adopted by its board of directors which have
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not been amended since their adoption and remain in full force and effect,
authorizing the execution, delivery and performance of this Agreement and
the Related Documents to which it is a party; (iii) that its articles of
incorporation have not been amended since the date of the last date of
amendment thereto indicated on the certificate of the secretary of state;
and (iv) as to the incumbency and specimen signature of each officer
executing this Agreement and all other Related Documents to which it is a
party, and including a certification by another officer as to the
incumbency and signature of the secretary or assistant secretary executing
the certificate;
(d) the opinion of counsel for the Company and the Guarantor in the
form of EXHIBIT C;
(e) certificates of good standing for the Company, and the Guarantor
and certified copies of the Articles of Incorporation for the Company and
the Guarantor, all issued by the Office of the Secretary of State of
incorporation within 50 days of the date hereof;
(f) evidence that there are no Liens of record on the Property other
than Permitted Liens (including UCC information searches in the names of
the Company and the Guarantor of the filing records in the offices of the
Illinois Secretary of State, the Arizona Secretary of State, the Texas
Secretary of State and the Cook County and Winnebago County, Illinois
Register of Deeds);
(g) the agency fee and closing fee under Sections 5.9(d) and 5.9(h),
respectively; and
(h) such additional reasonable supporting documents and materials as
the Agent may request.
4.2 Subsequent Obligations. In addition to the terms and conditions
otherwise contained herein, the obligation of the Banks to make or incur
subsequent Obligations is subject to the satisfaction, on the date of making or
incurring each such Obligation, of the following conditions:
(a) All of the representations, warranties and acknowledgments of the
Company contained in this Agreement and the Related Documents shall be true
and accurate as if made on such date, and each request by the Company for
credit shall constitute an affirmation by the Company that such
representations, warranties and acknowledgements are then true and
accurate;
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(b) There shall not exist on such date any Default and no Default
shall occur as the result of the making or incurring of such Obligation;
(c) The aggregate principal amount of all Revolving Loans outstanding
and the face amount of all Letters of Credit outstanding, together with the
amount of any Revolving Loan requested shall not exceed the Revolving Loan
Commitment;
(d) The Agent shall have received executed loan requests for all
Revolving Loans which are LIBOR Rate Loans previously requested by the
Company and the matters certified therein and herein shall have been true,
correct and complete on the date thereof and shall continue to be true and
correct on the date of the requested LIBOR Rate Loans; and
(e) Each of the Related Documents shall remain in full force and
effect.
SECTION 5 AFFIRMATIVE COVENANTS
---------------------
The Company covenants and agrees that, from and after the date of this
Agreement and until the Termination Date and until the entire amount of all
Obligations to the Agent and the Banks are paid in full, it shall and shall
cause the Guarantor to (with respect to Sections 5.1, 5.2, 5.3(c) and (d), 5.4,
5.6, 5.7, 5.8 and 5.10):
5.1 Corporate Existence; Compliance With Laws: Maintenance of Business: Taxes.
(a) Maintain its corporate existence, licenses, permits, rights and franchises;
(b) comply in all material respects with all Requirements of Law; (c) conduct
its business substantially as now conducted and proposed to be conducted; and
(d) pay before the same become delinquent and before penalties accrue thereon,
all taxes, assessments and other government charges against it and its Property,
and all other liabilities except to the extent and so long as the same are being
contested in good faith by appropriate proceedings, with adequate reserves
having been provided.
5.2 Maintenance of Property Insurance.
(a) Keep all Property useful and necessary in its business, whether
leased or owned, in good condition, repair and working order (ordinary wear
and tear excepted) and from time to time make or cause to be made all
needed and proper repairs, renewals, replacements, additions and
improvements so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
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(b) Maintain with good, reputable and financially sound insurance
underwriters insurance of such nature and in such amounts as is customarily
maintained by companies engaged in the same or similar business and such
other insurance as may be required by law or as may be reasonably required
in writing by the Agent. All policies shall require the insurer to endeavor
to give the Agent 30 days prior written notice of the modification,
cancellation or nonrenewal of the policy; the Company shall furnish copies
of all such insurance policies or a certificate evidencing that the Company
has complied with the requirements of this paragraph on the date hereof and
on each renewal date of such policies; and within 90 days after the end of
each fiscal year, the Company shall deliver to the Agent a schedule showing
all insurance policies in force as of the end of such year, signed by an
authorized officer of the Company.
5.3 Financial Statements. Maintain a standard and modern system of
accounting in accordance with sound accounting practice, and furnish to the
Banks such information respecting the business, assets and financial condition
of the Company as the Banks may reasonably request and, without request furnish
to the Banks:
(a) as soon as available, and in any event within 45 days after the
end of each quarter of the Company's fiscal year, financial statements
including the Form 10-Q for the Company and Subsidiaries certified as true,
correct and complete, subject to review and normal year-end adjustments, by
the chief financial officer of the Company;
(b) as soon as available, and in any event within 90 days after the
close of each fiscal year, a copy of the Form 10-K for such year for the
Company and Subsidiaries, as of the end of such year, as audited by
independent certified public accountants of recognized standing selected by
the Company and satisfactory to the Agent, which report shall be
accompanied by (i) the unqualified opinion of such accountants to the
effect that the financial statements included with the Form 10-K present
fairly, in all material respects, the financial position of the Company and
Subsidiaries as of the end of such year and the results of its operations
and its cash flows for the year then ended in conformity with GAAP; (ii) a
certificate of such accountants showing their calculation of the financial
covenants contained herein and stating that their review disclosed no
Default or that their review disclosed a Default and specifying the same
and the action taken or proposed to be taken with respect thereto; and
(iii) any supplementary comments and reports submitted by such accountants
to the Company including the management letter (when received), if any;
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(c) with the Form 10-Q described in Section 5.3(a) the certificate of
the president or chief financial officer of the Company to the effect that
(i) a review of the activities of the Company during such period has been
made under his supervision to determine whether the Company has observed,
performed and fulfilled each and every covenant and condition in this
Agreement and the Related Documents together with a calculation of the
financial covenants contained herein, and (ii) no Default has occurred (or
if such Default has occurred, specifying the nature thereof and the period
of existence thereof and the steps, if any, being undertaken to correct the
same); and
(d) promptly upon learning of the occurrence of any of the following,
written notice thereof, describing the same and the steps being taken with
respect thereto: (i) the occurrence of any Default, (ii) the institution
of, or any materially adverse determination or development in, any
litigation, arbitration proceeding or governmental proceeding, involving
claims against, or potential liability of, the Company or the Guarantor in
excess of $250,000, (iii) the occurrence of a "reportable event" under, or
the institution of steps by the Company or the Guarantor to withdraw from,
or the institution of any steps to terminate, any Employee Plan as to which
the Company or the Guarantor may have liability, (iv) the commencement of
any dispute which might lead to the modification, transfer, revocation,
suspension or termination of this Agreement or any Related Document, or (v)
any event which would have a Material Adverse Effect.
All financial statements referred to herein shall be complete and correct in all
material respects and shall be prepared in reasonable detail and on a
consolidated and consolidating basis in accordance with GAAP, applied
consistently throughout all accounting periods.
5.4 Inspection of Property and Records. At any reasonable time following
reasonable notice, as often as may be reasonably desired and at the Company's
expense, permit representatives of the Agent (and after an Event of Default one
or more of the Banks) to visit their Property, examine their books and records
and discuss their affairs, finances and accounts with their officers and
independent certified public accountants (who shall be instructed by the Company
to make available to the Banks, the Agent and/or their agents the work papers of
such accountants) and the Company shall facilitate such inspection and
examination.
5.5 Use of Proceeds. Use the entire proceeds of the Obligations for working
capital and general corporate purposes of the Company and the Guarantor only
(including any payments required under Standby Letter of Credit No. S100408).
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5.6 Bank Accounts. Maintain its primary deposit accounts of any kind with
the Banks.
5.7 Comply With, Pay and Discharge All Notes, Mortgages, Deeds of Trust and
Leases. Comply with, pay and discharge all existing notes, mortgages, deeds of
trust, leases, indentures and any other contractual arrangements to which the
Company or the Guarantor is a party (including, without limitation, all
Indebtedness) in accordance with the respective terms of such instruments so as
to prevent any default thereunder.
5.8 Environmental Compliance.
(a) Maintain at all times all permits, licenses and other
authorizations required under Environmental Laws, and comply in all
respects with all terms and conditions of the required permits, licenses
and authorizations and all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws.
(b) Notify the Agent promptly upon obtaining knowledge that (i) any
Property previously or presently owned or operated is the subject of an
environmental investigation by any Government Authority having jurisdiction
over the enforcement of Environmental Laws, (ii) the Company or the
Guarantor has been or may be named as a responsible party subject to
Environmental Liability, or (iii) the Company obtains knowledge of any
Hazardous Substance located on any Property except in compliance with all
Requirements of Law.
(c) At any reasonable time following reasonable notice and as often as
may be reasonably desired, permit the Agent or an independent consultant
selected by the Agent to conduct an environmental audit satisfactory to the
Agent for the purpose of determining whether the Company or the Guarantor
and the Property comply with Environmental Laws and whether there exists
any condition or circumstance which may require a cleanup, removal or other
remedial action by the Company or the Guarantor with respect to any
Hazardous Substance. The Company shall facilitate such environmental audit.
The Agent shall provide the Company, at the Company's request, with all
reports and findings but the Company may not rely on such environmental
audit for any purpose. Any such environmental audit of Property shall be at
the Company's expense at any time following an Event of Default or at any
time the Property is the subject of an environmental investigation by a
Government Authority having jurisdiction over the enforcement of
Environmental Laws; provided, however, that the Agent's environmental audit
shall not be at the Company's expense if (i) a Government Authority or a
firm or firms of geotechnical engineers and/or environmental
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consultants hired by the Company and reasonably acceptable to the Agent
shall undertake to make an environmental audit, and (ii) the Company shall
provide the Agent at the Company's expense with, and the Banks and the
Agent shall be entitled to rely on, all reports and findings of such
Government Authority or geotechnical engineers as soon as such reports and
findings are made available to the Company; and, provided further, that the
Company's obligation to pay for any such environmental audit shall be
limited to an amount not to exceed $3,000 per audit in cases where such
audit is not related to an environmental investigation by a Government
Authority or other potential Environmental Liability of the Company.
NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED IN THIS AGREEMENT, OR IN THE
RELATED DOCUMENTS, OR IN THE ENFORCEMENT OF THIS AGREEMENT OR THE RELATED
DOCUMENTS, SHALL CONSTITUTE OR BE CONSTRUED AS GRANTING OR PROVIDING THE RIGHT,
POWER OR CAPACITY TO THE BANKS OR THE AGENT TO EXERCISE (A) DECISION MAKING
CONTROL OF THE COMPANY'S COMPLIANCE WITH ANY ENVIRONMENTAL LAW, OR (B) DAY TO
DAY DECISION MAKING OF THE COMPANY OR ANY SUBSIDIARY WITH RESPECT TO (I)
COMPLIANCE WITH ENVIRONMENTAL LAWS OR (II) ALL OR SUBSTANTIALLY ALL OF THE
OPERATIONAL ASPECTS OF THE COMPANY.
5.9 Fees and Costs.
(a) Pay the Agent for the ratable account of the Banks on the first
day of January and on the first day of April, July and October thereafter
while Revolving Loans are outstanding a commitment fee, calculated daily
based on the actual number of days elapsed in a year of 360 days, equal to
.25% of the difference between the Revolving Loan Commitment and the
outstanding principal balance of the Revolving Loans plus the face amount
of all outstanding Letters of Credit. The commitment fee shall be computed
and adjusted daily based on the actual number of days elapsed in a year of
360 days. All unpaid commitment fees shall be due and payable on the
Termination Date. The Agent may debit to the Company's Loan Account all
commitment fees when due without consent of the Company provided that the
Agent notifies the Company of same within one (1) Business Day thereof.
(b) Pay the Agent and the Banks all additional costs including,
without limitation, wire transfer or other charges pertaining to the
transfer of funds, lockbox fees and charges arising from returned or
dishonored checks of any account debtor.
(c) Pay, for the benefit of the Banks' Pro Rata, the Agent's standard
fees for Letters of Credit which may be adjusted from time to time in the
Agent's sole and absolute discretion.
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(d) Pay the Agent for its own account an agency fee equal to $10,000
per annum payable on the date hereof and on April 15 of each consecutive
year (the "Agency Fee Payment Date") thereafter through the Termination
Date. Said agency fee shall be deemed to be earned and due and payable in
full on the Agency Fee Payment Date.
(e) Pay within fifteen (15) days of receipt of an invoice, the
reasonable fees and expenses incurred by the Banks' and/or the Agent in
connection with any inspection pursuant to and to the extent provided in
Section 5.4.
(f) Except as otherwise provided in clause (g) below, pay within
fifteen (15) days of receipt of an invoice all reasonable fees and expenses
incurred by the Agent and the Banks with respect to this Agreement, the
Related Documents and the Obligations, and any amendments thereof and
supplements thereto, including, without limitation, appraisal fees,
environmental inspection fees (to the extent provided in Section 5.8(c))
and the reasonable fees of in-house and outside counsel in connection with
the preparation and negotiation of this Agreement, the Related Documents
and all amendments thereto and any waivers of the terms and provisions
thereof and the consummation of the transactions contemplated herein.
(g) Pay immediately upon receipt of an invoice all reasonable fees and
expenses incurred by the Banks and the Agent with respect to protection or
enforcement (including collection and disposition of Property) of the
Agent's and/or the Banks' rights under this Agreement and the Related
Documents and with respect to the Obligations and all costs and expenses
which may be incurred by the Agent and/or the Banks with respect to a
Default as provided in Section 7.2.
(h) Pay the Agent for the ratable account of the Banks on the date
hereof a closing fee equal to $25,000.
5.10 Indemnity. Indemnify the Agent, the Banks and their respective
employees, officers, directors, shareholders, agents, attorneys, successors and
assigns against any and all losses, claims, damages, liabilities, obligations,
penalties, actions, judgments, suits, costs and expenses of any kind or nature
whatsoever, including without limitation reasonable attorneys' fees and
expenses, incurred by them arising out of, in any way connected with, or as a
result of (a) this Agreement or the Related Documents or the transactions
contemplated hereby or protection or enforcement (including collection or
disposition of Property) of the Agent's and the Banks' rights under this
Agreement or the Related Documents, (b) the execution and delivery of this
Agreement by the parties hereto and the performance of their respective
obligations hereunder, (c) any violation of Environmental Laws by
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the Company, any Subsidiary or any of its Property as well as any cost or
expense incurred in remedying such condition, and (d) any claim, litigation,
investigation or proceedings relating to any of the foregoing, whether or not
the Agent and/or the Banks' are a party thereto; provided, however, that such
indemnity shall not apply to any such losses, claims, damages, liabilities or
related expenses to the extent caused by (i) any breach by the Agent or a Bank
of its obligations under this Agreement, (ii) any commitment made by the Agent
or a Bank to any Person other than the Company which would be breached by the
performance of the Agent or such Bank's obligations under this Agreement, (iii)
any dispute between the Banks not resulting from or in any way related to any
breach of this Agreement or Related Documents by the Company or (iv) any
negligence or willful misconduct of the Agent or a Bank or its employees,
officers or agents. The foregoing indemnities shall survive the Termination
Date, the consummation of the transactions contemplated by this Agreement, the
repayment of the Obligations and the invalidity or unenforceability of any term
or provision of this Agreement or of the Related Documents and shall remain in
effect regardless of any investigation made by or on behalf of the Banks or the
Company and the content or accuracy of any representation or warranty made
under this Agreement.
5.11 Appraisals. If and to the extent required at any time of the Agent or
a Bank by any Government Authority or Requirements of Law, permit an
independent appraiser selected by the Agent or such Bank, as the case may be,
to conduct appraisals at any reasonable time following reasonable notice, at
the Company's expense, of the Property. The Company shall facilitate such
appraisals and may obtain copies of, but may not rely, on such appraisals for
any purpose.
5.12 SEC Reports. Within ten days after transmission thereof, the Company
shall deliver to each Bank copies of all financial statements, proxy
statements, reports and any other general written communications which the
Company sends to its stockholders and copies of all registration statements and
all regular, special or periodic reports which it files, or any of its officers
or directors file with respect to the Company, with the Securities and Exchange
Commission or with any securities exchange on which any of its securities are
then listed, and copies of all press releases and other statements made
available generally by the Company to the public concerning material
developments relating to the Company's and each of its Subsidiary's businesses.
5.13 Certain Lender Notices. With respect to the Indebtedness referred to
in Section 6.2(f), provide copies to the Agent, immediately upon receipt by the
Company, of all notices of default (including any demand for payment of such
Indebtedness), the acceleration of all or any portion of such Indebtedness, the
assignment of all or any portion of such Indebtedness (together with the name
and address of the assignee), requests for or
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granting waivers, any amendments to loan documents or requests therefor, and
any new or supplemental documentation received by the Company from the lenders
of such Indebtedness and copies of any of the foregoing furnished by the
Company to any such lender.
SECTION 6 NEGATIVE COVENANTS
------------------
The Company covenants and agrees that, from and after the date of this
Agreement and until the Termination Date and until all Obligations to the Agent
and the Banks are paid in full, the Company shall not and shall cause the
Guarantor to not (with respect to Sections 6.1, 6.2, 6.3, 6.4, 6.6 and 6.7)
directly or indirectly:
6.1 Sale of Assets, Consolidation, Merger, Etc. (a) Except for sales of
inventory, demonstration or laboratory machinery and equipment held for sale in
the ordinary course of business, in any fiscal year of the Company sell, lease,
transfer or otherwise dispose of Property having an aggregate net book value in
excess of $250,000, whether in one or in a series of transactions; (b)
consolidate or merge with or into any other Person; (c) directly or indirectly,
sell or transfer any Property, real or personal, used or useful in its
business, and thereafter lease such property or other property which it intends
to use for substantially the same purposes (provided, however, that the Company
has entered into certain capital leases as set forth on Schedule 4); or (d)
create or permit any Subsidiary to create a new Subsidiary.
6.2 Indebtedness. Issue, create, incur, assume or otherwise become liable
with respect to (or agree to issue, create, incur, assume or otherwise become
liable with respect to), or permit to remain outstanding, any Indebtedness
except (a) the Obligations; (b) Indebtedness which has been subordinated to the
Banks in form and substance satisfactory to the Banks; (c) current liabilities
(other than for borrowed money) of the Company and the Guarantor incurred in
the ordinary course of business which are not more than 90 days overdue, unless
being contested in good faith and with due diligence; (d) Indebtedness secured
by Permitted Liens; (e) Indebtedness disclosed on the Company's most recent
financial statements described in Section 3.2(a), provided that such
Indebtedness shall not be increased; (f) Indebtedness in an amount not to
exceed $16,000,000, in the form of unsecured promissory notes, to finance
construction of the facility to be located in Chandler, Arizona, such
Indebtedness which will be on terms and conditions satisfactory to the Banks,
and provided that such Indebtedness shall not be renewed, extended or increased
except as permitted under Section 6.13; (g) operating lease or rental
obligations as permitted under Section 6.12 and (h) Indebtedness in an
aggregate amount of not more than $250,000 in excess of the amounts permitted
by Sections 6.2(a), (b), (c), (d), (e), (f) and (g).
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6.3 Liens. Create or permit to be created or allow to exist any Lien upon
or interest in any Property except Permitted Liens. For purposes herein,
Permitted Liens shall mean: (a) Liens for taxes, assessments (including
industrial park assessments), or governmental charges, carriers',
warehousemen's, repairmen's, mechanics', materialmen's and other like Liens,
which are either not delinquent or are being contested in good faith by
appropriate proceedings which will prevent foreclosure of such Liens, and
against which adequate cash reserves have been provided; (b) easements,
restrictions, minor title irregularities and similar matters which have no
material adverse effect upon the ownership and use of the affected Property; (c)
Liens or deposits in connection with worker's compensation, unemployment
insurance, social security or other insurance or to secure customs duties,
public or statutory obligations in lieu of surety, stay or appeal bonds, or to
secure performance of contracts or bids, other than contracts for the payment of
money borrowed, or deposits required by law as a condition to the transaction of
business or other Liens or deposits of a like nature made in the ordinary course
of business; (d) Liens evidenced by conditional sales, purchase money mortgages
or other title retention agreements on machinery and equipment (acquired in the
ordinary course of business and otherwise permitted to be acquired hereunder)
which are created at the time of the acquisition of such property solely for the
purposes of securing the Indebtedness incurred to finance the cost of such
property, provided no such Lien shall extend to any property other than the
property so acquired and identifiable proceeds; and (e) Liens described in
SCHEDULE 4, provided that the Indebtedness secured thereby shall not be
increased.
6.4 Guaranty. Guaranty or otherwise in any way become or be responsible for
obligations of any other Person, whether by an agreement to purchase the
indebtedness of any other Person, or agreement for the furnishing of funds to
any other Person through the purchase of goods, supplies or services (or by way
of stock purchase, capital contribution advanced or loaned) for the purpose of
paying or discharging the indebtedness of any Person, or otherwise, except for
the endorsement of negotiable instruments by the Company for deposit or
collection or similar transactions in the ordinary course of business.
6.5 Restricted Payments. Make any Restricted Payments; Provided, however,
that, so long as no Default has occurred and is continuing or will occur as a
result of any payment, (a) the Company may pay dividends in an amount not to
exceed $1,000,000 per fiscal year and (b) the Guarantor may pay dividends,
without restriction, solely to the Company.
6.6 Loans, Investments. Make or commit to make advances, loans, extensions
of credit or capital contributions to, or purchases of any stock, bonds, notes,
debentures or other securities of, or make any other investment in, any Person
except:
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(a) accounts, chattel paper, and notes receivable created by the Company in the
ordinary course of business, including intercompany loans to Subsidiaries in an
aggregate amount not to exceed $1,000,000 at any time; (b) advances in the
ordinary course of business to suppliers, employees and officers of the Company
consistent with past practices; (c) investments in bank certificates of deposit
(but only with FDIC-insured commercial banks having a combined capital and
surplus in excess of S20,000,000), open market commercial paper maturing within
one year having the highest rating of either Standard & Poors Corporation or
Moody's Investors Services, Inc., U.S. Treasury Bills subject to repurchase
agreements and short-term obligations issued or guaranteed by the U.S.
Government or any agency thereof; (d) investments in open-end diversified
investment companies of recognized financial standing investing solely in short-
term money market instruments consisting of securities issued or guaranteed by
the United States government, its agencies or instrumentalities, time deposits
and certificates of deposit issued by domestic banks or London branches of
domestic banks, bankers acceptances, repurchase agreements, high grade
commercial paper and the like; (e) Eurodollar certificates of deposit in a
financial institution of recognized standing with a rating by Thompson's
BankWatch of BC or better; and (f) investments outstanding on May 31, 1995 and
shown on the financial statements referred to in Section 3.2 above (provided
that such investments shall not be increased except as attributable to increases
in equity resulting from earnings of foreign Affiliates); provided, that for
Sections 6.6(a) through (f), each such investment has a maturity date not later
than 365 days after the date of purchase or making thereof.
6.7 Compliance with ERISA. (a) Terminate any Employee Plan so as to result
in any material liability to PBGC; (b) engage in any "prohibited transaction"
(as defined in Section 4975 of the Code) involving any Employee Plan which would
result in a material liability for an excise tax or civil penalty in connection
therewith; or (c) incur or suffer to exist any material "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived,
involving any condition, which presents a risk of incurring a material liability
to PBGC by reason of termination of any such Employee Plan.
6.8 Net Worth. Permit Net Worth of the Company at any time to be less than
(a) $44,000,000 plus (b) 508 of the Company's Net Income (but not Net Loss) for
each fiscal year of the Company ending after May 31, 1996 on a cumulative basis.
6.9 Interest Coverage Ratio. Permit the ratio of Net Income plus interest
expense and depreciation expense to the interest on the Indebtedness to be less
than (a) 2.0 to 1.0 for any fiscal quarter through May 31, 1996 and (b) 3.0 to
1.0 for any fiscal quarter thereafter.
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6.10 Funded Debt to Cash Flow. Commencing on May 31, 1996, permit the ratio
of Funded Debt, as of the end of each fiscal quarter, to Cash Flow, for the four
quarters then ended, to be greater than 2.5 to 1.0, as of the end of each fiscal
quarter during the term of this Agreement.
6.11 Funded Debt to Capitalization. Permit Funded Debt to exceed forty-five
percent (45%) of Capitalization at any time.
6.12 Operatinq Leases. Incur or permit to be outstanding as lessee
operating lease or rental obligations during any fiscal year, including, without
limitation, operating lease or rental obligations of its Subsidiaries, in an
aggregate amount exceeding $2,500,000.
6.13 Certain Lender Amendments. Without the prior written consent of the
Required Banks, amend, modify, extend or renew the terms of the Indebtedness
referred to in Section 6.2(f) in any way that would adversely affect the Banks
or any of their rights or remedies or impose any more onerous or adverse
restrictions on the Company.
SECTION 7 DEFAULT AND REMEDIES
--------------------
7.1 Events of Default Defined. Any one or more of the following shall
constitute an "Event of Default":
(a) the Company shall fail to pay any Obligation (including, without
limitation, the Revolving Credit Notes and the payments required by
Sections 2.7(b) and 5.9) when and as the same shall become due and payable,
whether upon demand, at maturity, by acceleration or otherwise, which
Default shall remain uncured for a period of five days after written notice
thereof is given by the Agent to the Company;
(b) the Company shall fail or fail to cause the Guarantor to observe
or perform any of the covenants, agreements or conditions contained in
Sections 4.1, 4.2, 5.1(a), 5.2(b), 5.4, 5.6, 5.8(a), or any provision of
Section 6;
(c) the Company or the Guarantor shall default (as principal or
guarantor or otherwise) in the payment of any other Indebtedness
aggregating $250,000 or more, or with respect to any of the provisions of
any agreement evidencing such Indebtedness, and such default shall continue
beyond any period of grace, if any, specified in such agreement, unless the
Company or the Guarantor is contesting such default in good faith and the
Banks agree, in their sole discretion, that the Company or the Guarantor is
so contesting such default;
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(d) the Company shall fail to observe or perform any of the other
covenants, agreements or conditions contained in this Agreement or the
Related Documents and such failure shall continue for thirty days after
either written notice thereof is given by the Agent to the Company or the
chief executive officer or treasurer of the Company has actual notice
thereof;
(e) any representation or warranty made by the Company herein or in
any of the Related Documents or in any certificate, document or financial
statement delivered to the Agent or the Banks shall prove to have been
incorrect in any material adverse respect as of the time when made or
given;
(f) a final judgment (or judgments) for the payment of amounts
aggregating in excess of $200,000 shall be entered against the Company or
any Guarantor, and such judgment (or judgments) shall remain outstanding
and unsatisfied, unbonded or unstayed after sixty days from the date of
entry thereof;
(g) the Company or any Guarantor shall (i) become insolvent or take
or fail to take any action which constitutes an admission of inability to
pay its debts as they mature; (ii) make an assignment for the benefit of
creditors; (iii) petition or apply to any tribunal for the appointment of a
custodian, receiver or any trustee for the Company or any Guarantor or a
substantial part of its respective assets; (iv) suffer any such
custodianship, receivership or trusteeship to continue undischarged for a
period of thirty days or more; (v) commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; (vi) by any act or omission indicate its consent to, approval of
or acquiescence in any such petition, application or proceeding or order
for relief or the appointment of a custodian, receiver or any trustee for
it or any substantial part of any of its properties; or adopts a plan of
liquidation of its assets;
(h) if any Person shall: (i) petition or apply to any tribunal for the
appointment of a custodian, receiver or any trustee for the Company or any
Guarantor or a substantial part of its respective assets which continues
undischarged for a period of thirty days or more; (ii) commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect, in which an order for relief is entered
or which remains undismissed for a period of thirty days or more;
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(i) any Government Authority or any geotechnical engineer or
environmental consultant hired by the Company, the Agent or a Bank or any
Government Authority shall determine that the potential uninsured liability
of the Company for damages caused by the discharge of any Hazardous
Substance, including liability for real property damage or remedial action
related thereto or liability for personal injury claims, exceeds $250,000
and the Company is unable to provide for such liability in a manner
reasonably acceptable to the Banks;
(j) the Company shall cease to own a majority of each class of voting
stock of each Subsidiary; and
(k) this Agreement or any of the Related Documents shall at any time
cease to be in full force and effect, or the Company or any Guarantor shall
contest or deny any liability or obligation under, or attempt to revoke or
terminate, this Agreement or any Related Document.
7.2 Remedies Upon Event of Default. Upon the occurrence of an Event of
Default:
(a) specified in clauses (g) or (h) of Section 7.1, then, without
presentment, notice, demand or action of any kind by the Agent or the
Banks, all of which are hereby waived: (i) the Revolving Loan Commitment
and the obligations of the Banks to make or incur any Obligations shall
automatically and immediately terminate; and (ii) the entire amount of the
Obligations shall be automatically accelerated and immediately due and
payable.
(b) specified in clauses (a), (b), (c), (d), (e), (f), (i) or (j) of
Section 7.1, the Banks may, without presentment, notice, demand or action
of any kind, all of which are hereby waived: (i) immediately terminate
their respective obligations to make or incur any Obligations, and the same
shall immediately terminate; and (ii) declare the entire amount of the
Obligations immediately accelerated, due and payable.
(c) the Company shall immediately deposit with the Agent for the
ratable account of the Banks an amount equal to the undrawn face amount of
all outstanding Letters of Credit to pay all amounts which may thereafter
be drawn under the Letters of Credit.
(d) the Agent and/or the Banks may at any time without prior notice or
demand set off against any credit balance or other money now or hereafter
owed it by the Agent and/or the Banks all or any part of the Company's
obligations (to the Agent and/or the Banks, as the case may be) hereunder.
The Company hereby grants to the Agent and the Banks, as the
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case may be, a security interest in and lien on any such credit balance or
other money.
(e) the Banks shall have all of the rights and remedies provided to
the Banks and to the Agent by the Related Documents, at law and in equity,
by statute or otherwise, and no remedy herein conferred upon the Banks or
the Agent is intended to be exclusive of any other remedy and each remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law, in equity, by statute or
otherwise. In addition to and not in lieu of any other right or remedy the
Banks might have, the Agent at any time and from time to time at the
direction of the Required Banks may (but shall not be required to) do or
perform or comply with or cause to be done or performed or complied with
anything which the Company may be required to do, perform or comply with
and the Company shall reimburse the Agent or the Banks upon demand for any
cost or expense which the Agent or the Banks may incur in such respect,
together with interest thereon at the rate equal to the rate payable under
the Revolving Credit Notes following an Event of Default from the date of
such demand until paid. No failure or delay on the part of the Agent or the
Banks in exercising any right or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right hereunder
preclude any further exercise thereof or the exercise of any other right or
remedy.
SECTION 8 RELATIONSHIP OF AGENT AND BANKS
-------------------------------
8.1 Appointment. Firstar is hereby appointed Agent hereunder and under the
Related Documents, and each of the Banks irrevocably authorizes the Agent to act
as the agent of such Bank. The Agent agrees to act as such upon the express
conditions contained in this Section 8. The Agent shall not have a fiduciary
relationship in respect of any Bank by reason of this Agreement or the Related
Documents.
8.2 Powers. The Agent shall have and may exercise such powers hereunder as
are specifically delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. The Agent shall have no implied
duties to the Banks, or any obligation to the Banks to take any action hereunder
except any action specifically provided by this Agreement to be taken by the
Agent.
8.3 Action on Instructions of Banks.
-------------------------------
(a) The Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or under the Related Documents in
accordance with written instructions signed by the Required Banks, and such
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instructions and any action taken or failure to act pursuant thereto shall
be binding on all of the Banks and on all holders of Revolving Credit Notes
and all other Obligations. The Agent may at any time request instructions
from the Banks with respect to any action or approval that, by the terms of
this Agreement, the Agent is permitted or required to take or to grant, and
if such instructions are requested, the Agent shall be absolutely entitled
to refrain from taking any action or to withhold any approval and shall not
be under any liability whatsoever to any Person for refraining from any
action or withholding any approval under this Agreement until it shall have
received such instructions by the Required Banks; provided, however, that
the Agent shall not in any event be required to comply with any
instructions given it by the Required Banks if the Agent determines that
such compliance would expose it to a material personal liability or is
contrary to law or to the terms of this Agreement or the Related Documents,
but the Banks shall in all events indemnify the Agent from any action taken
by it in accordance with the instructions of the Required Banks. No Bank
shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder or under the Related
Documents in accordance with instructions by the Required Banks.
(b) Without limiting the foregoing, the Agent shall not be required to
take any action with respect to any Default except in accordance with
Section 7.2 and this Section. The Agent shall be entitled to assume that no
Default has occurred and is continuing unless the Agent has actual
knowledge of such facts or has received notice from a Bank in writing that
such Bank considers that a Default has occurred and is continuing, and
which specifies the nature thereof. In the event that the Agent shall
acquire actual knowledge of any Default, the Agent shall promptly notify
(either orally or in writing) the Banks, and the Company of such Default.
If directed by the Required Banks, the Agent shall make demand under the
Revolving Credit Notes, the Letters of Credit and all other Obligations and
take such action and assert such rights as are contemplated under this
Agreement and the Related Documents.
8.4 Amendments. The Required Banks (or the Agent with the consent in
writing of the Required Banks) and the Company may enter into agreements
supplemental hereto for the purpose of adding or modifying any provisions of
this Agreement or the Related Documents or changing in any manner the rights of
the Banks or the Company hereunder or waiving any Default hereunder. No
amendment of any provision of this Agreement relating to the Agent shall be
effective without the prior written consent of the Agent.
36
<PAGE>
8.5 Application of Payments. All payments of principal and interest with
respect to the Obligations shall be made to the Agent in immediately available
funds for the ratable account of the Banks. The Agent shall promptly distribute
to each Bank, Pro Rata, the amount of (a) principal and interest received by the
Agent, (b) each Bank's Pro Rata share of any fees, expenses or charges collected
by Agent, and (c) all amounts received by the Agent upon realization from the
Property. Any payment in good funds to the Agent for the account of a Bank
hereunder shall constitute a payment by the Company to such Bank of the amounts
so paid to the Agent, and any Obligations or portions thereof so paid shall not
be considered outstanding for any purpose after the date of such payment in good
funds to the Agent. Notwithstanding the foregoing, for purposes of clause (c)
above, the parties acknowledge that all amounts received by the Agent upon
realization of the Property shall be applied Pro Rata provided that the
definition of Pro Rata shall also include the obligations of the Company to
Firstar under the Credit Agreement dated as of April 1, 1992, as amended. All
payments or prepayments of principal and interest shall be made Pro Rata in
accordance with the amounts of the Obligations then outstanding. In the event
any Bank shall receive from the Company or any other source any payment of, on
account of, any of the Obligations (whether pursuant to the exercise of any
right of setoff, banker's lien, realization upon any security held for or
appropriated to such obligation, counterclaim or otherwise) other than as
provided above, then such Bank shall immediately purchase, without recourse and
for cash, an interest in the obligations of the same nature held by the other
Banks so that each Bank shall thereafter have a percentage interest in all of
such obligations equal to the percentage interest which such Bank held in the
relevant Obligations immediately before such payment; provided, if any payment
so received shall be recovered in whole or in part from such purchasing Bank,
the purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest. The Company specifically acknowledges and
consents to the preceding sentence.
8.6 General Immunity. Neither the Agent nor any of its directors, officers,
agents or employees shall be liable to the Banks or any Bank for any action
taken or omitted to be taken by it or them hereunder or in connection herewith
except for its or their own gross negligence or willful misconduct.
8.7 No Responsibility for Loans, Recitals, Etc. The Agent shall not be
responsible to the Banks for any recitals, reports, statements, warranties or
representations herein or in any Related Document or be bound to ascertain or
inquire as to the truth or accuracy of the statements or reports of the Company
or any of its Subsidiaries with regard to the performance or observance of any
of the terms of this Agreement.
37
<PAGE>
8.8 Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under the Related Documents by or through
employees, agents, and attorneys-in-fact and shall not be liable to the Banks
for the default or misconduct of any such employees, agents or attorneys-in-fact
selected by it with reasonable care, except as to money or securities received
by it or its authorized agents. The Agent shall be entitled to advice of counsel
concerning all matters pertaining to the agency hereby created and its duties
hereunder and under the Related Documents. The Company shall be responsible for
all costs and expenses of the Agent, including reasonable attorneys' fees of in-
house and outside counsel.
8.9 Reliance on Documents, Counsel. The Agent shall be entitled to rely
upon any Revolving Credit Note, request for a Letter of Credit, notice, consent,
certificate, affidavit, letter, telegram, statement, paper or document believed
by it to be genuine and correct and to have been signed or sent by the proper
Person or Persons, and, in respect to legal matters, upon the opinion of counsel
selected by the Agent, which counsel may be employees of the Agent.
8.10 Inspections. At the request of the Banks from time to time, the Agent
shall conduct its customary review of the Company's financial and collateral
records and the Property in accordance with Section 5.4. To assist each Bank in
its own investigation of the Company and the Property, each Bank may send
representatives to accompany the Agent's personnel on such inspections.
8.11 Agent's Reimbursement and Indemnification. The Banks agree to
reimburse and indemnify the Agent Pro Rata (i) for any amounts not reimbursed by
the Company for which the Agent (as Agent and not as a Bank under this
Agreement) is entitled to reimbursement by the Company under this Agreement or
the Related Documents, (ii) for any other expenses incurred by the Agent on
behalf of the Banks, in connection with the preparation, execution, delivery,
administration and enforcement (including collection or disposition of Property)
of this Agreement or the Related Documents and (iii) for any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of this Agreement or the Related Documents or the transactions contemplated
hereby or the enforcement (including collection or disposition of Property) of
any of the terms hereof or of any such other documents, provided that no Bank
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent.
38
<PAGE>
8.12 Rights as a Lender. Firstar shall have the same rights and powers
hereunder as any Bank the same as though it were not the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. Firstar may accept deposits from, lend money
to, and generally engage in any kind of banking or trust business with the
Company or any Subsidiary as if it were not the Agent. Each Bank acknowledges
that the other Bank may continue to accept deposits from, lend money to, and
generally engage in any kind of banking or trust business with the Company or
any Subsidiary independent of the Obligations, this Agreement or the Related
Documents; provided, however, that the Company's or any Subsidiary's obligations
to a Bank from such independent banking activities shall not be secured by the
Property. Notwithstanding the foregoing or Section 8.5, any fees or other income
received by any Bank directly from such independent banking activities are not
to be shared with any other Bank or the Agent.
8.13 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements prepared by the Company and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Related Documents. Each Bank
also acknowledges that it will, independently and without reliance upon the
Agent or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the Related Documents.
8.14 Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Banks and the Company, and the Agent may be removed at any
time with or without cause by written notice received by the Agent from the
Required Banks. Upon any such resignation or removal, the Required Banks shall
have the right to appoint, on behalf of the Company and the Banks, a successor
Agent. If no successor Agent shall have been so appointed by the Required Banks
and shall have accepted such appointment within thirty days after the retiring
Agent's giving notice of resignation, then the retiring Agent may appoint, on
behalf of the Company and the Banks, a successor Agent. Such successor Agent
shall be a commercial bank having capital and retained earnings of at least
$25,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder arising after the date of retirement. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Section 8 shall continue
in effect for its benefit in respect of any actions taken or omitted to be taken
by
39
<PAGE>
it while it was acting as the Agent hereunder and under the Related Documents.
8.15 Noteholders. The Agent may treat the payee of any Revolving Credit
Note as the holder thereof until written notice of transfer shall have been
filed with the Agent, signed by such payee and in form satisfactory to the
Agent.
SECTION 9 MISCELLANEOUS
-------------
9.1 Assignability; Successors. The provisions of this Agreement shall inure
to the benefit of and be binding upon the permitted successors and assigns of
the parties hereto. The Company's rights and liabilities under this Agreement
and the Related Documents are not assignable in whole or in part without the
prior written consent of the Required Banks.
9.2 Survival. All agreements, covenants, representations and warranties
made herein and in the Related Documents shall survive the execution and
delivery of this Agreement and the Related Documents, the making of the
Obligations and the termination of this Agreement.
9.3 Governing Law. This Agreement and the Related Documents shall be
governed by the internal laws of the State of Wisconsin.
9.4 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. The descriptive
headings in this Agreement are inserted for convenience of reference only and
shall not affect the construction of this Agreement.
9.5 Entire Agreement; Amendments. This Agreement, the Exhibits and
Schedules attached hereto, and the Related Documents contain the entire
understanding of the parties with respect to the subject matter hereof, and
supersede all other understandings, oral or written, with respect to the subject
matter hereof. No amendment, modification, alteration, or waiver of the terms of
this Agreement or consent required under the terms of this Agreement shall be
effective unless made in a writing, which makes specific reference to this
Agreement and which has been signed by the party against which enforcement
thereof is sought. Any such amendment, modification, alteration, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
9.6 Notices. All communications or notices required or permitted by this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered in hand, deposited in the mail, or sent by facsimile.
Communications or notices shall be
40
<PAGE>
delivered personally or by certified or registered mail, postage prepaid, or by
facsimile and addressed as follows, unless and until either of such parties
notifies the other in accordance with this section of a change of address:
if to the Company:
SpeedFam International, Inc.
7406 West Detroit Avenue
Chandler, Arizona 85226
ATTN: Mr. Roger K. Marach,
Chief Financial Officer
FAX: 602-961-2171
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
ATTN: David S. Crossett, Esq.
FAX: 312-701-2361
if to the Agent: Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ATTN: Mr. James A. Meyer,
Vice President
FAX: 414-765-5062
if to the Banks: The First National Bank of
Chicago
One First National Plaza
14th Floor, Mail Suite 0173
Chicago, IL 60670
ATTN: Mr. Robert D. Curtis,
First Vice President
FAX: 312-732-1117
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ATTN: Mr. James A. Meyer,
Vice President
FAX: 414-765-5062
with a copy to: Michael Best & Friedrich
100 East Wisconsin Avenue
Suite #3300
Milwaukee, Wisconsin 53202
ATTN: Jonathan D. Kron, Esq.
FAX: 414-277-0656
41
<PAGE>
9.7 Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
9.8 Further Assurances. The Company agrees to do such further acts and
things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as the Agent may at any time request in connection
with the administration or enforcement of this Agreement or the Related
Documents or in order better to assure and confirm unto the Agent and the Banks
their respective rights, powers and remedies hereunder.
9.9 Conflicts and Ambiguities. In the event of any ambiguity or conflict as
between the terms of this Agreement, the Related Documents or any other document
executed and delivered pursuant to this Agreement, the terms of this Agreement
shall control.
9.10 Submission to Jurisdiction. The Agent and the Banks may enforce any
claim arising out of this Agreement or the Related Documents in any state or
federal court having subject matter jurisdiction and located in Milwaukee,
Wisconsin. For the purpose of any action or proceeding instituted with respect
to any such claim, the Company hereby irrevocably submits to the jurisdiction of
such courts. The Company irrevocably consents to the service of process out of
said courts by mailing a copy thereof, by registered mail, postage prepaid, to
the Company and agrees that such service, to the fullest extent permitted by law
(a) shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding, and (b) shall be taken and held to be valid
personal service upon personal delivery to it. Nothing herein contained shall
affect the right of the Agent or the Banks to serve process in any other manner
permitted by law or preclude the Agent and/or the Banks from bringing an action
or proceeding in respect hereof in any other country, state or place having
jurisdiction over such action. The Company hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding brought
in any court located in Milwaukee, Wisconsin and any claim that any such suit,
action or proceeding brought in such a court has been brought in an inconvenient
forum.
9.11 Waiver of Jury Trial. Each party hereto knowingly, voluntarily and
without coercion, waives all rights to a trial by jury of all disputes arising
out of or in relation to this Agreement or any Related Document to which it is a
party, or under any amendment, instrument, document or agreement delivered or
which may in the future be delivered in connection therewith or arising from any
relationship existing in connection with this Agreement or and any Related
Document, and agrees that any such
42
<PAGE>
action or proceeding shall be tried before a court and not before a jury.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
SPEEDFAM INTERNATIONAL, INC.
By: /s/ Roger K. Marach
------------------------------------
Roger K. Marach, Treasurer and CFO
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ James A. Meyer
------------------------------------
James A. Meyer, Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Robert D. Curtis
------------------------------------
Robert D. Curtis, First Vice
President
FIRSTAR BANK MILWAUKEE, N.A., AS AGENT
By: /s/ James A. Meyer
------------------------------------
James A. Meyer, Vice President
43
<PAGE>
CONSENT AND ACKNOWLEDGMENT
--------------------------
IN WITNESS WHEREOF, the Guarantor has executed this Agreement as of the
date first above written and hereby (i) agrees and consents to all of the terms
and conditions of the foregoing Agreement; and (ii) confirm its representations,
warranties, covenants and agreements contained in, and obligations and
liabilities under its Guaranty and each of the other Related Documents by which
it may be bound. The Guarantor hereby affirms and agrees that each has received
sufficient value (as described in Section 9-203(1)(b) of the Uniform Commercial
Code) and benefit (whether direct or indirect) in exchange for the Guarantor's
execution of its Guaranty and other Related Documents.
SPEEDFAM CORPORATION
By: /s/ Robert K. Marach
-------------------------------------
Robert K. Marach, Treasurer and
Assistant Secretary
44
<PAGE>
EXHIBIT A-1
-----------
REVOLVING CREDIT NOTE
---------------------
$13,500,000 Milwaukee, Wisconsin
Revolving Loans
Due: April 14, 1999 April 15, 1996
FOR VALUE RECEIVED, SPEEDFAM INTERNATIONAL, INC. (f/k/a FamTec
International, Inc.), an Illinois corporation (the "Borrower"), promises to pay
to the order of FIRSTAR BANK MILWAUKEE, N.A. (the "Bank") at its main office in
Milwaukee, Wisconsin or at such other place as the holder hereof may from time
to time in writing designate, in lawful money of the United States of America,
the principal sum of Thirteen Million Five Hundred Thousand Dollars
($13,500,000.00), or so much thereof as has been advanced and remains
outstanding pursuant to Section 2.1 of the Revolving Credit Agreement by and
among the Borrower, the Bank, in its capacity as lender and as agent, and The
First National Bank of Chicago, dated as of the date hereof (the "Loan
Agreement"), together with accrued interest and all other costs, charges and
fees due thereunder.
The undersigned further promises to pay interest on the unpaid principal
amount of each Revolving Loan (as such term is defined in the Loan Agreement) as
is outstanding under the Loan Agreement, payable at such rates and at such
times, as provided in the Loan Agreement. Subject to the provisions of the Loan
Agreement with respect to acceleration, prepayment or loan limitations, all
unpaid principal with respect to each Revolving Loan, together with accrued
interest and all other costs, charges and fees, shall be due and payable in full
on the Termination Date for this Note.
This Note evidences indebtedness incurred under, and is entitled to the
benefits of, the Loan Agreement, together with all future amendments,
modifications, waivers, supplements and replacements thereof, to which Loan
Agreement reference is made for a statement of the terms and provisions under
which this Note may be paid prior to its due date or its due date accelerated.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due.
This Note is issued in and shall be governed by the laws of the State of
Wisconsin.
<PAGE>
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other remedy under
this Note. A waiver on any one occasion shall not be construed as a waiver of
any such right or remedy on a future occasion.
All makers, endorsers, sureties, guarantors and other accommodation parties
hereby waive presentment for payment, protest and notice of nonpayment and
consent, without affecting their liability hereunder, to any and all extensions,
renewals, substitutions and alterations of any of the terms of this Note and to
the release of or failure by the Bank to exercise any rights against any party
liable for or any property securing payment thereof.
SPEEDFAM INTERNATIONAL, INC.
By:
----------------------------------
Roger K. Marach, Treasurer and CFO
<PAGE>
EXHIBIT A-2
___________
REVOLVING CREDIT NOTE
_____________________
$9,000,000 Milwaukee, Wisconsin
Revolving Loans
Due: April 14, 1999 April 15, 1996
FOR VALUE RECEIVED, SPEEDFAM INTERNATIONAL, INC. (f/k/a FamTec
International, Inc.), an Illinois corporation (the "Borrower"), promises to pay
to the order of THE FIRST NATIONAL BANK OF CHICAGO (the "Bank") at its main
office in Chicago, Illinois or at such other place as the holder hereof may from
time to time in writing designate, in lawful money of the United States of
America, the principal sum of Nine Million Dollars ($9,000,000.00), or so much
thereof as has been advanced and remains outstanding pursuant to Section 2.1 of
the Revolving Credit Agreement by and among the Borrower, the Bank, Firstar Bank
Milwaukee, N.A., in its capacity as lender and agent, dated as of the date
hereof (the "Loan Agreement"), together with accrued interest and all other
costs, charges and fees due thereunder.
The undersigned further promises to pay interest on the unpaid principal
amount of each Revolving Loan (as such term is defined in the Loan Agreement) as
is outstanding under the Loan Agreement, payable at such rates and at such
times, as provided in the Loan Agreement. Subject to the provisions of the Loan
Agreement with respect to acceleration, prepayment or loan limitations, all
unpaid principal with respect to each Revolving Loan, together with accrued
interest and all other costs, charges and fees, shall be due and payable in full
on the Termination Date for this Note.
This Note evidences indebtedness incurred under, and is entitled to the
benefits of, the Loan Agreement, together with all future amendments,
modifications, waivers, supplements and replacements thereof, to which Loan
Agreement reference is made for a statement of the terms and provisions under
which this Note may be paid prior to it due date or its due date accelerated.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due.
This Note is issued in and shall be governed by the laws of the State of
Wisconsin.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other remedy under
this Note. A waiver on any one occasion shall not be construed as a waiver of
any such right or remedy on a future occasion.
<PAGE>
All makers, endorsers, sureties, guarantors and other accommodation parties
hereby waive presentment for payment, protest and notice of nonpayment and
consent, without affecting their liability hereunder, to any and all extensions,
renewals, substitutions and alterations of any of the terms of this Note and to
the release of or failure by the Bank to exercise any rights against any party
liable for or any property securing payment thereof.
SPEEDFAM INTERNATIONAL, INC.
By:
__________________________________
Roger K. Marach, Treasurer and CFO
<PAGE>
EXHIBIT B
---------
CONTINUING GUARANTY (Unlimited)
1. Guarantee. For value received, and to induce Firstar Bank Milwaukee,
N.A., a national banking association, and The First National Bank of Chicago, a
national banking association, (the "Bank") to extend or continue credit or other
financial accommodations now or in the future to SpeedFam International, Inc.,
an Illinois corporation (the "Borrower"), the undersigned (the "Guarantor")
hereby unconditionally guarantees payment of and promises to pay or cause to be
paid to the Bank the Obligations (as hereinafter defined), subject to the
limitations, if any, set forth in Exhibit A hereto, whether or not the
Obligations are valid and enforceable against the Borrower, whenever the
Obligations become due, whether on demand, at maturity or by reason of
acceleration, or at the time the Borrower or the Guarantor shall become the
subject of any bankruptcy or insolvency proceeding.
As used herein, the term "Obligations" shall mean all loans, drafts,
overdrafts, checks, notes and all other debts, liabilities and obligations of
every kind owing by the Borrower to the Bank, whether direct or indirect,
absolute or contingent, liquidated or unliquidated whether of the same or a
different nature and whether existing now or in the future, including interest
thereon and all costs, expenses and reasonable attorneys' fees (including fees
of inside counsel) paid or incurred by the Bank at any time before or after
judgment in attempting to collect any of the foregoing, to realize on any
collateral securing any of the foregoing or this Guaranty, and to enforce this
Guaranty. The definition of "Obligations" also includes the amount of any
payments made to the Bank or another on behalf of the Borrower (including
payments resulting from liquidation of collateral) which are recovered from the
Bank by a trustee, receiver, creditor or other party pursuant to applicable
Federal or state law (the "Surrendered Payments"). In the event that the Bank
makes any Surrendered Payments (including pursuant to a negotiated settlement),
the Surrendered Payments shall immediately be reinstated as Obligations,
regardless of whether the Bank has surrendered or cancelled this Guaranty prior
to returning the Surrendered Payments.
2. Consent to Bank Actions; No Discharge. The Guarantor agrees that the
Bank does not have to take any steps whatsoever to realize upon any collateral
securing the Obligations, or to proceed against the Borrower or any other
guarantor or surety for the Obligations either before or after proceeding
against the Guarantor; and the Guarantor waives any claim of marshalling of
assets against the Bank or any collateral. The Guarantor also agrees that the
Bank may do or refrain from doing any of the following without notice to, or the
consent of, the Guarantor, without reducing or discharging the Guarantor's
liability under this Guaranty: (i) renew, amend, modify, extend or release any
existing or future Obligations (including making additional advances, or
changing the amount, time or manner of payment of any Obligations; and make
additional extensions of credit to the Borrower (which will become additional
Obligations), regardless of when such modifications or additional extensions of
credit are made, and regardless of whether they are similar to or different from
any other Obligations; (ii) amend supplement and waive compliance with any of
the provisions of documents evidencing or related to any of the Obligations;
(iii) settle, modify, release, compromise or subordinate any Obligation, any
collateral securing any Obligation or this Guaranty, or the liability of any
other party responsible for payment of any Obligation,and (iv) accept partial
payments, and apply any payments and all other amounts received from the
Borrower, from liquidation of any collateral or from any other guarantor to the
Obligations (or any other amounts due to the Bank) in any manner that the Bank
elects. The Guarantor also expressly agrees that the Guarantor's liability will
not be reduced or discharged by the Bank's failure or delay in perfecting (or to
continue perfection of) any security interest, mortgage or other lien on any
collateral securing the Obligations or this Guaranty, or to protect the value or
condition of any such collateral. THE GUARANTOR SPECIFICALLY ACKNOWLEDGES THAT
THIS GUARANTY COVERS ALL EXISTING AND FUTURE OBLIGATIONS OF THE BORROWER TO THE
BANK REGARDLESS OF THE AMOUNT OF THOSE OBLIGATIONS; THAT THE BANK CAN MAKE
ADDITIONAL EXTENSIONS OF CREDIT TO THE BORROWER WITHOUT NOTIFYING THE GUARANTOR;
AND THAT THE BANK CAN COLLECT FROM THE GUARANTOR WITHOUT FIRST TRYING TO COLLECT
FROM THE BORROWER OR ANY OTHER GUARANTOR.
3. Waivers; Deprizio Waiver. The Guarantor expressly waives all rights of
setoff and counterclaims, as well as diligence in collection or prosecution,
presentment, demand of payment or performance, protest, notice of dishonor,
nonpayment or nonperformance of any Obligation. The Guarantor also expressly
waives notice of acceptance of this Guaranty, and the right to receive all other
notices and demands of any kind relating to the Obligations or this Guaranty.
The Guarantor makes the following "Deprizio" waiver. Until the Obligations are
discharged and paid in full and all commitments thereunder to lend are
terminated, the Guarantor shall not take, by assignment, subrogation or
otherwise, any claim or collateral which the Bank might have or obtain against
or from the Borrower, and the Guarantor irrevocably waives and releases, in
addition to such claims, any claim for unjust enrichment, indemnification,
contribution or reimbursement, and any and all other claims against the
Borrower, whether by statute or contract, by law or in equity, whether actual or
contingent and whether now or hereafter arising, except for claims by the
Guarantor against the Borrower, if any, for employee compensation and benefits,
for repayment of loans of the Guarantor to the Borrower and for any shareholder
claims of the Guarantor against the Borrower. With respect to any claims
designated above which the Guarantor is entitled to make against the Borrower,
the Guarantor hereby agrees that the Guarantor will not enforce or accept any
payments on such claims until Obligations the are paid in full.
4. Financial Information. The Guarantor warrants that all financial
information previously provided to the Bank was accurate when given, and that no
material adverse change has occurred in the Guarantor's financial status since
such information was given to the Bank. The Guarantor agrees to provide to the
Bank from time to time upon request any information regarding the Guarantor's
financial condition which the Bank reasonably requests; and without request, the
Guarantor will provide annual financial statements in form and content
satisfactory to the Bank within 60 days of the end of each year.
5. Borrower's Financial Condition. The Guarantor warrants and represents to
the Bank that (i) the Guarantor is sufficiently knowledgeable and experienced in
financial and business matters to evaluate and understand the risks assumed in
connection with the execution of this Guaranty; (ii) the Guarantor has had the
opportunity to examine the records, reports, financial statements, and other
information relating to the financial condition of the Borrower; (iii) the
Guarantor has relied solely upon investigations of the Borrower's financial
condition conducted by the Guarantor or the Guarantor's authorized
representative in deciding to execute this Guaranty; and (iv) the Guarantor, or
its authorized representative, shall continue to independently review, monitor
and investigate the financial condition of the Borrower while this Guaranty is
in effect. THE GUARANTOR SPECIFICALLY RELIEVES THE BANK OF ANY DUTY, OBLIGATION
OR RESPONSIBILITY OF ANY NATURE WHATSOEVER TO ADVISE THE GUARANTOR OF ANY CHANGE
IN THE BORROWER'S FINANCIAL CONDITION.
<PAGE>
EXHIBIT A
---------
Anything herein or in any other document, instrument or agreement executed and
delivered in connection herewith to the contrary notwithstanding, the maximum
liability of the undersigned ("Guarantor") as at any date of determination
thereof shall in no event exceed the Guarantor's Maximum Guaranteed Amount as
determined at the earliest of the date of the commencement of a case under Title
11 of the United States Code in which the Guarantor is a debtor and the date
enforcement hereunder is sought (the "Determination Date"). For the purposes of
this paragraph, "Maximum Guaranteed Amount" shall mean the greater of (i) the
aggregate amount of the Obligations to the extent the proceeds thereof are used
to make a Valuable Transfer to the Guarantor and (ii) the greater of (A) ninety-
five percent (95%) of the Adjusted Net Worth of the Guarantor at the
Determination Date or (B) ninety-five percent (95%) of the Adjusted Net Worth of
the Guarantor at the date of making of the Revolving Loans before giving effect
to such Revolving Loans. For the purpose of this paragraph, "Valuable Transfer:
shall mean (i) all loans, advances or capital contributions made by the Borrower
or any of its Subsidiaries to the Guarantor after the date hereof; (ii) all debt
securities or other obligations of the Guarantor retired by the Guarantor with
proceeds of the Obligations; (iii) the fair market value of all property
acquired with proceeds of the Obligations and transferred, absolutely and not as
collateral, to the Guarantor; (iv) all debt or equity securities of the
Guarantor acquired from the Guarantor with proceeds of the Obligations; and (v)
the value of any quantifiable economic benefits not included in clauses (i)
through (iv), above, but includable in accordance with applicable federal and
state laws governing determinations of the insolvency of debtors, accruing to
the Guarantor as a result of Indebtedness. For purposes of this paragraph,
"Adjusted Net Worth" shall mean the excess of (i) the amount of the "present
fair salable value" of the assets of the Guarantor as of the date of
determination, over (ii) the amount of all "liabilities of such Guarantor,
contingent or otherwise," as of the date of determination, as such quoted terms
are determined in accordance with relevant federal and state laws governing
determinations of the insolvency of debtors (including the laws of fraudulent
conveyances). In determining the liabilities of the Guarantor pursuant to clause
(ii) of the preceding sentence, such liabilities shall include the amount of the
obligations guaranteed by the Guarantor only to the extent the Guarantor might
reasonably be expected to pay such obligations.
<PAGE>
EXHIBIT C
---------
April 15, 1996
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Re: SPEEDFAM INTERNATIONAL, INC. (THE "BORROWER")
---------------------------------------------
Gentlemen:
We have acted as counsel to the Borrower and the Corporate Guarantor
identified below in connection with the negotiation, preparation, execution
and delivery of the following documents (collectively, the "Loan Documents") in
connection with a Revolving Credit Agreement dated as of April 15, 1996 (the
"Revolving Credit Agreement"), between Borrower, The First National Bank of
Chicago ("First Chicago") and Firstar Bank Milwaukee, N.A. in its capacity as
lender and agent:
(a) The Revolving Credit Agreement, including all Exhibits and Schedules
thereto;
(b) The Revolving Credit Notes; and
(c) The Guaranty.
The capitalized terms used herein, which are defined in the Revolving
Credit Agreement, shall have the meanings referred to or specified therein.
Firstar and First Chicago are collectively referred to hereinafter as the
"Banks".
In rendering the opinions hereinafter expressed, we have relied on such
certificates of governmental officials and such other certificates with respect
to factual matters as we have deemed necessary. In examining the documents
listed above, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us as specimen,
certified or reproduced copies. In addition, we have assumed that all parties to
such documents have properly executed and delivered such documents, that all
such parties (other than the Borrower and SpeedFam Corporation [the "Corporate
Guarantor"], as to which our opinion is rendered below) have full power and
authority to execute, deliver and perform the obligations set forth in such
documents and that such
<PAGE>
Firstar Bank Milwaukee, N.A.
The First National Bank of Chicago
Page 2
April 15, 1996
documents constitute the legal, valid and binding obligation of such parties
(other than the Borrower and the Corporate Guarantor as to which our opinion is
rendered below) and are enforceable to accordance with their respective terms.
Based upon the foregoing assumptions and our examination of the documents
referred to above and such matters of law as we have deemed necessary, and
subject to the qualifications hereinafter set forth, we are of the opinion that:
1. The Borrower is a corporation duly existing and in good standing under
the laws of the State of Illinois and has all requisite power and
authority, corporate or otherwise, to conduct its business and to own
its properties.
2. The Corporate Guarantor is a corporation duly existing and in good
standing under the laws of the State of Illinois and has all requisite
power and authority, corporate or otherwise, to conduct its business
and to own its properties.
3. The Loan Documents, to which the Borrower and the Corporate Guarantor
are parties, have been duly executed and delivered by the Borrower and
the Corporate Guarantor, respectively, do not conflict with either the
By-Laws or Articles of Incorporation of the Borrower or the Corporate
Guarantor, respectively, constitute the legal, valid and binding
obligations of the Borrower and the Corporate Guarantor, respectively,
and are enforceable in accordance with their terms (a) except as
enforcement of such terms may be limited by moratorium, liquidation,
readjustment of debt or similar laws affecting the enforcement of
creditors' rights generally, (b) except as to the effect of the
"Deprizio" waiver (as distinguished from the enforceability of such
waiver) given under the Guaranty by the Corporate Guarantor and (c)
except as the availability of equitable remedies may be limited by
equitable principles of general applicability.
4. The execution, delivery and performance of the Loan Documents will
not, to the best of our knowledge, conflict with, or result in the
breach of, the provisions of, or constitute a default under, the terms
of any indenture, loan instrument in respect of indebtedness for money
borrowed to which the Borrower or the Corporate Guarantor, or either
of them, or any property owned by them may be bound or result in the
creation or imposition of any lien, security interest or other charge
or encumbrance pursuant to any such indenture, agreement or
instrument.
5. The execution, delivery and performance of the Loan Documents will
not, to the best of our knowledge, violate any provision of any
statute, regulation, rule,
<PAGE>
Firstar Bank Milwaukee, N.A.
The First National Bank of Chicago
Page 3
April 15, 1996
order or other legal requirement applicable to or for the benefit of
the Borrower or the Corporate Guarantor, or any of them.
6. To the best of our knowledge, neither the Borrower nor the Corporate
Guarantor is a party to or threatened with any litigation or
administrative proceeding (i) which relates to the execution, delivery
or performance of the Loan Documents, or (ii) which would, if
adversely determined, cause any material adverse change in the
property, financial condition or business operations of the Borrower
or the Corporate Guarantor.
7. To the best of our knowledge, no authorization, consent, approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body is required on or prior to the date
hereof to be obtained or made by the Borrower or by the Corporate
Guarantor for the due execution, delivery and performance by either of
them, of the Loan Documents, or any of the documents required
thereunder or in connection therewith, except (a) such as have been
duly obtained or made and are in full force and effect and (b) such
filings and other actions as may be required to perfect any lien or
security interest which any such agreement purports to create.
8. The loans made to the Borrower pursuant to the Revolving Credit Notes
are not usurious under Illinois law without giving effect to
principles of conflicts of laws.
The opinions of our law firm set forth herein are limited exclusively to
the laws of the State of Illinois and the United States of America.
The opinions of our law firm set forth herein are delivered to you
pursuant to the terms of Section 4.1(d) of the Revolving Credit Agreement and
may not be relied upon by any other person or used for any other purpose
without our prior written consent.
Very truly yours,
CHAPMAN AND CUTLER
By
------------------------------
David S. Crossett, a Partner
DSC:jbm
<PAGE>
SCHEDULE 1
----------
[INTENTIONALLY OMITTED]
<PAGE>
SCHEDULE 2
SUBSIDIARIES, SECURITIES DISCLOSURES
Subsidiaries of SpeedFam International, Inc.:
SpeedFam Corporation (USA)
SpeedFam Limited (UK)
SpeedFam GmbH (Germany)
SpeedFam Sales, Inc. (Virgin Islands)
Companies in which SpeedFam International, Inc. owns directly or indirectly
more than 1% of total outstanding shares of any class of capital stock:
SpeedFam Co Ltd. (Japan)
Met-Coil Ltd. (Japan)
SpeedFam Clean System (Japan)
SpeedFam Inc. (Taiwan)
Saku Seki (Japan)
SpeedFam India Pvt Ltd. (India)
SpeedFam Korea Limited
SpeedFam Singapore
SpeedFam Thailand Co. Ltd. (Thailand)
Fujimi Corporation (US)
Outstanding options or other rights to subscribe for the purchase from
SpeedFam International, Inc. of capital stock therein:
SpeedFam International, Inc. has granted options to purchase its stock
under the SpeedFam International, Inc. 1991 Employee Incentive Stock Option
Plan and the SpeedFam International, Inc. 1995 Stock Plan for Employees and
Directors.
SpeedFam International, Inc. offers its stock for purchase to its employees
under the SpeedFam International Inc. Employee Stock Purchase Plan.
<PAGE>
SCHEDULE 3
REAL ESTATE
SpeedFam International, Inc. owns the following real estate:
Lots 12, 13, 14, 15 and 22 in the Chandler Technology Center,
Chandler, Arizona
SpeedFam Corporation owns the following real estate:
509 North Third Avenue
Chicago, Illinois
<PAGE>
SCHEDULE 4
LIENS AND CAPITAL LEASES
1. UCC Liens
A. Illinois Secretary of State
Secured Party Financing Statement No.
------------- -----------------------
NBD Equipment Finance 3016852
NBD Equipment Finance 2974044
Bank One LaGrange 3001728
Bank One LaGrange 3016811
Firstar Bank Milwaukee, N.A., NBD Bank 3098032
and Firstar Bank Milwaukee, N.A., As Agent
Vanguard Financial Service Corp. 3181543
Vanguard Financial Service Corp. 2882519
The CIT Group * 3242648
AT&T Capital Corp. 3267956
NBD Bank, N.A. 3280646
Firstar Bank, N.A. 2631870
Vanguard Financial Leasing Corp. 3304736
Pitney Bowes Credit Corp. 2925165
Copelco Capital 3450194
The CIT Group/Equipment Financing, Inc. 3358143
* - Capital Lease
B. California Secretary of State
Secured Party Financing Statement No.
------------- -----------------------
First Wisconsin National Bank of Milwaukee 92074776
Firstar Bank Milwaukee, N.A., NBD Bank 93055375
and Firstar Bank Milwaukee, N.A. as Agent
<PAGE>
C. Arizona Secretary of State
Secured Party Financing Statement No.
------------- -----------------------
ABI-Master Lease, Ltd. 571352
Firstar Bank Milwaukee, N.A., NBD Bank 737352
and Firstar Bank Milwaukee, N.A., as Agent
The CIT Group* 781807
NBD Equipment Finance 708583
Firstar Bank Milwaukee, N.A. 596626
Advanced Copy Systems, Inc. 853589
The CIT Group 816702
TIE National Leasing Corporation 831214
D. Cook County, Illinois
Secured Party Financing Statement No.
------------- -----------------------
Firstar Bank Milwaukee, N.A. 93 U 04425
E. Texas Secretary of State
Secured Party Financing Statement No.
------------- -----------------------
Firstar Bank Milwaukee, N.A., NBD Bank
and Firstar Bank Milwaukee, N.A., as agent
94-221004
2. Mortgages - Cook County, Illinois
Secured Party Document No.
- ------------- ------------
Firstar Bank Milwaukee, N.A. 93227823
<PAGE>
REVOLVING CREDIT NOTE
---------------------
$9,000,000 Milwaukee, Wisconsin
Revolving Loans
Due: April 14, 1999 April 15, 1996
FOR VALUE RECEIVED, SPEEDFAM INTERNATIONAL, INC. (f/k/a FamTec
International, Inc.), an Illinois corporation (the "Borrower"), promises to pay
to the order of THE FIRST NATIONAL BANK OF CHICAGO (the "Bank") at its main
office in Chicago, Illinois or at such other place as the holder hereof may
from time to time in writing designate, in lawful money of the United States of
America, the principal sum of Nine Million Dollars ($9,000,000.00), or so much
thereof as has been advanced and remains outstanding pursuant to Section 2.1 of
the Revolving Credit Agreement by and among the Borrower, the Bank, Firstar Bank
Milwaukee, N.A., in its capacity as lender and agent, dated as of the date
hereof (the "Loan Agreement"), together with accrued interest and all other
costs, charges and fees due thereunder.
The undersigned further promises to pay interest on the unpaid principal
amount of each Revolving Loan (as such term is defined in the Loan Agreement) as
is outstanding under the Loan Agreement, payable at such rates and at such
times, as provided in the Loan Agreement. Subject to the provisions of the Loan
Agreement with respect to acceleration, prepayment or loan limitations, all
unpaid principal with respect to each Revolving Loan, together with accrued
interest and all other costs, charges and fees, shall be due and payable in full
on the Termination Date for this Note.
This Note evidences indebtedness incurred under, and is entitled to the
benefits of, the Loan Agreement, together with all future amendments,
modifications, waivers, supplements and replacements thereof, to which Loan
Agreement reference is made for a statement of the terms and provisions under
which this Note may be paid prior to its due date or its due date accelerated.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due.
This Note is issued in and shall be governed by the laws of the State of
Wisconsin.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other remedy under
this Note. A waiver on any one occasion shall not be construed as a waiver of
any such right or remedy on a future occasion.
<PAGE>
All makers, endorsers, sureties, guarantors and other accommodation parties
hereby waive presentment for payment, protest and notice of nonpayment and
consent, without affecting their liability hereunder, to any and all extensions,
renewals, substitutions and alterations of any of the terms of this Note and to
the release of or failure by the Bank to exercise any rights against any party
liable for or any property securing payment thereof.
SPEEDFAM INTERNATIONAL, INC.
By: /s/ Roger K. Marach
----------------------------------
Roger K. Marach, Treasurer and CFO
<PAGE>
REVOLVING CREDIT NOTE
_____________________
$13,500,000 Milwaukee, Wisconsin
Revolving Loans
Due: April 14, 1999 April 15, 1996
FOR VALUE RECEIVED, SPEEDFAM INTERNATIONAL, INC. (f/k/a FamTec
International, Inc.), an Illinois corporation (the "Borrower"), promises to pay
to the order of FIRSTAR BANK MILWAUKEE, N.A. (the "Bank") at its main office in
Milwaukee, Wisconsin or at such other place as the holder hereof may from time
to time in writing designate, in lawful money of the United States of America,
the principal sum of Thirteen Million Five Hundred Thousand Dollars
($13,500,000.00), or so much thereof as has been advanced and remains
outstanding pursuant to Section 2.1 of the Revolving Credit Agreement by and
among the Borrower, the Bank, in its capacity as lender and as agent, and The
First National Bank of Chicago, dated as of the date hereof (the "Loan
Agreement"), together with accrued interest and all other costs, charges and
fees due thereunder.
The undersigned further promises to pay interest on the unpaid principal
amount of each Revolving Loan (as such term is defined in the Loan Agreement) as
is outstanding under the Loan Agreement, payable at such rates and at such
times, as provided in the Loan Agreement. Subject to the provisions of the Loan
Agreement with respect to acceleration, prepayment or loan limitations, all
unpaid principal with respect to each Revolving Loan, together with accrued
interest and all other costs, charges and fees, shall be due and payable in full
on the Termination Date for this Note.
This Note evidences indebtedness incurred under, and is entitled to the
benefits of, the Loan Agreement, together with all future amendments,
modifications, waivers, supplements and replacements thereof, to which Loan
Agreement reference is made for a statement of the terms and provisions under
which this Note may be paid prior to its due date or its due date accelerated.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due.
This Note is issued in and shall be governed by the laws of the State of
Wisconsin.
<PAGE>
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other remedy under
this Note. A waiver on any one occasion shall not be construed as a waiver of
any such right or remedy on a future occasion.
All makers, endorsers, sureties, guarantors and other accommodation parties
hereby waiver presentment for payment, protest liability hereunder, to any and
all extensions, renewals, substitutions and alternations of any of the terms of
this Note and to the release of or failure by the Bank to exercise any rights
against any party liable for or any property securing payment thereof.
SPEEDFAM INTERNATIONAL, INC.
By: /s/ Roger K. Marach
----------------------------------
Roger K. Marach, Treasurer and CFO
<PAGE>
EXHIBIT 11.1
SPEEDFAM INTERNATIONAL, INC.
COMPUTATION OF COMMON STOCK EARNINGS PER SHARE
FOR THE YEARS ENDED MAY 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net earnings (loss)........................ $1,054 $(490) $2,351 $1,644 11,821
====== ====== ====== ====== ======
Average number of common shares outstanding
during the year........................... 7,488 7,471 7,475 7,468 9,344
Add dilutive impact of stock options....... 144 144 144 678 815
------ ------ ------ ------ ------
Weighted average common and common
equivalent shares......................... 7,632 7,615 7,619 8,146 10,159
====== ====== ====== ====== ======
Net earnings (loss) per share.............. $ 0.14 $(0.06) $ 0.31 $ 0.20 $ 1.16
====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors
SpeedFam International, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-98026, 33-98566, and 33-98568) on Forms S-8 of SpeedFam International, Inc.
of our reports dated July 3, 1996, relating to the consolidated balance sheets
of SpeedFam International, Inc. and subsidiaries as of May 31, 1996 and 1995,
and the related consolidated statements of earnings, retained earnings, and
cash flows for each of the years in the three-year period ended May 31, 1996,
and related schedules, and the consolidated balance sheets of SpeedFam Co.,
Ltd. and subsidiaries as of April 30, 1996 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, 1996, which reports
appear in the 1996 annual report on Form 10-K of SpeedFam International, Inc.
Chicago, Illinois
July 31, 1996
