<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SPEEDFAM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 3559 36-2421613
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
---------------
7406 WEST DETROIT CHANDLER, ARIZONA 85226 (602) 961-2175
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JAMES N. FARLEY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER 7406 WEST
DETROIT CHANDLER, ARIZONA 85226 (602) 961-2175
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES OF ALL COMMUNICATIONS TO:
JOHN A. DENNISTON MARTIN C. NICHOLS
JONATHAN A. KOFF STATHY DARCY BROBECK, PHLEGER & HARRISON 550 WEST C
CHAPMAN AND CUTLER 111 WEST MONROE STREET, SUITE 1300 SAN DIEGO, CALIFORNIA
STREET CHICAGO, ILLINOIS 60603 92101 (619) 234-1966
(312) 845-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par
value................. 3,059,000 shares $17.6875 $54,106,063 $18,658
</TABLE>
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(1) Includes 399,000 shares issuable upon exercise of the Underwriters' over-
allotment option.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 based upon
the average high and low prices reported on the Nasdaq National Market on
June 10, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SPEEDFAM INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 LOCATION
ITEM NUMBER AND HEADING IN PROSPECTUS
----------------------- -------------
<C> <C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of Forepart of the Registration Statement;
Prospectus............................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Page;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Outside Front Cover Page; Underwriting
6. Dilution................................. Not Applicable
7. Selling Security Holders................. Principal and Selling Shareholders
8. Plan of Distribution..................... Inside Front and Outside Front Cover Page;
Underwriting
9. Description of Securities to be Outside Front Cover Page; Description of
Registered............................... Capital
Stock
10. Interests of Named Experts and Counsel... Legal Matters
11. Information With Respect to the
Registrant:
(a) Description of Business............. Prospectus Summary; Business; Joint Venture
Arrangements
(b) Description of Property............. Business--Property
(c) Legal Proceedings................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business--Legal Proceedings
(d) Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters......... Front Cover Page; Price Range of Common
Stock and Dividend Policy; Selected
Consolidated Financial Data; Description of
Capital Stock; Shares Eligible for Future
Sale; Available Information
(e) Financial Statements................ Consolidated Financial Statements
(f) Selected Financial Data............. Selected Consolidated Financial Data
(g) Supplementary Financial Information. Quarterly Results of Operations;
Consolidated Financial Statements
(h) Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................ Not Applicable
(j) Directors and Executive Officers.... Management
(k) Executive Compensation.............. Management
(l) Security Ownership of Certain
Beneficial Owners and Management.... Principal and Selling Shareholders
(m) Certain Relationships and Related
Transactions........................ Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated June 13, 1996
PROSPECTUS
2,660,000 SHARES
LOGO SPEEDFAM INTERNATIONAL, INC.
COMMON STOCK
-------------
Of the 2,660,000 shares of Common Stock (the "Common Stock") offered hereby,
2,000,000 shares are being sold by SpeedFam International, Inc. ("SpeedFam" or
the "Company") and 660,000 shares are being sold by certain shareholders of the
Company (the "Selling Shareholders"). The Company will not receive any of the
proceeds from the sale of shares by the Selling Shareholders. See "Principal
and Selling Shareholders."
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SFAM." The last sale price for the Common Stock on June 12, 1996, as
reported on the Nasdaq National Market, was $17.50 per share. See "Price Range
of Common Stock and Dividend Policy."
-------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
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Total(3)................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the offering of $270,000 payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 399,000 shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See
"Underwriting."
-------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about , 1996.
-------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
NEEDHAM & COMPANY, INC.
, 1996
<PAGE>
(ARTWORK TO COME)
SpeedFam's high throughput semiconductor CMP system, the CMP-V, processes five
wafers simultaneously. The CMP-V incorporates up to two polishing tables,
post-CMP rinsing, PVA brush cleaning, full cassette-to-cassette automation,
internal airflow management for Class 1 cleanroom compatibility, and is
available for both oxide and metal CMP applications.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
SpeedFam is a leading supplier of high throughput surface
processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers, general
industrial components and advanced semiconductor devices.
The Company offers a broad range of processing solutions
incorporating equipment, slurries and processes necessary
to perform chemical mechanical polishing, grinding,
lapping, and cleaning in a production setting.
The CMP-V
planarization system
enables one or two
step planarization of
oxide and metal layers
in advanced
semiconductor
fabrication.
The SP silicon
polishing systems
perform a range
of critical
polishing steps
on silicon and
other advanced
semiconductor
wafers.
The EP automated edge
polishing line enables
semiconductor manufacturers
to reduce contamination and
increase yields by
polishing the edge of the
semiconductor substrate.
A wide variety of polishing
slurries are provided to
create the surface finish
and flatness required in
the polishing process.
<PAGE>
The DSM products are used
to polish thin film
memory disk media,
silicon wafers and other
substrates.
Aqueous cleaning systems
are used for precision
cleaning of thin film
memory disk media,
semiconductor wafers, LCD
glass and other
components in a cleanroom
environment.
The through-feed
grinder and other
general industrial
systems process a
variety of
industrial
components which
require precision
surface tolerances.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's consolidated financial
statements appearing elsewhere in this Prospectus. Unless the context otherwise
requires, the "Company" and "SpeedFam" refer only to SpeedFam International,
Inc. and its wholly owned subsidiaries.
THE COMPANY
SpeedFam designs, develops, manufactures, markets and services high
throughput precision surface processing systems used in the fabrication of thin
film memory disk media, semiconductor wafers, general industrial components
and, more recently, semiconductor devices through chemical mechanical
polishing, or "CMP." In addition, the Company markets and distributes polishing
liquids (or slurry) and parts and expendables used in its customers'
manufacturing processes. The Company's array of processing systems includes
polishing, grinding, lapping and pre-deposition cleaning equipment. The process
steps performed by the Company's equipment are an integral part of and occur
repeatedly throughout the fabrication cycles of thin film memory disk media,
semiconductor wafers and advanced semiconductors. Major customers of the
Company include AMD, Akashic, Digital Equipment, Hewlett-Packard, HMT, IBM,
Komag, MEMC, Mosel Vitelic, Motorola, Rockwell International, Seagate, Siemens,
Siltec, StorMedia and Wacker Siltronic.
Semiconductor and thin film memory disk manufacturers are rapidly adopting
new technologies in response to increasing demand by end users for improved
system performance and processing capacity and new features in computing and
other electronics applications. Semiconductor device manufacturers are
producing devices with smaller geometries and multi-level metal processes.
Similarly, thin film memory disk media manufacturers are continually increasing
the density of disk media by increasing coercivity (magnetic density) and
reducing head flying heights in order to satisfy end user demand for greater
storage capacity. In order to meet these evolving specifications, both
semiconductor and thin film memory disk manufacturers must tighten tolerances
and improve certain surface characteristics of their products. These tightened
tolerances necessitate improvements in the semiconductor and thin film memory
disk media manufacturing processes in order to increase planarity (flatness)
and provide a number of new surface characteristics.
The Company has recently developed a system for use in the CMP planarization
of semiconductor devices. The Company's multiple head, two polishing table CMP
system is designed to provide high throughput, low cost of ownership and
attractive levels of process flexibility. The objective of CMP is to
reestablish a flat or planar surface that has been degraded by prior deposition
steps to a point where it is not possible or feasible to deposit additional
levels without first restoring the surface to a planar condition.
Reestablishing a planar surface allows semiconductor device manufacturers to
produce denser, more complex devices by allowing the addition of a greater
number of metal levels and can lead to significant yield and reliability
improvements for the device manufacturer. Because of the depth of focus
limitations of existing photolithography equipment, global planarization
becomes particularly important for devices with design geometries of 0.35
micron or less and three or more metal levels. According to Dataquest
Incorporated, the CMP polishing equipment market was estimated at $197 million
in 1995 and it currently projects the market to be approximately $680 million
in the year 2000.
The Company's strategy is to establish and maintain market leadership in high
throughput surface processing of thin film memory disk media, advanced
semiconductors and other high value-added products. The Company employs
dedicated business units focusing on the thin film memory disk media,
semiconductor wafer and semiconductor device markets. The Company provides an
entire processing solution including process expertise, training, cooperative
development, slurry and expendables, along with equipment. During the Company's
fiscal year ended May 31, 1995 and the nine months ended February 29, 1996,
54.5% and 75.0%, respectively, of the Company's total revenue was derived from
the sale of capital equipment, parts and expendables (including commissions)
and 45.5% and 25.0%, respectively, was derived from the sale of slurry and
slurry components.
The Company owns a 50% interest in SpeedFam Co., Ltd., a joint venture that
conducts operations in the Far East (together with its subsidiaries and joint
ventures, the "Far East Joint Venture"). Generally, the Far East Joint Venture
designs, produces and markets in the Far East equipment similar to that
produced by the Company in the U.S. The Far East Joint Venture, which the
Company accounts for on the equity method, has had a substantial influence on
the results of operations of the Company in the past.
-3-
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock to be Offered:
By the Company........................... 2,000,000 shares
By the Selling Shareholders.............. 660,000 shares
-----------
2,660,000 shares
Common Stock Outstanding after the Offering. 12,567,008 shares(1)
Use of Proceeds............................. To fund the construction of a new
manufacturing and office
facility; to repay certain
indebtedness; for working capital
and general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol............... SFAM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (in thousands, except per share
data)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------------------ -------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Total revenue.................................. $43,314 $51,381 $59,778 $40,039 $76,394
Gross margin................................... 10,842 12,436 14,284 8,742 24,913
Operating profit............................... 519 1,181 1,596 (653) 5,303
Interest expense............................... (824) (697) (959) (769) (615)
Other income, net.............................. 433(3) 974 6 73 440
Income tax expense (benefit)................... 573 (160)(4) 186 (484) 2,002
Earnings (loss) from consolidated companies.... (445) 1,618 457 (865) 3,126
Equity in net earnings (loss) of affiliates(2). (45) 655 1,187 981 3,563
Net earnings (loss)............................ $ (490) $ 2,351 (5) $ 1,644 $ 116 $ 6,689
Net earnings (loss) per share.................. $ (0.06) $ 0.31 $ 0.20 $ 0.01 $ 0.68
Weighted average common and common equivalent
shares outstanding............................ 7,615 7,619 8,146 8,148 9,790
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
----------------------
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $29,761 $ 60,563
Total assets............................................ 97,556 127,898
Long-term debt, less current maturities................. 2,783 692
Shareholders' equity.................................... 54,339 87,232
</TABLE>
- --------
(1) Based on shares of Common Stock outstanding at May 31, 1996. Includes
52,140 shares issuable upon the exercise of certain stock options which are
being exercised concurrently with this offering. Excludes an aggregate of
2,820,192 shares of Common Stock reserved for issuance under the Company's
employee benefit plans, of which options to acquire 1,215,928 shares of
Common Stock were outstanding at May 31, 1996.
(2) Includes ($285,000), $450,000, $1,100,000, $880,000 and $3,397,000 million
for the 1993 through 1995 fiscal years and the nine months ended February
28, 1995 and February 29, 1996, respectively, attributable to the Company's
share of net earnings (loss) from the Far East Joint Venture, accounted for
on the equity method. See "Joint Venture Arrangements," the consolidated
financial statements of the Far East Joint Venture and the unaudited
interim consolidated financial statements of the Company included elsewhere
herein. The remainder represents the Company's share of net earnings (loss)
from a separate joint venture.
(3) Reflects charges of $300,000 related to the bankruptcy of a subsidiary
operating in Switzerland.
(4) Reflects income tax benefit of $740,000 related to the bankruptcy of a
subsidiary operating in Switzerland.
(5) Includes benefit of cumulative effect of accounting change of $78,000.
(6) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby (assuming a public offering price of $17.50
per share) and the application of the net proceeds therefrom, after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
----------------
Unless otherwise indicated, the information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option and (ii) has been adjusted
to reflect a twenty-for-one split of the Common Stock effective as of July 31,
1995.
Certain statements in this Registration Statement, including without
limitation certain of those contained in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Industry Background, --The SpeedFam CMP Solution, and --SpeedFam
Strategy," constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
-4-
<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing shares of Common Stock offered hereby.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have historically and may in the
future vary significantly due to a number of factors. Historically, a
disproportionate share of the Company's revenue and operating profit has been
attributable to the last two quarters of the Company's fiscal year, primarily
the fourth quarter. In particular, the Company typically experiences a decline
in revenues and operating profit from the fourth fiscal quarter to the first
fiscal quarter of the succeeding year. The Company believes that this decline
is primarily due to the seasonal buying patterns of its customers.
Factors that may influence the Company's operating results in a given
quarter include: (i) customer demand, such as economic conditions in the
memory disk and semiconductor industries, market acceptance of products of
both the Company and its customers, changes in product mix, and the timing,
cancellation or delay of customer orders and shipments; (ii) competition, such
as competitive pressures on prices of the Company's products and the
introduction or announcement of new products by competitors; (iii)
manufacturing and operations, such as fluctuations in availability and cost of
raw materials and production capacity; (iv) fluctuations in foreign currency
exchange rates; (v) new product development, such as increased research,
development and engineering, as well as marketing, expenses associated with
new product introductions, including the effect of transitioning to new or
enhanced products, and the Company's ability to introduce new products and
technologies on a timely basis; (vi) sales and marketing, such as
concentrations of customers, and discounts that may be granted to certain
customers; and (vii) the quarterly operating results of the Company's joint
ventures, which the Company accounts for on the equity method; as well as
other factors, such as levels of expenses relative to revenue levels,
personnel changes and generally prevailing economic conditions.
During a given quarter, a significant portion of the Company's revenue may
be derived from the sale of a relatively small number of machines and systems.
Accordingly, a small change in the number of machines and systems actually
shipped may cause significant changes in operating results. Moreover,
customers may cancel or reschedule shipments, and production difficulties
could delay shipments. In addition, because of the significantly different
gross margins attributable to the Company's two segments, changes in product
mix may cause fluctuations in operating results. Further, the lengthy sales
cycle for certain of the Company's capital equipment may result in the Company
incurring significant expenses prior to the receipt of customer orders. In
addition, the introduction of new products has in the past contributed, and
may continue to contribute, to fluctuations in quarterly operating results.
These same factors also could materially and adversely affect annual results
of operations. In addition, the need for continued investment in research and
development, marketing and customer support limits the Company's ability to
reduce expenses in response to downturns in the industries it serves. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
MARKET ACCEPTANCE OF THE COMPANY'S CMP SYSTEM
Through February 29, 1996, the Company had shipped 17 CMP systems. The
Company believes that its future growth, if any, depends in large part upon
its ability to gain customer acceptance of its CMP system and its technology.
Market acceptance of the Company's CMP system depends upon numerous factors,
including cost of ownership, throughput, process flexibility, performance and
reliability and availability of customer support. The Company intends to
periodically develop and introduce enhanced versions of its CMP system. The
Company currently expects to introduce an enhanced version of the CMP-V, its
current CMP system, in the second half of fiscal 1997. Failure to continually
enhance the Company's CMP system may impact its future market acceptance.
There can be no assurance that the Company will be successful in obtaining
broad market acceptance of its CMP system or any future enhanced version of
the system. The failure of the Company to
-5-
<PAGE>
accomplish these objectives would have a material adverse effect on the
Company. See "--Competition," "--Adoption of CMP Process" and "--Dependence on
New Product Development; Rapid Technological Change."
CYCLICAL NATURE OF THE COMPANY'S BUSINESS
The Company's business depends substantially on the capital expenditures of
thin film memory disk media and semiconductor manufacturers, which, in turn,
depend upon the current and anticipated market demand for memory disks and
semiconductor devices. Sales of capital equipment to these manufacturers are
expected to continue to represent a significant portion of the Company's total
revenue. These industries are highly cyclical and have historically
experienced periodic downturns characterized by oversupply and weak demand,
which often have a material adverse effect on the acquisition of capital
equipment and other products used in the manufacturing process, including
products offered by the Company. These downturns generally have materially
adversely affected the business and operating results of capital equipment
suppliers, including the Company. The semiconductor industry is currently
experiencing a downturn which has led many semiconductor manufacturers to
delay or cancel capital expenditures. This downturn has been reflected in
semiconductor industry book to bill ratios of well below 1.0 in recent
periods. The thin film memory disk market has recently experienced strong
growth; however, there are no assurances that this current growth will
continue or that any growth will have a positive impact on the Company's
future business or results of operations. The Company's business and results
of operations will be materially adversely affected by continued downturns in
the semiconductor market or future downturns in the thin film memory disk
market.
Sales of the Company's capital equipment depend, in large part, upon the
decision of a prospective customer to increase manufacturing capacity or
respond to advances in technology by upgrading or expanding existing
manufacturing facilities or constructing new manufacturing facilities, all of
which typically involve a significant capital commitment. Certain of the
Company's capital equipment have lengthy sales cycles while the customer
evaluates and receives approvals for the purchase of the Company's systems and
completes the upgrading or expansion of existing facilities or the
construction of new facilities. The Company may expend substantial funds and
management effort during the sales cycle. The cyclicality and rapid
technological change present in certain of the industries served by the
Company may also cause prospective customers to postpone decisions regarding
major capital expenditures, including purchases of the Company's equipment.
Recently, certain of the Company's customers have delayed shipments due to a
variety of factors, including the cyclicality of the industries in which the
customers compete. In addition, the need for continued investment in research
and development, marketing and customer support limits the Company's ability
to reduce expenses in response to downturns in the industries it serves.
COMPETITION
The Company's markets are highly competitive. In each of the markets the
Company serves, the Company faces intense competition from established
competitors, some of which have substantially greater financial, engineering,
manufacturing and marketing resources, and, in some markets, greater name
recognition than the Company, as well as long-standing customer relationships.
In the thin film memory disk and semiconductor wafer equipment markets, the
Company competes with a relatively small number of entities. In the CMP
market, the Company faces significant competition from current competitors and
expects other competitors to enter this market in the future. IPEC currently
has the largest installed base of CMP equipment. The Company believes that
other companies are developing CMP machines and are planning to introduce new
products to the CMP market, including Applied Materials, a large semiconductor
capital equipment supplier with significant resources that could present
substantial competition for the Company. Certain competitors, including IPEC
and Applied Materials, have announced and may in the near future begin volume
shipments of multi-head CMP systems. In addition, certain of the Company's
competitors have longer-standing relationships than the Company with
particular customers, including device manufacturers. These longer-standing
relationships may make it more difficult for the Company to sell its CMP
system to such device manufacturers.
In order to remain competitive, the Company will be required to make a high
level of investment in research, development and engineering, marketing and
customer service and support. There can be no assurance
-6-
<PAGE>
that the Company will have sufficient resources to make such investments or,
even if they are made, that the Company's products will be competitive given
technological advances by competitors or changes in processing technology in
the industries the Company serves. In the past, competitors of the Company
have developed and marketed products having similar design and functionality
to the Company's products. The Company's competitors can be expected to
improve the performance of their products and to introduce new products with
competitive price/performance characteristics. The Company's competitors may
also increase their efforts to gain and retain market share through
competitive pricing. These competitive pressures may necessitate price
reductions by the Company or render the Company less competitive.
In the memory disk slurry market, the Company competes primarily with
Praxair, a large chemical company. The Company has experienced intense
competition in the sale of slurry from Praxair, which manufactures and sells
its own products. In response, the Company has in the past reduced its prices.
At the same time, the supplier of substantially all of the Company's slurry,
Fujimi Incorporated, a Japanese company, has raised the prices paid by the
Company for slurry. As a result, in recent years the Company has experienced a
decline in gross margins in the sale of slurry. Slurry has historically
comprised a significant portion of the Company's total revenue and operating
profit, and in fiscal 1995 and the nine months ended February 29, 1996,
accounted for 43.1% and 23.0%, respectively, of total revenue and 38.6% and
13.5%, respectively, of operating profit before general corporate expenses.
The Company expects that competition in the slurry market will remain intense
in the future and that slurry selling prices may decline in the future. In
addition, fluctuations in exchange rates have in the past resulted, and may in
the future result, in increases in the costs of slurry for the Company.
Decreased slurry selling prices or increased slurry costs could have a
material adverse effect on the Company's results of operations. See "--Sole or
Limited Sources of Supply," "Business--Manufacturing and Suppliers,"
"--Competition" and "--International Business."
ADOPTION OF CMP PROCESS
The CMP process is an emerging technology and there can be no assurance that
the process will be utilized on a widespread basis in the manufacture of
semiconductor devices. To date, CMP has been used primarily in the manufacture
of advanced semiconductor logic devices. A small number of CMP process systems
are currently being used in the manufacture of advanced semiconductor memory
devices. There can be no assurance that the process will be widely adopted by
semiconductor memory device manufacturers. Currently, the number of suppliers
for polishing slurry and pads used in the CMP process is limited and an
insufficient supply of those products could impact or impede the adoption of
the CMP process. Further, alternative technologies may be developed that
achieve the results required by semiconductor device manufacturers. There are
a number of patents relating to the CMP process held by third parties.
Accordingly, CMP equipment manufacturers, including the Company, and
semiconductor manufacturers that use the CMP process, may be required to
attempt to obtain licenses from the holders of one or more of such patents,
which may impede the adoption or use of CMP technology by semiconductor
manufacturers. If the CMP process is not adopted on a widespread basis, or if
alternatives to the CMP process emerge, or current non-CMP planarization
technologies are improved to serve the industry's requirements, the Company's
prospects and results of operations would be materially adversely affected.
See "--Market Acceptance of the Company's CMP System," "--Dependence on New
Product Development; Rapid Technological Change," "--Intellectual Property
Rights," "Business--Industry Background" and "--Products."
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE
The Company believes that its future success will depend, in part, on its
ability to enhance existing products and processes and develop and manufacture
new products and processes. The markets in which the Company and its customers
compete are characterized by evolving industry standards and frequent
improvements in products and services. To compete effectively in such markets,
the Company must continually improve its products and its process technologies
and develop new technologies and products that compete effectively on the
basis of price and performance. The Company expects to continue to make
significant investments in research, development and engineering. There can be
no assurance that the Company will be able to improve its existing products
and its process technologies or develop new products and technologies. The
Company intends
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to develop and introduce enhanced versions of its CMP system. The Company
currently expects to introduce an enhanced version of its CMP system in the
second half of fiscal 1997. The Company is also currently developing a post-
CMP application cleaning system, which is presently expected to be introduced
during fiscal 1997. There can be no assurance that the Company's development
of new or enhanced products, such as the enhanced version of the CMP system or
the post-CMP cleaning system, will be cost-effective or introduced in a timely
manner or accepted in the marketplace. Failure by the Company to develop or
introduce new products and product enhancements in a timely manner would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Due to the complexity of the Company's products, significant delays can
occur between a system's introduction and the commencement of commercial
shipments. The Company has from time to time experienced delays in the
introduction of, and certain technical and manufacturing difficulties with,
certain of its systems and enhancements, and may experience such delays and
technical and manufacturing difficulties in future introductions or volume
production of new systems or enhancements. In addition, the Company may incur
substantial unanticipated costs to ensure the functionality and reliability of
its future product introductions early in the product's life cycle. If new
products experience reliability or quality problems, the Company could
encounter a number of problems, including reduced orders, higher manufacturing
costs, delays in collection of accounts receivable and additional service and
warranty expenses, all of which events could materially adversely affect the
Company's business and results of operations. In addition, in the event the
Company does not manage product transitions successfully, announcements or
introductions, or the perception that such events are likely to occur, by
either the Company or its competitors could adversely affect sales of existing
Company products. See "--Market Acceptance of the Company's CMP System" and
"Business--Research, Development and Engineering."
RELIANCE ON THE PERFORMANCE OF AND RELATIONSHIP WITH FAR EAST JOINT VENTURE
The Company owns a 50% interest in SpeedFam Co., Ltd., a joint venture that
conducts operations in the Far East (together with its subsidiaries and joint
ventures, the "Far East Joint Venture"). During fiscal 1993, 1994, 1995 and
the nine months ended February 29, 1996, the Company's share of the net
earnings (loss) of the Far East Joint Venture was ($285,000), $450,000, $1.1
million and $3.4 million, respectively, representing (58.2%), 19.1%, 66.9% and
50.8%, respectively, of the Company's net earnings (loss). The Company
accounts for the Far East Joint Venture on the equity method. During fiscal
1993, 1994, 1995 and the nine months ended February 29, 1996, 1.6%, 4.0%, 4.5%
and 5.3%, respectively, of the Company's total revenue was attributable to
commissions earned by the Company on the distribution in the U.S. and Europe
of products of the Far East Joint Venture. The Far East Joint Venture has not
paid significant dividends to the Company in the past and is expected to
retain substantially all of its earnings in the foreseeable future. At
February 29, 1996, the Company's equity interest in the Far East Joint Venture
was $16.7 million, representing 17.1% of the Company's total assets and 30.7%
of shareholders' equity. The results of operations of the Company in the past
have been substantially influenced by the results of operations of the Far
East Joint Venture and can be expected to continue to be so influenced in the
future. The term of the joint venture is indefinite. In the event that either
the Company or its joint venture partner desires to sell its interest in the
Far East Joint Venture, it must first offer its interest to the other party.
The Company believes that for a number of reasons, including the fact that the
Company does not own a controlling interest in the Far East Joint Venture, the
Company's ability to effect a sale of its interest is limited and the proceeds
the Company would receive from a sale of its interest in the Far East Joint
Venture may be reduced.
Certain of the equipment produced and sold by the Far East Joint Venture is
similar to that produced in the U.S. by the Company. In addition, the Far East
Joint Venture produces and sells cleaning machines for the thin film memory
disk market and polishing machines for the semiconductor wafer market,
including machines that are distributed by the Company in the U.S. and Europe.
Each of the Company and the Far East Joint Venture generally sell to customers
in the same end markets. Because of the similarity between the business of the
Company and that of the Far East Joint Venture, substantially all of the risks
described herein with respect to the Company's business are also generally
applicable to the business of the Far East Joint Venture. This includes the
economic and political risks associated with conducting international
business, as most sales by the Far East Joint
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Venture occur outside the U.S. In addition, a material portion of the products
sold by the Far East Joint Venture are shipped across international borders.
Also, the business of the Far East Joint Venture is substantially influenced
by general economic conditions in the regions in which it operates,
particularly Japan. A substantial majority of the net sales of the Far East
Joint Venture are generated in Japan. Periods of weak or declining economic
conditions in Japan, such as those recently experienced, would have a material
adverse effect on the business and operating results of the Far East Joint
Venture and, in turn, the Company.
The Company does not have the legal right or practical ability to control
the Far East Joint Venture. The historic business relationship between the
Company and its joint venture partner has been based to a significant degree
on personal relationships of the individuals involved. If those individuals or
relationships were to change, it could result in a material adverse effect on
the relationship between the Company and the Far East Joint Venture and, in
turn, on the results of operations of the Company. In many instances,
management decisions regarding the relationship between the Company and the
Far East Joint Venture have not been made on the basis of arms-length
negotiations. Instead, the business of the Far East Joint Venture and the
business relationship between the Company and the Far East Joint Venture have
been influenced by personal relationships between members of management of the
two joint venture partners, the previous dealings of the entities and an
underlying business intention to improve the mutual interests of the Company
and the Far East Joint Venture, even if one party in a particular circumstance
could negotiate a transaction with more favorable terms with a third party.
For example, even though the agreements between the parties originally called
for the payment of royalties for licensed technology, the parties amended the
agreements to remove the royalty requirements, and it is not currently
anticipated that either the Company or the Far East Joint Venture will pay
royalties to the other in connection with the transfer of technology in the
foreseeable future, including with respect to the Company's CMP technology.
Makoto Kouzuma, President and Chief Operating Officer of the Company, is the
Executive Vice President and General Manager of SpeedFam Co., Ltd. and is
responsible for its day-to-day operations and therefore spends a significant
portion of his time engaged in its business. These responsibilities have
placed a heavy demand on Mr. Kouzuma's time, and have precluded him from
spending all of his time with either the Company or the Far East Joint
Venture. Both James N. Farley, the Chairman and Chief Executive Officer of the
Company, and Mr. Kouzuma serve as directors of the Far East Joint Venture,
receive compensation therefor, and have management responsibilities in
connection with affiliates of the Far East Joint Venture. As a result of this
relationship between the Company and the Far East Joint Venture, management
decisions in particular instances may tend to favor the Far East Joint Venture
relative to decisions that would be made if the Far East Joint Venture were an
unaffiliated third party.
The Company's partner in the Far East Joint Venture is a privately-held
Japanese corporation that supplies products to the automotive industry. Given
the differences in the companies' ownership structure and products, there can
be no assurance that the Company and its Far East Joint Venture partner will
have similar interests with respect to the financial performance of the Far
East Joint Venture.
Pursuant to the agreement establishing the Far East Joint Venture, each of
the Company and its joint venture partner has agreed not to manufacture or
sell in Japan products similar to those sold by the Far East Joint Venture.
Further, the Company has granted to the Far East Joint Venture the exclusive
right to manufacture and sell products similar to those manufactured and
distributed by the Company in Japan, Korea, Taiwan, Hong Kong, China, India,
the Philippines, Thailand, Vietnam, Malaysia, Singapore and Indonesia and such
other countries as the parties may agree to from time to time. As a result,
the Company does not have the legal right to itself market products, including
its CMP system, in those countries that are served by the Far East Joint
Venture. The Company is therefore dependent upon the Far East Joint Venture to
market its CMP system in the territories served exclusively by the Far East
Joint Venture.
The Company and the Far East Joint Venture share technology and expertise
and each is dependent upon the other to protect any shared proprietary
information. There can be no assurance that the sharing of technology and
trademarks by the Company with the Far East Joint Venture will not result in
the release of proprietary information, which could have a material adverse
effect upon the Company.
The Company believes that, to date, the relationship between the Company and
its joint venture partner has been good. However, no assurance can be given
that the relationship will continue to be satisfactory or that the
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joint venture will not terminate. In addition, changes in management of the
Company or its joint venture partner could negatively impact the relationship
between the joint venture partners. Any decline in the Far East Joint
Venture's results of operations, termination of the joint venture or
difficulties between the Company and its joint venture partner would have a
material adverse effect on the Company's business, prospects and results of
operations and financial condition. See "Business--Joint Ventures," "Joint
Venture Arrangements--Far East Joint Venture" and the consolidated financial
statements of SpeedFam Co., Ltd.
MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid growth. The number of
employees of the Company has increased 95.9% from 195 at May 31, 1995 to 382
at May 31, 1996. This growth has resulted in, and is expected to continue to
create, new and increased responsibilities for management personnel, as well
as added
pressures on the Company's operating and financial systems. If the Company is
required to manufacture its systems in larger volumes, it may become more
difficult for the Company to maintain its standards of quality and
reliability, and delivery times for its systems may grow longer. Further, if
the Company were to be unable to expand its manufacturing capacity to meet
demand, orders in backlog may be cancelled and orders lost to competitors. The
Company currently plans to hire a significant number of additional employees
during the first half of fiscal 1997. The Company's ability to manage future
growth effectively and accomplish its overall goals will depend on its ability
to hire additional management, technical and manufacturing personnel, to
integrate its new employees into its overall operations and culture, and to
continue to improve its operational, financial and management systems. If the
Company is unable to manage growth effectively or hire or retain qualified
personnel, the Company's business and results of operations would
be materially adversely affected.
To provide additional manufacturing capacity, the Company is constructing a
new manufacturing and office facility, consisting of approximately 135,000
square feet, in Chandler, Arizona. The new building, located on 13.5 acres
recently purchased by the Company, will also include laboratory facilities and
will serve as the Company's corporate headquarters. Occupancy is currently
scheduled for the fourth quarter of fiscal 1997. As the Company transfers
manufacturing capacity to its new facility, there is a possibility that normal
operations of the Company may be interrupted. Although the Company has planned
to continue manufacturing at its existing facility until its new facility is
fully operational, there can be no assurances that the transfer of
manufacturing and other operations to the new facility will not result in
operational difficulties, such as delayed shipments or increased operating
expenses, that could have a material adverse effect on the Company's results
of operation. The transfer to the new facility will also result in higher
operating costs and other fixed expenses related to the facility. There can be
no assurances that the Company's future sales will increase sufficiently to
compensate for these higher operating expenses. In addition, the Company's
leases on its existing facilities in Chandler expire in August 1999 and April
2000. Pursuant to such leases, the Company is subject to certain provisions
regarding termination of the leases. The Company may incur ongoing lease-
related expenses, including penalty payments, until such time as it is
released from the provisions. See "--Dependence on Key Personnel," "Business--
Properties" and "--Employees."
SOLE OR LIMITED SOURCES OF SUPPLY
The Company is dependent upon Fujimi Incorporated, a Japanese company, as
the sole supplier of substantially all of the slurry and slurry components
sold by the Company, consisting primarily of thin film memory disk polishing
slurry. Approximately 42.4%, 47.1%, 43.4% and 23.6% of the Company's total
revenue in fiscal 1993, 1994, 1995 and the nine months ended February 29,
1996, respectively, was derived from the sale of products, including both
slurry and slurry components, consisting of vehicles (liquids) and abrasives
(slurry and slurry components are collectively referred to as "slurries")
supplied by Fujimi Incorporated. The inability of the Company to obtain
products from Fujimi Incorporated on a timely basis or the termination of the
relationship with Fujimi Incorporated would have a material adverse effect on
the Company. The Company has the exclusive right to distribute Fujimi
Incorporated thin film memory disk polishing slurry in North America until
October 1, 1999.
In addition, the Company has entered into a joint venture (the "Fujimi Joint
Venture") with Fujimi Incorporated to sell certain products in North and South
America, including slurries for the manufacture of
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silicon wafers and other products. The Company distributes thin film memory
disk polishing slurry and related products supplied by Fujimi Incorporated in
North America, while the Fujimi Joint Venture distributes other products
supplied by Fujimi Incorporated. The Company accounts for its investment in
the Fujimi Joint Venture on the equity method. During fiscal 1993, 1994, 1995
and the nine months ended February 29, 1996, the Company's share of the net
earnings (loss) of the Fujimi Joint Venture was $240,000, $205,000, $87,000
and $166,000, respectively. The Company does not have the legal right or
practical ability to control the Fujimi Joint Venture. A termination of or
deterioration in the relationship between the Company and Fujimi Incorporated
or any reduction in the supply or increase in the cost of slurries from Fujimi
Incorporated to the Company or the Fujimi Joint Venture would have a material
adverse effect on the Company's business, prospects, results of operations and
financial condition.
The Company earns commissions on the distribution in the U.S. and Europe of
products supplied by the Far East Joint Venture. During fiscal 1993, 1994,
1995 and the nine months ended February 29, 1996, $772,000, $2.1 million, $2.8
million and $4.0 million, respectively, of the Company's total revenue was
attributable to the distribution of such products. In addition, the Company
purchases certain components used in its machines from the Far East Joint
Venture. During fiscal 1993, 1994, 1995 and the nine months ended February 29,
1996, purchases of components from the Far East Joint Venture totaled $3.3
million, $2.6 million, $3.0 million and $2.4 million, respectively. A
termination of or deterioration in the relationship between the Company and
its Far East Joint Venture partner would have a material adverse effect on the
Company's business prospects, results of operations and financial condition.
See "--Reliance on the Performance of and Relationship with Far East Joint
Venture."
The Company relies to a substantial extent on outside vendors to manufacture
many of the components and subassemblies used in the Company's capital
equipment, some of which are obtained from a single supplier or a limited
group of suppliers. The Company's reliance on outside vendors generally, and a
sole or a limited group of suppliers in particular, involves several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over quality, pricing and timing of delivery of
components. In the past, the Company has experienced delays in receiving
materials from vendors, sometimes resulting in delays in the delivery of
products by the Company. Such delays, or other significant vendor or supply
quality issues, may occur in the future, which could result in a material
adverse effect on the Company. Because the manufacture of certain of these
components and subassemblies is specialized and requires long lead times,
there can be no assurance that delays or shortages caused by vendors will not
reoccur. Any inability to obtain adequate deliveries, or any other
circumstance that would require the Company to seek alternative sources of
supply or to manufacture such components internally, could delay shipment of
the Company's products, increase its cost of goods sold and have a material
adverse effect on the Company's business and results of operations. See
"Business--Manufacturing and Suppliers."
DEPENDENCE ON KEY CUSTOMERS
The Company's largest customer, Komag (a manufacturer of thin film memory
disks), accounted for 15.2%, 20.8%, and 20.6% and 21.1% of the Company's total
revenue in fiscal years 1993, 1994, 1995 and the nine months ended February
29, 1996, respectively. Two other customers accounted for 10% or more of the
Company's total revenue in recent fiscal years: Akashic (a manufacturer of
thin film memory disk media), represented 10.1% and 10.9% of the Company's
total revenue for fiscal years 1994 and 1995, respectively, and Seagate (a
manufacturer of disk drives), represented 11.3% of total revenue in fiscal
1994. The Company's ten largest customers accounted for, in the aggregate,
53.9%, 69.3%, 66.9% and 68.6% of the Company's total revenue in fiscal years
1993, 1994, 1995 and the nine months ended February 29, 1996, respectively.
The loss of, or a significant curtailment of purchases by, one or more of the
Company's key customers would materially adversely affect the Company's
business and results of operations. See "Business--Customers" and "--Sales and
Marketing."
The Company expects that sales of its products to relatively few customers
will continue to account for a high percentage of its revenue in the
foreseeable future. In addition, in certain of the markets the Company
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targets, such as the thin film memory disk, silicon wafer and CMP markets,
there are relatively few potential customers. Generally, the Company has not
entered into long-term agreements with its customers. In addition, as
purchases related to a particular new, expanded or upgraded facility are
completed, sales to that customer may decrease sharply. If completed orders
are not replaced on a timely basis by new orders from the same or other
customers, the Company's revenue could be materially adversely affected. See
"--Fluctuations in Quarterly Operating Results" and "Business--Customers."
INTERNATIONAL BUSINESS
In fiscal 1993, 1994 and 1995 and the nine months ended February 29, 1996,
20.6%, 16.7%, 17.3% and 30.2%, respectively, of the Company's total revenue
was attributable to sales outside the United States, primarily in Europe. In
addition, under certain circumstances, products sold to U.S. customers are
shipped to those customers' overseas facilities. The Company expects that
international sales will continue to represent a significant portion of its
total revenue. Sales to customers outside the United States are subject to
numerous risks, including exposure to currency fluctuations, the imposition of
government controls, the need to comply with a wide variety of foreign and
U.S. export laws, political and economic instability, trade restrictions,
changes in tariffs and taxes typically associated with foreign sales, the
greater difficulty of administering business overseas and general economic
conditions. In addition, the laws of certain foreign countries may not protect
the Company's intellectual property to the same extent as do the laws of the
United States. Moreover, slurries marketed and distributed by both the Company
and the Fujimi Joint Venture are purchased from Fujimi Incorporated, a
Japanese company. The Company also purchases in Japanese yen certain equipment
from the Far East Joint Venture that the Company then sells in the U.S. and
Europe. Fluctuations in exchange rates have in the past resulted, and may in
the future result, in increases in the cost to the Company of such products.
Also, because the value of the net assets of the Company's foreign
subsidiaries and its equity interest in the Far East Joint Venture fluctuate
based upon exchange rates and because the Company does not hedge the value of
such net assets, fluctuations in exchange rates may have an adverse effect on
the Company's shareholders' equity. See "--Reliance on the Performance of and
Relationship with Far East Joint Venture" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon certain senior
management and technical personnel. The loss of the services of one or more of
these key persons could have a material adverse effect on the Company.
Although the Company has employment agreements with certain of these key
employees, such agreements are terminable at will by the employee. The
Company's future success will depend in large part upon its ability to attract
and retain highly skilled technical, managerial, and marketing personnel.
Competition for such personnel in the Company's industry is intense and the
companies with which the Company competes are often larger and more
established than the Company. There can be no assurance that the Company will
be successful in attracting and retaining qualified personnel. See "Business--
Employees" and "Management."
INTELLECTUAL PROPERTY RIGHTS
Although the Company currently holds numerous United States patents and
additional foreign patents in Japan and several Asian and European countries
and has several United States patent applications and foreign patent
applications pending, the Company believes that patents are of less
significance in its industry than such factors as continued innovation,
technical expertise and know-how of its personnel and other factors. Moreover,
there can be no assurance that the Company will be able to protect its
technology or that competitors will not be able to develop similar technology
independently. No assurance can be given that the claims allowed on any
patents held or acquired by the Company will be sufficiently broad to protect
the Company's technologies. In addition, no assurance can be given that any
existing or future patents issued to the Company will not be challenged,
invalidated, or circumvented or that the rights granted thereunder will
provide competitive advantages to the Company. In that event, the Company's
results of operations could be adversely affected. Moreover, the Company may
choose to incur significant costs in an attempt to defend its patent rights.
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In addition, although the Company believes that its products do not infringe
any valid existing proprietary rights of others, there can be no assurance
that third parties will not assert infringement claims in the future. There
also may be pending patent applications or issued patents of which the Company
is not aware, and which would require the Company to license or challenge such
patents, at significant expense to the Company. There can be no assurance that
any such license would be available on acceptable terms, if at all, or that
the Company would prevail in any such challenge. See "Business--Intellectual
Property."
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals used in research and development. In addition, a number of
slurries and other materials sold by the Company and used by the Company's
customers on equipment manufactured by the Company are substances subject to
such regulation. Public attention has increasingly been focused on the
environmental impact of operations that use hazardous materials. Failure to
comply with present or future regulations could result in substantial
liability to the Company. In addition, new laws, rules and regulations could
be adopted that could result in significant expense to the Company in the
conduct of its business.
CONTROL BY EXISTING SHAREHOLDERS
Following the offering, Mr. Farley, his spouse and adult children will, in
the aggregate beneficially own approximately 40.2% of the Company's
outstanding shares (approximately 38.9% assuming the full exercise of the
Underwriters' over allotment option). Further, following this offering, the
Company's executive officers, directors and principal shareholders (exclusive
of shares beneficially owned by Mr. Farley's adult children) will, in the
aggregate, beneficially own approximately 36.6% of the Company's outstanding
shares of Common Stock (approximately 35.4% assuming the full exercise of the
Underwriters' over allotment option). As a result, these shareholders, if
acting together, would be able to determine the outcome of most matters
requiring approval by the shareholders of the Company, including the election
of the directors and other actions by shareholders with respect to the
business and affairs of the Company. In addition, the voting power of these
shareholders under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. See "Management," "Principal
and Selling Shareholders" and "Description of Capital Stock."
POSSIBLE ISSUANCE OF PREFERRED STOCK
The Board of Directors has authority to issue up to 1,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further
vote or action by the shareholders. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company, thereby delaying or preventing a change in
control of the Company. Furthermore, such Preferred Stock may have other
rights, including economic rights senior to the Common Stock, and, as a
result, the issuance thereof could have a material adverse effect on the
market value of the Common Stock. The Company has no present plans to issue
shares of Preferred Stock. See "Description of Capital Stock."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock is subject to significant fluctuations
in response to the Company's operating results and other factors, including:
announcements of developments related to the Company's business; fluctuations
in the Company's order levels; general conditions in the technology industries
or the worldwide economy; announcements of technological innovations; new
products or product enhancements by the Company or its competitors;
developments in patents or other intellectual property rights; and
developments in the Company's relationships with its joint venture partners,
customers, distributors and suppliers. In addition, in recent years the stock
market in general, and the shares of technology companies in particular, have
experienced extreme price fluctuations, and such extreme price fluctuations
may continue. These broad market and industry fluctuations may adversely
affect the market price of the Company's Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares in the public market following this
offering could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have 12,567,008 shares of Common
Stock outstanding. Of these shares, 7,861,445 shares, including the 2,660,000
shares sold in this offering, will generally be freely tradeable without
restriction, including shares that are freely tradeable pursuant to Rule
144(k) under the Securities Act of 1933, as amended (the "Securities Act"). In
addition, 4,705,563 shares of Common Stock are tradeable pursuant to the
provisions of Rule 144 under the Securities Act. Under certain lock-up
agreements with the underwriters, certain shareholders, owning 6,205,320
shares in the aggregate after the offering, have agreed that they will not,
without the prior written consent of Lehman Brothers Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them for a period of 90 days after the effective date of
the Registration Statement of which this Prospectus forms a part. See "Shares
Eligible for Future Sale" and "Underwriting."
THE COMPANY
The Company was incorporated in Illinois in 1959 as SpeedLap Corporation.
SpeedFam International, Inc. is a holding company operating through three
wholly owned subsidiaries, and also owns interests in two joint ventures. The
Company operates through SpeedFam Corporation in the U.S. ("SpeedFam U.S.")
and SpeedFam Limited ("SpeedFam U.K.") and SpeedFam GmbH ("SpeedFam Germany")
in Europe. SpeedFam International, Inc. owns 50% of each of two joint
ventures, the Far East Joint Venture and the Fujimi Joint Venture. The Far
East Joint Venture primarily produces and sells products in the Far East
similar to those produced by the Company, and the Fujimi Joint Venture sells
slurries and pads in North America.
Unless the context otherwise requires, the "Company" and "SpeedFam" refer
only to SpeedFam International, Inc., an Illinois corporation, and its wholly
owned subsidiaries. The Company's principal executive offices are located at
7406 West Detroit, Chandler, Arizona 85226 and its telephone number is (602)
961-2175.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$32.9 million ($39.5 million if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $17.50 per share and
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company. The Company will not receive any of
the proceeds from the sale of shares by the Selling Shareholders.
A significant portion of the net proceeds will be used by the Company to
fund the construction and equipping of a new corporate headquarters and
manufacturing facility in Chandler, Arizona. The Company presently estimates
that the total costs to be incurred for this project will be approximately
$16.5 million. To date, the Company has spent $2.1 million of the total
estimated costs to purchase the land on which the facility will be built.
Depending upon available alternatives in the future, the Company may seek to
obtain other long-term financing for its new facility in Chandler, Arizona
through bank financing, a sale-leaseback transaction, or the sale of debt
securities.
The Company intends to use $2.4 million of the net proceeds to repay
borrowings under a working capital revolving line of credit, bearing interest
at 6.75% at May 31, 1996. In addition, the Company will use approximately
$151,000 of the net proceeds to repay borrowings by SpeedFam U.K. under a
mortgage loan, bearing interest at 8.25% at May 31, 1996.
The Company expects to use the remaining net proceeds of this offering for
working capital and for other general corporate purposes. The Company may also
use a portion of the net proceeds to fund acquisitions of businesses,
divisions of companies or technologies complementary to those of the Company,
although there are no current agreements or commitments with respect to any
such transactions. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, interest-bearing securities. The
Company continually evaluates its financial position and financing
alternatives. The Company may, in the future, raise additional funds through
bank financing and the sale of equity securities.
-14-
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SFAM." Public trading of the Common Stock commenced on October 10,
1995. Prior to that time, there was no public market for the Company's Common
Stock. The following table sets forth the high and low closing sale prices for
the Common Stock as reported by Nasdaq for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1996
Second Quarter (from October 10, 1995).................. $18 1/4 $11 1/8
Third Quarter........................................... 16 1/2 9 1/2
Fourth Quarter.......................................... 22 12
Fiscal 1997
First Quarter (through June 12, 1996)................... $20 1/8 17 1/8
</TABLE>
On June 12, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $17.50 per share. As of May 31, 1996, there were 93
holders of record of the Common Stock.
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. Payment of dividends
in the future, if any, will be made at the discretion of the Board of
Directors of the Company. Such decisions will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company and such other factors as the Board of
Directors may deem relevant.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 29, 1996 and as adjusted to reflect the sale of the 2,000,000 shares
of Common Stock offered by the Company hereby and the application of a portion
of the estimated net proceeds therefrom (after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company) as described under "Use of Proceeds."
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
-------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt, net of current portion..................... $ 2,783 $ 692
------- -------
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized;
no shares issued or outstanding........................... -- --
Common Stock, no par value, 20,000,000 shares authorized;
10,397,200 shares issued and outstanding, actual;
12,449,340 shares issued
and outstanding, as adjusted(1)........................... 1 1
Additional paid-in capital................................. 26,016 58,909
Retained earnings.......................................... 24,115 24,115
Foreign currency translation adjustment.................... 4,207 4,207
Treasury stock............................................. -- --
------- -------
Total shareholders' equity............................... 54,339 87,232
------- -------
Total capitalization................................... $57,122 $87,924
======= =======
</TABLE>
- --------
(1) Based on shares of Common Stock outstanding at May 31, 1996. Includes
52,140 shares issuable upon the exercise of certain stock options which
are being exercised concurrently with this offering. Excludes an aggregate
of 2,820,192 shares of Common Stock reserved for issuance under the
Company's employee benefit plans, of which options to acquire 1,215,928
shares of Common Stock were outstanding at May 31, 1996.
-15-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of earnings data for the years ended May 31,
1993, 1994 and 1995 and the consolidated balance sheet data as of May 31, 1994
and 1995 are derived from the Company's consolidated financial statements and
notes thereto which have been audited by KPMG Peat Marwick LLP, independent
public accountants and are included elsewhere in this Prospectus. The
consolidated statement of earnings data for the years ended May 31, 1991 and
1992 and the consolidated balance sheet data as of May 31, 1991, 1992 and 1993
are derived from the Company's consolidated financial statements which have
been audited by KPMG Peat Marwick LLP but are not included herein. The
consolidated balance sheet data at February 29, 1996, and the statements of
operations data for the nine months ended February 28, 1995 and February 29,
1996, have been derived from unaudited consolidated financial statements
which, in the opinion of the Company, reflect all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
financial position and results of operations of the Company for those periods.
The statements of operations data for interim periods are not necessarily
indicative of results for subsequent periods or the full year. The selected
consolidated financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------------------------------------ -------------------------
FEBRUARY 28, FEBRUARY 29,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Net sales............... $39,469 $36,178 $42,542 $49,247 $57,021 $38,996 $72,353
Commissions............. 1,895 3,431 772 2,134 2,757 1,043 4,041
------- ------- ------- ------- ------- ------- -------
Total revenue........... 41,364 39,609 43,314 51,381 59,778 40,039 76,394
Cost of sales........... 29,834 28,059 32,472 38,945 45,494 31,297 51,481
------- ------- ------- ------- ------- ------- -------
Gross margin.......... 11,530 11,550 10,842 12,436 14,284 8,742 24,913
OPERATING EXPENSES:
Research, development
and engineering........ 125 1,032 1,778 2,267 2,740 1,991 6,993
Selling, general and
administrative
expenses............... 9,709 10,687 8,545 8,988 9,948 7,404 12,617
------- ------- ------- ------- ------- ------- -------
Operating profit (loss). 1,696 (169) 519 1,181 1,596 (653) 5,303
Interest expense........ (940) (878) (824) (697) (959) (769) (615)
Other income, net....... 131 442 433(2) 974 6 73 440
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes,
extraordinary item and
cumulative effect of
change in accounting
principle.............. 887 (605) 128 1,458 643 (1,349) 5,128
Income tax expense
(benefit)............... 325 171 573 (160)(3) 186 (484) 2,002
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before extraordinary
item and cumulative
effect of change in
accounting principle... 562 (776) (445) 1,618 457 (865) 3,126
Equity in net earnings
(loss) of
affiliates(1).......... 1,652 1,830 (45) 655 1,187 981 3,563
Extraordinary item...... 215 -- -- -- -- -- --
Cumulative effect of
change in accounting
principle for income
taxes.................. -- -- -- 78 -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 2,429 $ 1,054 $ (490) $ 2,351 $ 1,644 $ 116 $ 6,689
======= ======= ======= ======= ======= ======= =======
Net earnings (loss) per
share................... $ 0.32 $ 0.14 $ (0.06) $ 0.31 $ 0.20 $ 0.01 $ 0.68
======= ======= ======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares................. 7,625 7,632 7,615 7,619 8,146 8,148 9,790
======= ======= ======= ======= ======= ======= =======
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
--------------------------------------- ------------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital........... $ 5,719 $ 6,503 $ 5,944 $ 9,980 $11,072 $29,761
Total assets.............. 31,656 35,136 35,715 45,709 60,029 97,556
Long-term obligations,
less current maturities.. 6,597 8,358 8,133 9,716 10,362 2,783
Shareholders' equity...... 12,854 14,339 15,669 18,576 23,037 54,339
</TABLE>
- --------
(1) Includes $1,231,000, $1,584,000, ($285,000), $450,000, $1,100,000, $880,000
and $3,397,000 for the 1991 through 1995 fiscal years and the nine months
ended February 28, 1995 and February 29, 1996, respectively, attributable
to the Company's share of net earnings (loss) from the Far East Joint
Venture, accounted for on the equity method. See "Joint Venture
Arrangements," the consolidated financial statements of the Far East Joint
Venture and the unaudited interim consolidated financial statements of the
Company included elsewhere herein. The remainder represents the Company's
share of net earnings (loss) from the Fujimi Joint Venture.
(2) Reflects charges of $300,000 related to the bankruptcy of a subsidiary
operating in Switzerland.
(3) Reflects income tax benefit of $740,000 related to the bankruptcy of a
subsidiary operating in Switzerland.
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SpeedFam designs, manufactures, markets and services high throughput
precision surface processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers, general industrial components and,
more recently, semiconductor devices through chemical mechanical polishing, or
"CMP." In addition, the Company markets and distributes parts and expendables
and slurries. The Company's total revenue consists of net sales in two
business segments: (i) equipment, parts and expendables, and (ii) slurries, as
well as commissions earned on the distribution in the U.S. and Europe of
products of the Far East Joint Venture. Sales of the Company's products are
recorded upon shipment or when the product is accepted by the customer,
provided that no significant obligations remain outstanding and collection of
the related receivable is deemed probable. The Company accrues estimated
warranty and installation expenses for each equipment and system order at the
time the order is shipped.
Equipment, parts and expendables consist of capital equipment manufactured
by the Company, spare parts for that equipment and expendable products, such
as bearings, grinding stones, lapping plates, workpiece carriers, seals,
retaining rings, workholders and polishing pads. During fiscal year 1993,
1994, 1995 and the nine months ended February 29, 1996, 52.9%, 49.4%, 52.3%
and 73.6%, respectively, of the Company's net sales was attributable to the
sale of capital equipment, parts and expendables. Historically, the gross
margin for products in this segment has been significantly higher than that
for slurries.
Slurries consist of polishing slurry and slurry components (including
vehicles and abrasives) used in surface processing. During fiscal year 1993,
1994, 1995 and the nine months ended February 29, 1996, 47.1%, 50.6%, 47.7%
and 26.4%, respectively, of the Company's net sales was attributable to sales
of slurries. Substantially all of the slurries sold by the Company are
manufactured by Fujimi Incorporated. Historically, the gross margin for
slurries has been significantly lower than that for equipment, parts and
expendables. In recent years, the Company has experienced severe competitive
pressure in the sale of slurries and has been required to reduce prices. In
addition, the Company has experienced increased slurry costs. The Company
expects that these trends will continue.
Commissions from affiliate ("commissions") consist primarily of revenue
derived from the distribution by the Company in the U.S. and Europe of
products of the Far East Joint Venture for which the Company acts as sales
agent. Certain capital equipment marketed and distributed by the Company is
produced solely by the Far East Joint Venture. The Company distributes such
products throughout the U.S. and Europe and receives commissions thereon. Such
amount reflects the difference between the imported equipment's cost to the
Company and sales price to the customer. For fiscal 1995 and the nine months
ended February 29, 1996, commissions accounted for 4.6% and 5.3%,
respectively, of total revenue.
International sales by the Company's wholly owned subsidiaries in Europe
accounted for 17.3% of total revenue in fiscal 1995 and 11.5% of total revenue
in the nine months ended February 29, 1996. Approximately 54% and 59% of the
Company's total revenue in Europe in fiscal 1995 and the nine months ended
February 29, 1996 were attributable to the sale of slurries. Fiscal 1993
reflects charges of $300,000 related to the bankruptcy of a subsidiary of the
Company, FamTec AG, operating in Switzerland. In fiscal 1994, the Company
wrote off its investment in FamTec AG. The net liabilities of FamTec AG and
the removal of the foreign currency translation adjustment from consolidated
shareholders' equity resulted in a pretax gain of $303,000 and an income tax
benefit of $740,000 in fiscal 1994. See "Business--Legal Proceedings."
The Company generally enters into foreign exchange contracts to hedge
certain firm commitments denominated in foreign currencies, principally in
Japanese yen. The terms of the contracts are rarely more than one year.
Currency variations have had an immaterial effect on the Company's results of
operations for the periods presented. Net assets of the Company's foreign
subsidiaries and 50% of the net assets of the Far East
-18-
<PAGE>
Joint Venture were approximately $18.9 million at January 31, 1996 (the end of
the first three quarters of fiscal 1996 of such entities).
The Company owns a 50% interest in both the Far East Joint Venture and the
Fujimi Joint Venture. The Company's equity interests in the joint ventures are
accounted for on the equity method. As a result, the Company's share of the
net earnings (loss) of the Far East Joint Venture and the Fujimi Joint Venture
appear in the "Equity in net earnings (loss) of affiliates" caption on the
Company's consolidated statements of earnings. Neither the Far East Joint
Venture nor the Fujimi Joint Venture has paid significant dividends in the
past and both are expected to retain substantially all earnings in the
foreseeable future. The Company's share of the net earnings (loss) of the Far
East Joint Venture has not in the past resulted and is not expected in the
future to result in a like effect on the cash flows of the Company. At
February 29, 1996, the Company's equity interest in the Far East Joint Venture
was $16.7 million, representing 17.1% of the Company's total assets and 30.7%
of shareholders' equity. The net earnings of the Company in the past have been
substantially influenced by the results of operations of the Far East Joint
Venture and can be expected to continue to be so influenced in the future. See
"Joint Venture Arrangements" and the consolidated financial statements of
SpeedFam Co., Ltd. included elsewhere herein.
The Company began development of its CMP product, the CMP-V, in 1990. The
Company initiated volume shipments of the CMP-V in 1994. CMP-V sales accounted
for 30.4% of net sales for the nine months ended February 29, 1996, as
compared to 7.6% of net sales for the nine months ended February 28, 1995. The
CMP-V generally has gross margins higher than those of the Company's other
capital equipment products.
Historically, a disproportionate share of the Company's revenue and
operating profit has been attributable to the last two quarters of the
Company's fiscal year, primarily the fourth quarter. In particular, the
Company typically experiences a decline in revenues and operating profit from
the fourth fiscal quarter to the first fiscal quarter of the succeeding year.
The Company believes that this decline is primarily due to the seasonal buying
patterns of its customers. Sales of slurries tend to be more consistent than
equipment sales on a quarterly basis.
-19-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of earnings
data for the periods indicated as a percentage of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED MAY
31, NINE MONTHS ENDED
-------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Net sales...................... 98.2 % 95.8% 95.4% 97.4 % 94.7%
Commissions.................... 1.8 4.2 4.6 2.6 5.3
----- ----- ----- ----- -----
Total revenue.................. 100.0 100.0 100.0 100.0 100.0
Cost of sales.................. 75.0 75.8 76.1 78.2 67.4
----- ----- ----- ----- -----
Gross margin................. 25.0 24.2 23.9 21.8 32.6
OPERATING EXPENSES:
Research, development and
engineering.................... 4.1 4.4 4.6 5.0 9.2
Selling, general and
administrative expenses........ 19.7 17.5 16.6 18.4 16.5
----- ----- ----- ----- -----
Operating profit............... 1.2 2.3 2.7 (1.6) 6.9
Interest expense............... (1.9) (1.4) (1.6) (1.9) (0.8)
Other income, net.............. 1.0 1.9 -- 0.1 0.6
----- ----- ----- ----- -----
Earnings from consolidated
companies before income taxes
and cumulative effect of
change in accounting
principle..................... 0.3 2.8 1.1 (3.4) 6.7
Income tax expense (benefit)... 1.3 (0.3) 0.3 (1.2) 2.6
----- ----- ----- ----- -----
Earnings (loss) from
consolidated companies before
cumulative effect of change in
accounting principle.......... (1.0) 3.1 0.8 (2.2) 4.1
Equity in net earnings (loss)
of affiliates.................. (0.1) 1.3 2.0 2.5 4.7
Cumulative effect of change in
accounting principle for
income tax.................... -- 0.2 -- -- --
----- ----- ----- ----- -----
Net earnings (loss)............ (1.1)% 4.6% 2.8% 0.3% 8.8%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED FEBRUARY 29, 1996 COMPARED WITH NINE MONTHS ENDED FEBRUARY
28, 1995
Net Sales. Net sales for the nine months ended February 29, 1996 were $72.4
million, up 85.5% over net sales of $39.0 million for the similar period in
fiscal 1995. Equipment, parts and expendables accounted for 73.6% of net sales
in the first nine months of fiscal 1996 compared to 41.8% in the same period
of fiscal 1995. CMP-V sales accounted for 30.4% of net sales in the first nine
months of fiscal 1996, from 7.6% in the first nine months of fiscal 1995. In
addition to the significant increase in CMP-V sales to semiconductor
manufacturers, net sales for the nine month period have increased due to
industry growth in the thin film memory disk media and semiconductor wafer
markets. As a result, sales of related equipment, parts and expendables have
also increased in fiscal 1996 over fiscal 1995. Sales of slurries as a percent
of net sales decreased to 26.4% in the first nine months of fiscal 1996 from
58.2% in the comparable period of fiscal 1995. The Company's backlog as of
February 29, 1996 was $67.8 million, an increase of 77.5% from $38.2 million
as of February 28, 1995.
Commissions from Affiliate. Commissions from affiliate increased to $4.0
million in the nine months ended February 29, 1996 compared to $1.0 million in
the nine months ended February 28, 1995. The increase in the nine month period
of fiscal 1996, as compared to the respective period in fiscal 1995, was due
primarily to the
-20-
<PAGE>
increasing demand of the silicon wafer industry to meet that industry's
capacity requirements, and increased demand for certain technologies developed
and manufactured by the Far East Joint Venture.
Gross Margin. For the first nine months of fiscal 1996, gross margin was
$24.9 million or 32.6% of total revenue compared to $8.7 million or 21.8% of
total revenue for the first nine months of fiscal 1995. In addition to higher
sales levels, gross margin has increased due to a considerable shift towards
higher margin products in the equipment, parts and expendables segment,
particularly the CMP-V planarization system.
Research, Development and Engineering. In the nine months ended February 29,
1996, research, development and engineering expense increased to $7.0 million
or 9.2% of total revenue compared to $2.0 million or 5.0% of total revenue in
the first nine months of fiscal 1995. The Company has committed significant
resources to the continued development of the CMP process and other related
technologies. The Company believes that increased spending in research,
development and engineering, including providing required technical support
services for needs of customers, are all major factors to continued CMP-V
sales growth.
Selling, General and Administrative. For the first nine months of fiscal
1996, selling general and administrative expense increased to $12.6 million
from $7.4 million in the first nine months of fiscal 1995. For the nine month
period, selling, general and administrative expense decreased as a percent of
total revenue compared to the similar periods of fiscal 1995 due to the
significantly higher level of sales between the same periods. However, higher
levels of spending were required to support this sales growth including
additional administrative and sales personnel, new service and sales
locations, and distributor commissions to the Far East Joint Venture on export
sales from the U.S. to the Far East region.
Interest Expense. In the nine months ended February 29, 1996, interest
expense decreased to $615,000 from $769,000 in the comparable period of fiscal
1995. The decrease was due to the retirement of the outstanding balance of a
revolving line of credit and the retirement of long-term debt payable to a
former director.
Other Income, Net. Other income increased to $440,000 in the first nine
months of fiscal 1996 from $73,000 in the first nine months of fiscal 1995.
The increase is due primarily to additional interest income earned on the
investment of proceeds received upon completion of the Company's initial
public offering of Common Stock in October 1995.
Equity in Net Earnings of Affiliate. For the nine months ended February 29,
1996, equity in net earnings of affiliates increased to $3.6 million compared
to $981,000 in the nine months ended February 28, 1995. The increase is
attributed to a continued strong demand for products sold to the thin film
memory and semiconductor wafer industries by the Far East Joint Venture. In
addition, profits of the Far East Joint Venture have increased due to
improvements in manufacturing, cost reduction programs and a lower effective
tax rate.
FISCAL 1995 COMPARED WITH FISCAL 1994
Net Sales. Net sales increased 15.8% to $57.0 million in fiscal 1995 from
$49.2 million in fiscal 1994. The increase was primarily attributable to a
$5.5 million increase in equipment, parts and expendables sales to $29.8
million in fiscal 1995 from $24.3 million in fiscal 1994. A significant
portion of this increase was due to higher CMP-V sales. The increase also
reflects strong equipment demand from the semiconductor wafer and thin film
memory disk industries due to those industries' expansion of manufacturing
capacity. Slurries sales increased $2.3 million in fiscal 1995 to $27.2
million from $24.9 million in fiscal 1994 primarily as a result of an increase
in unit sales partially offset by a decrease in unit selling prices. European
sales increased 20.9% to $10.4 million in fiscal 1995 from $8.6 million in
fiscal 1994, primarily due to increased sales of slurries to semiconductor
wafer manufacturers.
-21-
<PAGE>
Commissions. Commissions increased 29.2% to $2.8 million in fiscal 1995 from
$2.1 million in fiscal 1994, due to increased shipments of systems produced by
the Far East Joint Venture, primarily to U.S. manufacturers of semiconductor
wafers.
Gross Margin. Gross margin increased to $14.3 million in fiscal 1995 from
$12.4 million in fiscal 1994 due to higher sales volume in both business
segments. As a percentage of total revenue, gross margin decreased to 23.9% in
fiscal 1995 from 24.2% in fiscal 1994. The decrease was primarily attributable
to increased slurries unit costs and decreased unit sale prices. This decline
was partially offset by increased equipment, parts and expendables sales as a
percentage of total revenue, which traditionally have higher gross margins
than slurries.
Research, Development and Engineering. Research, development and engineering
expenses increased 20.9% to $2.7 million in fiscal 1995 from $2.3 million in
fiscal 1994. The majority of the expenses relate to the continued development
of the CMP-V and CMP process technology. In addition, the Company invested in
the development of proprietary slurries and the enhancement of existing
machines for the thin film memory disk and precision optics markets. As a
percentage of total revenue, research, development and engineering expenses
increased to 4.6% in fiscal 1995 from 4.4% in fiscal 1994.
Selling, General and Administrative. Selling, general and administrative
expenses increased 10.7% to $9.9 million in fiscal 1995 from $9.0 million in
fiscal 1994, primarily as a result of increased expenses related to the
expansion of marketing, sales and customer support functions, the addition of
new office and assembly facilities and the upgrading of management information
systems, all of which were primarily related to the CMP-V. As a percentage of
total revenue, selling, general and administrative expenses decreased to 16.6%
in fiscal 1995 from 17.5% in fiscal 1994 as a result of a larger total revenue
base.
Interest Expense. Interest expense increased 37.6% to $959,000 in fiscal
1995 from $697,000 in fiscal 1994. This increase was the result of increased
borrowings under a revolving line of credit and higher short-term interest
rates. As a percentage of total revenue, interest expense increased to 1.6% in
1995 from 1.4% in 1994.
Other Income, Net. Other income, net decreased 99.4% to $6,000 in fiscal
1995 from $974,000 in fiscal 1994. The most significant change resulted from a
$350,000 foreign exchange loss incurred on several import equipment orders.
Provision for Income Taxes. The Company's effective tax rate in fiscal 1995
was 29%, compared to (11%) in fiscal 1994. The Company's effective income tax
rate in fiscal 1995 differs from the Federal statutory rate primarily as a
result of the tax benefit from the foreign sales corporation. The fiscal 1994
effective tax rate differs from the Federal statutory rate primarily as a
result of the tax benefit recognized upon the disposal of FamTec AG. The
benefit arose from the write-off and resulting deduction of the Company's
investment in FamTec AG for U.S. tax purposes.
Equity in Net Earnings (Loss) of Affiliates. Equity in net earnings (loss)
of affiliates increased 81.2% to $1.2 million in fiscal 1995 from $655,000 in
fiscal 1994. The increase was primarily attributable to increased sales of
equipment, parts and expendables to the Far East semiconductor industry by the
Far East Joint Venture. Introduction of new and enhanced equipment and systems
as well as improving conditions in the semiconductor equipment market in the
Far East led to increases in sales and profits.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net Sales. Net sales increased 15.8% to $49.2 million in fiscal 1994 from
$42.5 million in fiscal 1993. Substantially all of the increase was
attributable to increased sales of slurries to the thin film memory disk media
market in the U.S. and increased sales in the semiconductor wafer market in
Europe. Slurries sales accounted for 50.6% of net sales in fiscal 1994, while
capital equipment, parts and expendables sales, primarily to the thin film
memory disk media industry, comprised the balance. The increase in slurries
unit sales offset a decrease in unit selling prices. European sales decreased
4.0% to $8.6 million in 1994 from $8.9 million in fiscal 1993 as a result of
the closing of FamTec AG, which was partially offset by increases in sales of
slurries.
-22-
<PAGE>
Commissions. Commissions increased 176.4% to $2.1 million in fiscal 1994
from $772,000 in fiscal 1993, due to increased shipments of systems by the Far
East Joint Venture to manufacturers of thin film memory disks and silicon
wafers.
Gross Margin. Gross margin increased to $12.4 million in fiscal 1994 from
$10.8 million in fiscal 1993. As a percentage of total revenue, gross margin
decreased to 24.2% in 1994 from 25% in fiscal 1993. This decrease is primarily
due to competitive pressures in fiscal 1994 on certain high volume slurries
sold to the thin film memory disk industry which, combined with rising costs
for these products, contributed to a decline in the overall gross margin as a
percent of total revenues in 1994 as compared to fiscal 1993.
Research, Development and Engineering. Research, development and engineering
expenses increased 27.5% to $2.3 million in fiscal 1994 from $1.8 million in
fiscal 1993. The increase was attributable to continued development and
engineering expenses related to the CMP-V system and CMP process technology,
expenditures incurred for designing a new lapping machine for the quartz
industry and research related to proprietary formulas for new slurry products.
As a percentage of total revenue, research, development and engineering
expenses were 4.4% of total revenue in fiscal 1994 and 4.1% in fiscal 1993.
Selling, General and Administrative. Selling, general and administrative
expenses increased 5.2% to $9.0 million in fiscal 1994 from $8.5 million in
fiscal 1993. The increase was primarily a result of increased marketing and
administrative staff additions and increased compensation expenses, partially
offset by decreased expenses related to the closing of FamTec AG. As a
percentage of total revenue, selling, general and administrative expenses
decreased to 17.5% in fiscal 1994 from 19.7% in fiscal 1993.
Interest Expense. Interest expense decreased 15.4% to $697,000 in fiscal
1994 from $824,000 in fiscal 1993 as a result of lower average borrowings
during fiscal 1994, primarily due to the elimination of indebtedness of FamTec
AG. As a percentage of total revenue, interest expense decreased to 1.4% in
1994 from 1.9% in fiscal 1993.
Other Income, Net. Other income, net increased 124.9% to $974,000 in fiscal
1994 from $433,000 in fiscal 1993. The most significant items that contributed
to the increase were income received from a customer payment in connection
with an order cancellation amounting to $379,000, a pre-tax gain of $303,000
on the closing of FamTec AG and royalties received of $245,000 on the
licensing of certain CMP technology. In fiscal 1993, other income, net
included $800,000 of income attributable to the settlement of a patent
infringement suit.
Provision for Income Taxes. The Company's effective income tax rate in
fiscal 1993 differs from the Federal statutory rate primarily as a result of
the FamTec AG operating losses for which no tax benefit was recognized and the
U.S. taxation of dividends received from the Company's subsidiaries in Europe.
Equity in Net Earnings (Loss) of Affiliates. Equity in net earnings (loss)
of affiliates was $655,000 in fiscal 1994 compared with a loss of $45,000 in
fiscal 1993. The fiscal 1994 results were attributable to improving economic
and market conditions in Japan and the rest of the Far East region and
increased demand by semiconductor wafer manufacturers for the Far East Joint
Venture's equipment.
-23-
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited consolidated quarterly
financial information for the eleven quarters ended February 29, 1996 and such
information expressed as a percentage of total revenue. In the opinion of the
Company's management, this information has been prepared on the same basis as
the consolidated financial statements appearing elsewhere in this Prospectus
and includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information. Results of operations
for any previous quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995 FISCAL 1996
----------------------------------- ----------------------------------- -------------------------
AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 29
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
EARNINGS
DATA:
Net sales............. $12,684 $9,550 $10,554 $16,459 $13,751 $12,918 $12,327 $18,025 $17,633 $24,637 $30,083
Commissions........... 20 517 713 884 202 162 679 1,714 183 801 3,057
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 12,704 10,067 11,267 17,343 13,953 13,080 13,006 19,739 17,816 25,438 33,140
Cost of sales......... 9,699 7,986 8,708 12,552 11,180 10,420 9,697 14,197 12,766 18,420 20,295
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 3,005 2,081 2,559 4,791 2,773 2,660 3,309 5,542 5,050 7,018 12,845
Research, development
and engineering...... 373 428 401 1,065 578 707 706 749 1,195 2,302 3,496
Selling, general and
administrative....... 1,999 1,974 2,005 3,010 2,541 2,458 2,405 2,544 3,482 3,380 5,183
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit........ 633 (321) 153 716 (346) (505) 198 2,249 373 1,336 4,166
Interest expense........ (174) (175) (174) (174) (244) (277) (248) (190) (271) (254) (90)
Other income (expense),
net..................... 130 (105) 428 521 (37) (44) 154 (67) (225) (79) 172
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes and
cumulative effect of
accounting change...... 589 (601) 407 1,063 (627) (826) 104 1,992 (123) 1,003 4,248
Income tax expense
(benefit)............... 193 (179) (515) 341 (208) (287) 11 670 (27) 413 1,616
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies. 396 (422) 922 722 (419) (539) 93 1,322 (96) 590 2,632
Equity in net earnings
(loss) of affiliates... (270) (170) 811 284 565 106 310 206 800 1,035 1,728
Cumulative effect of ac-
counting change........ 78 -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 204 $ (592) $ 1,733 $ 1,006 $ 146 $ (433) $ 403 $ 1,528 $ 704 $ 1,625 $ 4,360
======= ====== ======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUE:
Net sales............. 99.8% 94.9% 93.7% 94.9% 98.6% 98.8% 94.8% 91.3% 99.0% 96.9% 90.8%
Commissions........... 0.2 5.1 6.3 5.1 1.4 1.2 5.2 8.7 1.0 3.1 9.2
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......... 76.3 79.3 77.3 72.4 80.1 79.7 74.6 71.9 71.7 72.4 61.2
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 23.7 20.7 22.7 27.6 19.9 20.3 25.4 28.1 28.3 27.6 38.8
Research, development
and engineering...... 2.9 4.3 3.6 6.1 4.1 5.4 5.4 3.8 6.7 9.0 10.5
Selling, general and
administrative....... 15.8 19.6 17.8 17.3 18.2 18.8 18.5 12.9 19.5 13.3 15.7
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit........ 5.0 (3.2) 1.3 4.2 (2.4) (3.9) 1.5 11.4 2.1 5.3 12.6
Interest expense........ (1.4) (1.7) (1.5) (1.0) (1.7) (2.1) (1.9) (1.0) (1.5) (1.0) (0.3)
Other income (expense),
net..................... 1.0 (1.1) 3.8 3.0 (0.3) (0.3) 1.2 (0.3) (1.3) (0.3) 0.5
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes and
cumulative effect of
accounting change...... 4.6 (6.0) 3.6 6.2 (4.4) (6.3) 0.8 10.1 (0.7) 4.0 12.8
Income tax expense
(benefit)............... 1.5 (1.8) (4.6) 2.0 (1.4) (2.2) 0.1 3.4 (0.2) 1.6 4.9
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies. 3.1 (4.2) 8.2 4.2 (3.0) (4.1) 0.7 6.7 (0.5) 2.4 7.9
Equity in net earnings
(loss) of affiliates... (2.1) (1.7) 7.2 1.6 4.0 0.8 2.4 1.0 4.5 4.1 5.3
Cumulative effect of
accounting change...... 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... 1.6% (5.9)% 15.4% 5.8% 1.0% (3.3)% 3.1% 7.7% 4.0% 6.5% 13.2%
======= ====== ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
-24-
<PAGE>
The Company's results of operations may be subject to significant quarterly
variation. Certain of the Company's systems have relatively high selling
prices. This can cause quarterly variations in equipment sales and have a
significant effect on the Company's results of operations. The results of
operations for a particular quarter may also vary due to a number of factors,
including market conditions in the thin film memory disk, semiconductor wafer
and device industries, customer delivery schedules, timing of orders, the mix
of products sold by the Company, competitive pricing pressures, availability
and cost of raw materials and the quarterly operating results of the Company's
joint ventures. Also, customers may reschedule, or in rare instances cancel
shipments, and production difficulties may delay shipments.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its initial public offering of 2,927,500 shares of
common stock during the second quarter of fiscal 1996. Proceeds to the Company
as a result of the offering were $28.4 million, net of underwriters' discounts
and commissions and offering expenses. Approximately $10.5 million was used to
repay borrowings by the Company's U.S. subsidiary under a working capital
revolving line of credit. In addition, approximately $879,000 was used to
repay indebtedness incurred in 1990, including accrued interest, in connection
with the repurchase of shares of common stock of a former director. The
remaining funds are being used for working capital and other general corporate
purposes.
A significant portion of the net proceeds from the sale of the Common Stock
offered hereby will be used by the Company to fund the construction and
equipping of a new corporate headquarters and manufacturing facility in
Chandler, Arizona. The Company presently estimates that the total costs to be
incurred for this project will be approximately $16.5 million. To date, the
Company has spent $2.1 million of the total estimated costs to purchase the
land on which the facility will be built. Depending upon available
alternatives in the future, the Company may seek to obtain other long-term
financing for its new facility in Chandler, Arizona through bank financing, a
sale-leaseback transaction, or the sale of debt securities.
At February 29, 1996, the Company had an aggregate of $12.7 million in
secured lines of credit. This increased from $10.2 million at May 31, 1995. As
of February 29, 1996, no borrowings were outstanding under the lines of
credit. The Company has recently entered into a new unsecured $22.5 million
credit facility which replaced the former secured bank line of credit in its
U.S. operations.
For the nine months ended February 29, 1996, the Company used $6.1 million
in cash from operating activities compared to $1.0 million in the same period
last fiscal year. This use of cash is primarily attributable to the buildup of
inventories and accounts receivable associated with the significant growth in
sales in fiscal 1996, especially in the third quarter.
The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with anticipated funds provided by operations and
borrowings available under its revolving line of credit agreement, will be
sufficient to meet the Company's planned capital requirements during at least
the next 12 months. Beyond the next 12 months, the Company may require
additional financing to address its working capital and fixed asset
requirements. There can be no assurance that additional financing will be
available on terms acceptable to the Company, if at all.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
was issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. Management has reviewed the Statement and expects that its
provisions will not have a material adverse effect upon the financial
condition or results of operations of the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation Plans" was issued in October 1995. The Statement will be
effective for the Company's fiscal year 1997. As allowed by the new Statement,
the Company plans to continue to use Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" in accounting for its stock
options. Certain pro forma and other information will be disclosed as if the
Company had measured compensation costs in a manner consistent with the new
Statement. Management has reviewed the Statement and expects that its
provisions will not have a material adverse effect upon the financial
condition or results of operations of the Company.
-25-
<PAGE>
BUSINESS
The Company designs, develops, manufactures, markets and services high
throughput precision surface processing systems used in the fabrication of
thin film memory disk media, semiconductor wafers, general industrial
components and, more recently, semiconductor devices through chemical
mechanical polishing, or "CMP." In addition, the Company markets and
distributes slurries and parts and expendables used in its customers'
manufacturing processes. The Company's processing systems include polishing,
grinding, lapping and pre-deposition cleaning equipment. The process steps
performed by the Company's equipment are an integral part of and occur
repeatedly throughout the fabrication cycles of both thin film memory disk
media, semiconductor wafers and advanced semiconductors. The Company has been
utilizing innovative designs, formulas and process technologies to address its
customers' precision surface processing needs since 1959. The Company believes
that the processing expertise it has developed over the past 35 years enables
it to provide precision surface processing solutions to leading-edge
electronics manufacturers who require increasingly smaller device geometries
and tighter process tolerances. The Company markets and sells its products
throughout the U.S. and Europe to numerous customers, including AMD, Akashic,
Digital Equipment, Hewlett-Packard, HMT, IBM, Komag, MEMC, Mosel Vitelic,
Motorola, Rockwell International, Seagate, Siemens, Siltec, StorMedia and
Wacker Siltronic.
INDUSTRY BACKGROUND
The semiconductor and memory disk industries have experienced rapid growth
as a result of the personal computer, telecommunications and networking
markets and the emergence of consumer-oriented semiconductor applications in
products such as automobiles, electronic games and other consumer electronics.
The computer markets are characterized by the emergence of new operating
systems that require higher processor performance, more memory and increased
disk storage to run effectively. In both the computing and consumer-oriented
markets, end users demand greater system performance, along with product
features such as small size, portability, long battery life and cool
operation.
The heightened requirements of end users for increased system performance,
processing capacity and product features are requiring semiconductor and thin
film memory disk manufacturers to rapidly adopt new technologies. Thus,
semiconductor device manufacturers are producing devices with smaller
geometries and multi-level metal processes. Similarly, thin film memory disk
media manufacturers are continually increasing the density of disk media by
increasing coercivity (magnetic density) and reducing head flying heights in
order to satisfy end user demand for greater storage capacity.
In order to meet these evolving specifications, both semiconductor and thin
film memory disk manufacturers must tighten tolerances and improve certain
surface characteristics. At present, some complex semiconductor devices have
line geometries and feature sizes of less than 0.5 micron, and devices with
geometries of 0.18 micron or less are under development. In the last decade,
coercivity requirements have increased from approximately 800 oersteds to
2,000 oersteds or more and flying height requirements have decreased to less
than 0.5 microinch. Such dramatic increases in coercivity and reductions in
flying heights require improved thin film memory disk media surface quality.
These tightened tolerances necessitate improvements in the semiconductor and
thin film memory disk media manufacturing processes in order to increase
planarity (flatness) and provide a number of new surface characteristics.
Polishing is a process used to change the characteristics of the surface of
a semiconductor wafer or thin film memory disk. Polishing is a complex
science, often involving multiple steps, each at a specified set of process
parameters such as polishing speed, pressure, time, and temperature, as well
as slurry pH and particle size, hardness and shape. Polishing improves the
flatness (planarity), smoothness and optical properties of a surface. A
typical flat polishing system consists of a moving platen that is covered with
a polishing pad, in combination with a polishing liquid (or slurry) containing
minute abrasive particles that impinge on the surface, thereby creating the
desired surface qualities. This liquid slurry can be chemically active such
that the surface of the component being polished is chemically modified, thus
accelerating and improving the polishing process.
-26-
<PAGE>
The combination of chemical action from the acidic or alkaline slurry and
mechanical action from the abrasive slurry has long been used to process
silicon wafers and thin film memory disk media and is increasingly used in the
manufacture of advanced semiconductor devices.
EMERGENCE OF CMP IN SEMICONDUCTOR PRODUCTION
CMP, or chemical mechanical polishing for patterned wafers, was first
applied in the manufacture of semiconductor devices by IBM in the 1980's, and
has since been adopted by a number of manufacturers of semiconductor devices.
The objective of CMP is to reestablish a flat or planar surface that has been
degraded by prior deposition steps to a point where it is not possible or
feasible to deposit additional levels without first restoring the surface to a
planar condition. For example, after a microprocessor device has had several
levels of metal deposited, the surface may have become so irregular that the
optics of the photolithography equipment may be unable to maintain proper
focus on all areas of the wafer surface. During the CMP process, the higher
points of the dielectric or metal layer are removed, resulting in a flatter
and more even surface. This provides a level foundation on which to deposit
the next level of circuitry. CMP allows the semiconductor manufacturers to
make denser, smaller, faster and more reliable devices by enabling them to
effectively stack many levels of interconnection.
End user performance demands are requiring semiconductor manufacturers to
produce increasingly sophisticated logic and memory devices containing
multiple metal layers. Because of the depth of focus limitations of existing
photolithography equipment, global planarization becomes particularly
important for devices with design geometries of 0.35 micron or less and three
or more metal levels. The Company believes that the CMP process is currently
the most effective method to provide this global planarization. According to
Dataquest Incorporated, the CMP equipment market was estimated at $197 million
in 1995 and it currently projects the market to be approximately $680 million
in the year 2000.
CMP MARKET REQUIREMENTS
The Company believes that manufacturers of semiconductor devices consider
many factors in evaluating a CMP system, including the following:
Cost of Ownership. Cost of ownership refers to the total cost to a
manufacturer of processing a wafer assuming a given set of process parameters.
Key factors that determine cost of ownership include capital equipment and
consumables costs, throughput, yield, reliability and amount of clean room
space occupied by the CMP system.
Throughput. Throughput is determined by measuring the number of wafers
processed per unit of time given a certain set of process conditions, such as
the amount of material requiring removal.
Process Flexibility, Performance and Reliability. Flexibility is determined
by the ability of a CMP system to address the evolving process and application
needs of semiconductor device manufacturers. Specifically, the Company
believes that semiconductor device manufacturers want a common, standardized
CMP system capable of processing various film types, including metal, oxide
and other materials. Performance is primarily characterized by the ability to
repeatably create precise, uniform film layers while achieving rapid removal
rates. Reliability of a CMP system is analyzed through measures such as "mean
time between failures" (MTBF), "mean wafers between failures" (MWBF) and "mean
wafers between interruptions" (MWBI).
Support and Other Capabilities of the CMP Supplier. Semiconductor device
manufacturers typically review the CMP supplier's support and other
capabilities, including the supplier's management systems, support locations,
training capabilities, research and development capabilities, technology
roadmap and process development activities.
CMP systems typically utilize polishing heads that hold wafers during the
planarization process. Historically, many CMP systems employed either one or
two head system architectures that permitted the processing of only one or two
wafers at a time. The Company believes that the architecture of these one or
two head systems limits their ability to adequately address the CMP objectives
of semiconductor device manufacturers, particularly with respect to cost of
ownership and throughput. The Company believes that multiple head CMP systems
have inherent advantages over one and two head CMP systems. The Company was
-27-
<PAGE>
one of the earliest manufacturers to develop and ship commercial quantities of
a multiple head CMP system. Over the past few years, several other
manufacturers have developed multiple head CMP systems. In general, these
other systems have not yet achieved broad market acceptance. Recently, a
number of CMP equipment manufacturers have announced new multiple head systems
and the Company expects other such systems to be introduced in the future.
THE SPEEDFAM CMP SOLUTION
The Company has leveraged its 35 years experience in precision surface
processing, polishing, wet processing and high-throughput production equipment
to develop its CMP-V system. The Company began developing the CMP-V in 1990
and initiated commercial shipments during 1994. The CMP-V utilizes a five
head, two polishing table architecture that is designed to address the
objectives of semiconductor device manufacturers in the following respects:
Cost of Ownership. The CMP-V is designed to provide a favorable combination
of capital equipment and consumables costs, throughput, yield and space
utilization. For example, the CMP-V's use of a large polishing table to
process five wafers simultaneously results in enhanced throughput, efficient
consumables usage, and effective clean room space utilization.
Throughput. The CMP-V is designed to optimize throughput in a number of
ways. First, the system processes five wafers simultaneously and uses batch
load/unload in order to reduce handling time between process runs. The two
table design of the system allows it to directly perform a secondary polishing
step, important for most metal CMP applications, without having to unload and
load a wafer onto a separate carrier. In addition, the utilization of a
relatively large polishing wheel is designed to enable the CMP-V to achieve
relatively high removal rates and throughput while maintaining process
stability and control. Material removal rate is generally proportional to the
relative velocity between the surface of the polishing pad and the
semiconductor wafer. The Company believes its larger polishing wheel provides
higher relative velocities even while the wheel is turning at a relatively low
rotational speed. The Company currently expects to introduce an enhanced
version of the CMP-V in the second half of fiscal 1997 which is intended to
offer an improvement in throughput.
Process Flexibility, Performance and Reliability. The CMP-V supports a range
of applications, including oxide, metal and emerging CMP applications.
Specifically, the system is designed to provide the uniformity needed for
oxide applications, while providing efficient support for two-step metal
applications through its two table architecture. The Company believes that
this ability to support both oxide and metal applications in a single system
provides a solution to device manufacturers seeking to standardize on a common
CMP system throughout their fabrication facility. The Company believes that
the CMP-V achieves the precision and uniformity of film layers typically
required in CMP applications for advanced process technologies, including both
oxide and metal applications. The Company seeks to continually improve the
reliability of the CMP-V system and, from time to time, engages in joint
development projects with customers from the semiconductor industry as a means
to enhance the system's reliability.
Support and Other Capabilities of the CMP Supplier. The Company believes
that its United States and European support capabilities, in combination with
the support capabilities of the Far East Joint Venture, provide a network that
is able to support the worldwide CMP operations of semiconductor device
manufactures. The Company is committed to significant investment in research
and development in order to provide customers with a CMP product and
technology migration strategy consistent with the SIA (Semiconductor Industry
Association) technology roadmap.
-28-
<PAGE>
SPEEDFAM STRATEGY
The Company's goal is to establish and maintain market leadership in systems
which provide high throughput precision surface processing of thin film disk
media, advanced semiconductors and other high value-added products. Key
elements of the Company's strategy include:
. Establish a leading position in the CMP market. The Company seeks to
leverage its expertise in precision surface processing systems to establish
a leading position in the CMP market. The Company's multiple head, two
polishing table CMP system is designed to provide high throughput, low cost
of ownership and attractive levels of process flexibility. The Company
seeks to capitalize on the experience gained by being one of the earliest
manufacturers to develop and ship commercial quantities of a multiple head
CMP system. The Company currently expects to introduce an enhanced version
of the CMP-V in the second half of fiscal 1997. The Company is also
currently developing a post-CMP cleaning system, which is presently
expected to be introduced during fiscal 1997.
. Maintain a leading position in the sale of precision surfacing processing
systems to the thin film memory disk media and silicon wafer
industries. The Company intends to maintain a leading position in the thin
film memory disk media and silicon wafer industries by continuing to foster
strong relationships with its customers, participating in cooperative
development programs with them and continuing to provide high-quality
systems and solutions at competitive prices to meet evolving industry
requirements.
. Capitalize on the Company's core competence in precision surface processing
and leverage existing customer relationships. The Company intends to
capitalize on its surface processing expertise and its existing customer
relationships to address new market applications, particularly within the
semiconductor and flat panel display industries, and to develop new
products.
. Provide a "total solution." The Company seeks to provide a complete
solution to its customers' precision tolerance and surface processing
needs, including process expertise, training, cooperative development,
slurries and expendables, along with equipment. The Company focuses on each
market application by organizing marketing, sales, service and support
functions into separate market-oriented business units to provide
responsiveness and capability specific to each market.
. Capitalize on the Far East Joint Venture. The Far East Joint Venture, which
has been operating for approximately 25 years, designs, manufactures,
markets and services high throughput precision surface processing systems
in the Far East. The Company intends to continue to capitalize on the
opportunities and benefits provided by the Far East Joint Venture. The Far
East is a major market for equipment required by the thin film memory disk
media and semiconductor industries. In addition, because the Far East high
technology markets may adopt certain new technologies prior to the U.S.
markets, the Company may be able to take advantage of the expertise gained
by the Far East Joint Venture prior to the time those new technologies are
introduced into the U.S. markets. The Company believes that the Far East
Joint Venture's long-established presence in the Far East provides the
Company with a significant competitive advantage.
JOINT VENTURES
Since 1971, the Company has owned a 50% interest in the Far East Joint
Venture. The remaining 50% is owned by Obara Corporation, a privately-owned
Japanese company that supplies products to the automotive industry. Generally,
the Far East Joint Venture designs, produces and markets in the Far East
equipment similar to that produced by the Company in the U.S. Prior to 1971,
the Company marketed its products in Japan through Japanese trading companies;
however, the Company believed that the most effective method to further
penetrate the Japanese market was with a Japanese partner. See "Joint Venture
Arrangements--Far East Joint Venture." In 1984, the Company established the
Fujimi Joint Venture with Fujimi Incorporated, a Japanese manufacturer of
slurries. The Fujimi Joint Venture sells slurries manufactured by Fujimi
Incorporated, primarily to silicon wafer manufacturers and general industrial
manufacturers in North America. See "--Manufacturing and Suppliers" and "Joint
Venture Arrangements--Fujimi Joint Venture."
-29-
<PAGE>
PRODUCTS
SpeedFam's products include polishing, grinding and lapping equipment; pre-
deposition cleaning machines; other high precision surface processing systems;
and certain other products used in its customers' manufacturing process,
including slurries. During fiscal year 1995 and the nine months ended February
29, 1996, 54.5% and 75.0%, respectively, of the Company's total revenue
(including commissions) was attributable to the sale of capital equipment,
parts and expendables and 45.5% and 25.0%, respectively, of the Company's total
revenue was attributable to sales of slurries.
Applications
The areas indicated in the table below set forth the general categories of
processes and certain individual applications performed by products marketed by
SpeedFam:
SpeedFam offers equipment that performs specialized surface processing, such
as polishing, lapping, free abrasive machining and grinding. The Company's
polishing systems generally employ a flat rotating table, covered with a
polishing pad, one or more carriers to hold the parts being processed and
slurry. Processes similar to polishing include lapping (a process where no
polishing pad is used and the workpiece is pressed into the slurry, directly
onto a cast-iron lapping wheel) and free abrasive machining (a process similar
to lapping except that instead of using a cast iron wheel, a high alloy
hardened steel wheel is used). Lapping and free abrasive machining result in
higher removal rates than polishing but produce more coarse surface finishes.
Flat grinding is similar to lapping except that the abrasive particles are
contained within a fixed medium (grinding stones), rather than a liquid.
Grinding results in higher removal rates than lapping but produces a coarser
surface finish. Rotational speed, process type, pressure and the nature of the
chemicals and abrasives used are the primary variables considered in the
determination of the best process for a specific application. Polishing and
other surface treatment processes are typically followed by a cleaning process.
Thin film memory disk cleaning systems offered by SpeedFam incorporate
ultrasonics, PVA (polyvinyl alcohol) brush scrubbing, rinsing and drying in a
Class 1 cleanroom-compatible system.
Equipment
Thin Film Memory Disk Media. The Company sells polishing machines, pre-
deposition cleaning machines and grinding machines for producing aluminum,
nickel-plated and glass substrates for the thin film memory disk media market.
LOGO
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<PAGE>
The following chart describes the major steps in the typical thin film
memory disk media manufacturing process:
THIN FILM MEMORY DISK MEDIA MANUFACTURING PROCESS
MANUFACTURING PROCESS STEP APPLICABLE SPEEDFAM PRODUCTS
Stamp out aluminum blank
^^
Turn the outside and inside diameter
on a lathe to establish the proper
dimensions and shape
^^
Rough grind both sides for thickness
and approximate flatness
requirements
^^
Fine grind for final thickness,
flatness and surface finish
requirements
^^
Clean the disk
^^
Nickel plate the aluminum substrate
^^
Rough polish the plated surface
^^
Final polish the nickel plated
surface
^^
Texture the disk
^^
Clean disk in cleanroom environment
^^
Deposit the magnetic layers and
apply a protective carbon overcoat
^^
Burnish the carbon overcoat layer
^^
Inspect, certify and package the
disk
DSM 9B-5SSG; DSM 16B-5SSG; DSM 18B-5SSG; DSM 9B-14SSG
DSM 9B-51SSG; DSM 16B-51SSG;
DSM 18B-51SSG
MD-03; MD-05
DSM 9B-5P; DSM 16B-5P; DSM 18B-5P; DSM 9B-14P; AUTO 11.8B-5P
DSM 9B-5P; DSM 16B-5P; DSM 18B-5P; DSM 9B-14P; AUTO 11.8B-5P
MD-07; MD-07A
The Company's DSM line of machines is used in the manufacture of thin film
memory disk media for grinding the aluminum substrate as well as polishing
after deposition of the nickel plating. The DSM line of machines
simultaneously processes both sides of a disk substrate and is available in
various sizes. Typical U.S. selling prices for the DSM line range from $90,000
to $850,000.
The MD line of cleaning systems is used to clean the substrate at various
stages of the manufacturing process, including the critical cleaning
immediately prior to the deposition of the magnetic layers. Cleaning systems
distributed by the Company are produced by the Far East Joint Venture. Typical
U.S. selling prices for the MD line range from $200,000 to $900,000.
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<PAGE>
Semiconductor Wafers. The Company supplies chemical mechanical polishing,
double-sided lapping and, more recently, edge polishing systems to the
semiconductor substrates market.
The following chart describes the major steps in the typical silicon
semiconductor wafer manufacturing process:
SILICON SEMICONDUCTOR WAFER MANUFACTURING PROCESS
MANUFACTURING PROCESS STEP APPLICABLE SPEEDFAM PRODUCTS
Slice the single crystal silicon
ingot into wafers
^^
Bevel the wafer edge
^^
Etch the wafer in a chemical
solution to remove gross surface
damage
^^
Lap the wafer in a double-sided
machine to achieve the required
flatness and thickness
^^
In advanced applications, polish the
edges of the wafer
^^
Rough polish the face of the wafer
^^
Final polish the face of the wafer
^^
Clean and measure the flatness of
the wafer
^^
Inspect and package the wafer
DSM Auto 22B-5L; DSM 22B-5L; DSM
20B-5L; DSM 16B-5L
EP-150; EP-200-IV
Auto 59 SP Line; 59 SP; 50 SP; 50
SP-II; 48 SP
Auto 59 SP Line; 59 SP; 50 SP; 48 SP
The Company's DSM line of double-sided lapping systems is available in
multiple sizes and is used to create the initial flatness and thickness of the
silicon wafer after it is sliced from an ingot. The lapping process also
removes saw marks remaining after slicing and provides a surface finish
suitable for subsequent polishing processes. Typical U.S. selling prices for
the DSM line range from $300,000 to $1.5 million.
The Company began distributing the EP line of edge polishing systems during
fiscal 1995. Edge polishing is an emerging technology that is beginning to be
incorporated into high volume silicon wafer manufacturing. This technology was
introduced for the purpose of making the wafer's edge easier to clean, thereby
increasing semiconductor device manufacturing yields. The Far East Joint
Venture produces the EP line that is marketed and distributed by the Company.
Typical U.S. selling prices for the EP line range from $400,000 to $800,000.
The SP line utilizes a chemical mechanical polishing process to remove the
shallow damage layer remaining from previous process steps and to attain the
specified flatness and surface finish. A 50-inch model is manufactured by the
Company in the U.S. and a 59-inch model is manufactured by the Far East Joint
Venture. The 50-inch model typically sells in the U.S. for between
approximately $250,000 and $450,000. The 59-inch model typically sells in the
U.S. for between $700,000 and $1 million, but is also available as a fully
automated line integrating four 59-inch models, which can range up to $4.9
million.
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<PAGE>
Semiconductor Chemical Mechanical Polishing (CMP). The Company's CMP-V is a
five head, two polishing table CMP system capable of processing 40-45 wafers
per hour based on a two-minute polishing cycle. The Company's CMP process is
currently characterized for oxide and metal (tungsten) applications. The
system incorporates full cassette-to-cassette automation. Robotics remove the
wafers from the cassette and place them into the buffer tray. The wafers are
then staged for batch pickup by the polishing heads. Once secured by the
polishing heads, the wafers are moved onto the primary polishing pad and the
process is initiated. The polishing table, covered with a flat polishing pad,
rotates at a variable speed throughout the polishing cycle. Upon completion of
the initial polish, the wafers are transported either to a rinsing station or
to a second polishing table for an additional polishing or buffing step. The
wafers are then rinsed and placed into the output buffer tray, scrubbed on
both sides with a wet PVA sponge and placed wet into the output cassettes. The
system is self-enclosed, and has its own air filtration and air flow
management system. The CMP-V offers compatibility with all commonly used
slurry chemistries. Depending on specifications, the selling price of the CMP-
V in the U.S. ranges from $1.5 million to $2.0 million.
SPEEDFAM CMP-V PLANARIZATION SYSTEM
[DIAGRAM OF CMP-V HERE]
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<PAGE>
The Company intends to periodically develop and introduce enhanced versions
of the CMP-V system. The Company currently expects to introduce an enhanced
version of the CMP-V in the second half of fiscal 1997. The Company believes
that this enhanced version of the CMP-V will offer higher throughput than its
existing CMP-V by incorporating modifications in the control and automation
system in order to decrease the time interval between processes, thereby
increasing the number of wafers processed.
General Industrial. The Company offers a broad line of lapping, grinding and
polishing systems for the general industrial market. The line includes
approximately 35 models of single-side processing machines, double-side
processing machines, in-line grinding systems, optics polishing machines and
optics curve generating machines. The product offering is available in a wide
range of sizes from a 12 inch plate diameter up to a 150 inch plate diameter.
Each system typically consists of a specialized machining plate, a rotating
spindle, a means to fix and apply pressure to the workpieces, an abrasive
distribution system and a control system. U.S. selling prices of these systems
typically range from $20,000 to $700,000.
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<PAGE>
Parts and Expendables
The Company markets a broad line of parts and expendables. These products
include general spare parts, bearings, grinding stones, lapping plates,
workpiece carriers, seals, retaining rings, workholders and polishing pads.
These products are typically obtained from outside vendors and are generally
manufactured to the Company's specifications. The Company's parts and
expendables management system provides customer service representatives with
detailed product specifications and availability information. The Company
maintains spare parts inventories at three U.S. locations and two European
locations. The Company believes that its ability to quickly supply parts and
expendables is an important factor in its ability to provide customers with a
total solution.
Slurries
The Company offers a broad line of slurry and slurry components (including
vehicles and abrasives) used in surface treatment processes as part of a total
process solution. Polishing slurry consists of abrasive particles contained in
a liquid vehicle that may contain a suspension agent and may be chemically
active. The slurries marketed by the Company are used by manufacturers of thin
film memory disk media, semiconductor wafers and other products as part of
their polishing processes.
Substantially all of the slurries sold by the Company are manufactured by
Fujimi Incorporated. Typical U.S. selling prices of slurry offered by the
Company range from $500 to $2,000 per 55-gallon drum.
The Company has entered into a joint venture (the "Fujimi Joint Venture")
with Fujimi Incorporated to sell certain products in North and South American
markets, including slurry and slurry components. The Company distributes thin
film memory disk polishing slurry and related products supplied by Fujimi
Incorporated, while the Fujimi Joint Venture distributes other products
supplied by Fujimi Incorporated. To date, no material sales of products have
been made to South American markets by the Fujimi Joint Venture. See "Joint
Venture Arrangements--Fujimi Joint Venture."
The slurry for thin film memory disk media polishing applications is
available in different varieties to address the varying needs of each specific
process. Some formulations allow higher stock removal rates and others
emphasize surface finish results. There are also a variety of slurry
formulations available for silicon wafer processing. Slurry is an essential
process component in chemical mechanical polishing. The chemical action of
this process is implemented by designing the slurry to be chemically active
with the surface to be polished, typically by adjusting the pH of the slurry
vehicle. The mechanical portion of the process is accomplished by abrasive
particles in the slurry.
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<PAGE>
The table below sets forth certain slurry distributed by the Company, along
with typical market application:
SLURRY PRODUCTS
<TABLE>
<CAPTION>
TYPICAL TYPICAL MEAN
SLURRY SURFACE REMOVAL PARTICLE PARTICLE
PRODUCT APPLICATION FINISH(1) RATE(2) SIZE COMPOSITION
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MEMORY DISK SLURRY
- ------------------------------------------------------------------------------
MDS 401 Rough Polish 24A 2.10mm/min 1.3mm A12O3
- ------------------------------------------------------------------------------
Disklite 1312 Fine Polish 17A 0.98mm/min 0.8mm A12O3
- ------------------------------------------------------------------------------
Disklite 2008 Fine Polish 10A 0.56mm/min 0.8mm A12O3
- ------------------------------------------------------------------------------
RDD 5405 Very Fine Polish 6A 0.34mm/min .65mm A12O3
- ------------------------------------------------------------------------------
Compol 80 Very Fine Polish 5A 0.05mm/min .08mm SiO2
- ------------------------------------------------------------------------------
SILICON WAFER SLURRY
- ------------------------------------------------------------------------------
PWA 15 Lapping 4000A 17.5mm/min 10mm A12O3
- ------------------------------------------------------------------------------
FO-1200 Lapping 1800A 5.0mm/min .75mm A12O3,
ZrO/2/
- ------------------------------------------------------------------------------
Compol 50AD First Polish 5.5A 0.8mm/min .04mm SiO2
- ------------------------------------------------------------------------------
GLANZOX Second Polish 4.9A 0.5-1.0mm/min .02mm SiO2
SP-15
- ------------------------------------------------------------------------------
GLANZOX Final Polish 3.3A minimal .04mm SiO2
3900
</TABLE>
- --------
(1) Characterized by the roughness average, or "Ra," measured in angstroms.
(2) Removal rate can be influenced by a variety of factors, including pressure
and process temperature.
The Company believes that meeting the evolving slurry requirements of each
customer is vital to providing a total process solution. The Company intends
to continue to maintain an emphasis on slurry distribution and to work closely
with Fujimi Incorporated in developing, designing and formulating customized
slurries that address specific customer needs.
-36-
<PAGE>
CUSTOMERS
The Company sells its products to leading manufacturers of thin film memory
disks, semiconductor wafers, semiconductor devices and general industrial
applications. Certain of the Company's top customers in fiscal 1993, 1994,
1995 and the nine months ended February 29, 1996 in the thin film memory disk
media, semiconductor wafer, general industrial application, semiconductor CMP
and slurries markets are listed below.
<TABLE>
<CAPTION>
SEMICONDUCTOR GENERAL
THIN FILM WAFER INDUSTRIAL
MEMORY DISK MEDIA ---------------- APPLICATIONS
----------------- --------------
<S> <C> <C>
Akashic MEMC Coors Ceramics
HMT Siltec Hayward Quartz
IBM Sumitomo Sitix Motorola
Komag Wacker Siltronic Pilkington
Seagate
StorMedia
</TABLE>
<TABLE>
<CAPTION>
SEMICONDUCTOR CMP* SLURRIES
------------------ --------
<S> <C>
AMD Akashic
Digital Equipment HMT
Hewlett-Packard IBM
Mosel Vitelic Komag
Motorola Seagate
Rockwell
Siemens
</TABLE>
- --------
* Through February 29, 1996, the Company had shipped an aggregate of 17 CMP-V
systems to the seven customers listed.
One customer, Komag, accounted for 15.2%, 20.8%, 20.6% and 21.1% of the
Company's total revenue in fiscal years 1993, 1994, 1995 and the nine months
ended February 29, 1996, respectively. In addition, during fiscal 1994 and
1995, Akashic accounted for 10.1% and 10.9% of the Company's total revenue,
respectively, and, in fiscal 1994, Seagate accounted for 11.3% of the
Company's total revenue. The Company's ten largest customers accounted for
53.9%, 69.3%, 66.9% and 68.6% of the Company's total revenue in fiscal years
1993, 1994, 1995 and the nine months ended February 29, 1996, respectively.
SALES AND MARKETING
The Company markets and sells its products in North America through a
combination of direct sales personnel and distributors. The Company sells
directly to the thin film memory disk media and semiconductor industries and
uses a network of 19 regional distributors for its general industrial product
lines. In its European operations, the Company uses direct sales personnel and
a small number of distributors.
The Company's sales strategy emphasizes direct interaction with customers,
particularly in the memory disk and semiconductor industries, where ongoing
customer support and service are critical. The Company's direct sales force is
divided into focused units for each of the thin film memory disk media,
semiconductor wafer and semiconductor device industries.
At May 31, 1996, the U.S. direct sales organization had a total of 28 sales
personnel. The Company has sales offices in Chandler, Arizona and Des Plaines,
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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<PAGE>
by customers, university scientists and the Company's own senior
technologists. The Company believes these initiatives serve to promote
acceptance of the Company's products and process technologies in the thin film
memory disk, semiconductor and other industries.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing highly responsive service is an
essential factor in providing a total solution to its customers. In order to
provide customers with experienced service and support personnel, the Company
has structured its service operations into distinct service units responsible
for each of the thin film memory disk media, semiconductor wafer,
semiconductor device and general industrial products industries. Elements of
the Company's customer service and support program include system installation
and process certification, process support, machine repair, providing spare
parts inventories, internal training programs, external customer training,
documentation and formation of customer user groups. At May 31, 1996, the
Company had 83 service employees in the U.S. and Europe. For large users of
the Company's systems, the Company often creates a customized service
arrangement designed to meet the specific requirements of the customer.
The Company generally provides a one year warranty on all equipment it
sells. Field service personnel provide warranty service, post-warranty
service, and equipment installations. Field service engineers are located in
various locations throughout the U.S., including dedicated site-specific
engineers in place at certain customer locations pursuant to contractual
arrangements. The Company also provides service and maintenance training as
well as process application training for its customers' personnel. The Company
maintains an extensive inventory of spare parts at its primary locations and
at its satellite service sites. This provides the Company the ability to
provide same day or overnight delivery for many parts.
BACKLOG
Backlog of orders for capital equipment, parts, expendables and slurries
increased to approximately $67.8 million at February 29, 1996, from
approximately $38.2 million at February 28, 1995, as a result of an increase
in overall demand for the Company's products. Approximately $56.9 million, or
83.9% of the total backlog at February 29, 1996, is comprised of orders for
capital equipment. The Company's backlog does not include orders for capital
equipment or other products manufactured by the Far East Joint Venture and
distributed by the Company in the U.S. and Europe for which the Company
receives commissions. The time between the placing of orders and shipment of
parts, expendables and slurries is significantly less than for capital
equipment and as a result, the Company's backlog consists primarily of orders
for capital equipment. The Company includes in its backlog only those customer
orders for which it has accepted signed purchase orders with assigned delivery
dates within 12 months. Orders generally carry a stipulation that customers
may incur a penalty in the event of cancellation. However, there can be no
assurance that orders will not be cancelled by customers or that the Company
will obtain a meaningful penalty payment. As a result of systems and equipment
ordered and shipped in the same quarter, possible changes in delivery
schedules, occasional cancellation of orders and delays in product shipments,
the Company's backlog at any particular date may not be indicative of actual
sales for any succeeding period.
RESEARCH, DEVELOPMENT AND ENGINEERING
The markets in which the Company competes are characterized by evolving
industry standards and frequent improvements in products and service. To
compete effectively in its markets, the Company must continually improve its
products and its process technologies and develop new technologies and
products that compete effectively on the basis of price and performance and
that adequately address current and future customer requirements. The
Company's research, development and engineering expenditures during fiscal
1993, 1994, 1995 and the nine months ended February 29, 1996, were
approximately $1.8 million, $2.3 million, $2.7 million and $7.0 million,
respectively.
At May 31, 1996, the Company had an engineering staff of 41 employees and a
research and development staff of 36 employees. Because of the complex and
highly specialized design, testing and manufacturing requirements of the
Company, these employees must be experienced in a wide range of engineering
disciplines. The Company's philosophy is to maintain strong technical
expertise in each of its core competencies and to utilize consulting engineers
for non-critical portions of product development projects. The Company
believes that this approach provides flexibility and allows the Company to
shorten time to market for new products.
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<PAGE>
Product Development
Typically, the Company cultivates a "user-group" of current and potential
customers to act as technical advisors during the conceptualization of a new
product. The Company's CMP-V system was developed in a similar manner and its
development was assisted through technical collaboration with and sponsorship
by SEMATECH, Inc. and several SEMATECH, Inc. member companies that are leaders
in the use of CMP technology. From time to time, the Company also engages in
formal, funded joint development projects with customers from the
semiconductor and thin film memory disk industries as a means to enhance its
product development efforts. The Company is currently involved in several
development efforts aimed at enhancing the CMP-V system. The Company intends
to periodically develop and introduce enhanced versions of the CMP-V system.
The Company currently expects to introduce an enhanced version of the CMP-V in
the second half of fiscal 1997. The Company is also currently developing a
post-CMP cleaning system, which is presently expected to be introduced during
fiscal 1997. The Company is also developing new products and new product
enhancements for the semiconductor, thin film memory disk and silicon wafer
markets.
Process Development
In addition to product development, the Company continually seeks to enhance
existing processes. The Company maintains process development laboratories in
both the U.S. and Europe that are staffed with process engineers. The
Company's process engineers frequently work directly with customers'
engineers, often working within the customers' facilities. The Company is
developing new processing capability in the CMP area for additional film
layers such as polysilicon and copper, as well as developing end-point
detection metrology for the purpose of measuring the film thickness of oxide
layers. In addition, the Company continues to pursue the development of
enhanced processes for the thin film memory disk media, silicon wafer and
industrial component markets.
MANUFACTURING AND SUPPLIERS
The Company assembles its equipment and systems from components and
fabricated parts manufactured and supplied by others, including stainless
steel plates and gears, frames and weldments, power supplies, process
controllers, robots and polishing heads. Certain of the items manufactured by
others are made to the Company's specifications. All final assembly and system
tests are performed within the Company's manufacturing/assembly facilities.
Quality control is maintained through incoming inspection of components, in-
process inspection during equipment assembly and final inspection and
operation of all manufactured equipment prior to shipment. Substantially all
of the Company's non-CMP manufacturing is located in its Des Plaines, Illinois
facility. The Company's CMP-V development and manufacturing are located at the
Company's headquarters in Chandler, Arizona.
Certain of the components and sub-assemblies included in the Company's
products are obtained from a single supplier or limited group of suppliers.
The disruption or termination of these sources could have a material adverse
effect on the Company's operations. The Company is dependent upon Fujimi
Incorporated, a Japanese company, as the sole supplier of substantially all of
the slurries sold by the Company, consisting primarily of thin film memory
disk polishing slurry. Approximately 42.4%, 47.1%, 43.4% and 23.6% of the
Company's total revenue in fiscal 1993, 1994, 1995 and the nine months ended
February 29, 1996, respectively, was derived from the sale of slurries,
supplied by Fujimi Incorporated. Accordingly, any disruption in the supply
provided by Fujimi Incorporated or in the overall relationship between the
Company and Fujimi Incorporated would have a material adverse effect upon the
Company. The Company has the exclusive right to distribute Fujimi Incorporated
thin film memory disk polishing slurry in North America until October 1, 1999.
See "Joint Venture Arrangements--Fujimi Joint Venture."
COMPETITION
The Company competes in several distinct markets. These markets include the
thin film memory disk media equipment market, the semiconductor wafer
equipment market, the CMP equipment market, the general industrial
applications market, the slurries market and the related parts and expendables
market. In all markets, the Company competes on the basis of technology,
overall cost of ownership, product quality, price, availability, size of
installed base, breadth of product line and customer service and support.
-39-
<PAGE>
The Company faces substantial competition from both established competitors
and from potential new entrants, some of which have substantially greater
financial, engineering, manufacturing and marketing resources than the
Company. In each of the thin film memory disk and semiconductor wafer markets,
there are currently three principal providers of equipment, including the
Company, each of which holds a substantial position within the market. In the
CMP market, the Company faces significant competition from current competitors
and expects other competitors to enter this market in the future. IPEC
currently has the largest installed base of CMP equipment. The Company
believes that other companies are developing CMP machines and are planning to
introduce new products to the CMP market, including Applied Materials, a large
semiconductor capital equipment supplier with significant resources that could
present substantial competition for the Company. Certain competitors,
including IPEC and Applied Materials, have announced and may in the near
future begin volume shipments of multi-head CMP systems. In addition, certain
of the Company's competitors have longer-standing relationships than the
Company with particular customers, including device manufacturers. These
longer-standing relationships may make it more difficult for the Company to
sell its CMP system to such device manufacturers.
Competition in the general industrial products markets is fragmented; no one
competitor currently holds a dominant position. The slurries market presents
significant competitive pressure for the Company, particularly with regard to
pricing, resulting in decreased margins for the Company in recent periods. In
the thin film memory disk slurry market, the Company competes primarily with
Praxair, a large chemical company that manufactures and sells its own
products. In addition, the loss of the Company's distribution rights to slurry
and other products supplied by Fujimi Incorporated would have a material
adverse effect on the Company.
INTELLECTUAL PROPERTY
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 dispute or other intellectual property dispute or
action could have a material adverse effect on the Company's business. Adverse
determinations in any litigation relating to intellectual property could
possibly subject the Company to significant liabilities to third parties,
require the Company to seek licenses from third parties and prevent the
Company from manufacturing and selling one or more of its products. Any of
these events could have a material adverse effect on the Company.
SpeedFam, FAM, Spitfire, Rogers & Clarke and the SpeedFam logo are
registered trademarks of the Company.
PROPERTY
The Company currently owns or leases buildings containing a total of
approximately 130,000 square feet of space in the U.S. and Europe, including
approximately 79,000 square feet of factory/assembly area and approximately
51,000 square feet of corporate office space. The Company's U.S. operations
(the SpeedFam International, Inc. headquarters and the SpeedFam U.S.
subsidiary) account for approximately 119,000 square
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<PAGE>
feet of the total, of which approximately 42,000 square feet is owned and the
balance of approximately 77,000 square feet is leased. The Company maintains
locations in the United States in Chandler, Arizona, Des Plaines, Illinois,
Elk Grove Village, Illinois, Austin, Texas, Portland, Oregon and Fremont,
California. SpeedFam U.K. is located in Hinckley, England and it maintains
approximately 9,000 square feet of owned space. SpeedFam Germany leases
approximately 2,000 square feet of office space in Inglefingin, Germany.
The Company recently began construction of a new approximately 135,000
square-foot corporate headquarters and manufacturing facility on 13.5 acres of
land purchased by the Company. Full occupancy of the building is anticipated
in the fourth quarter of fiscal 1997. The Company believes that its
facilities, after the completion of the new facility, will be adequate to meet
its requirements for the foreseeable future and that suitable additional or
substitute space will be available as needed.
LEGAL PROCEEDINGS
The Company is not presently involved in any material legal proceedings.
The Company's wholly owned subsidiary, FamTec AG, incorporated under the
laws of Switzerland, engaged in the manufacture, sale and service of through-
feed grinding systems for the general industrial market. As a result of
declining sales, the Company decided to terminate Swiss operations and to seek
protection under the bankruptcy laws of Switzerland. A voluntary petition for
bankruptcy was filed with Swiss authorities in November, 1993. Subsequently,
creditors' claims were adjudicated and all Swiss assets liquidated. On July
27, 1995, the Bankruptcy Administrator paid out the liquidation proceeds to
creditors, and the bankruptcy matter was closed. Under the laws of
Switzerland, members of the Board of Directors of an entity have potential
personal liability for the debts of the bankrupt entity. Mr. Farley, Chairman
and Chief Executive Officer of the Company, was a director of FamTec AG.
Because no creditor filed within the ten-day period to reserve rights against
the directors of FamTec AG, no personal liability is expected to result.
EMPLOYEES
At May 31, 1996, the Company had 382 full time employees in the U.S. and
Europe, including 122 in manufacturing, 48 in marketing and sales, 83 in field
service, 41 in engineering, 36 in research and development and 52 in general
administration. In addition, the Company had 40 temporary contract employees
engaged principally in its assembly operations at its Chandler, Arizona and
Des Plaines, Illinois facilities. The Company believes that the use of
temporary employees allows the Company to respond more rapidly to fluctuations
in assembly and product demand and enables the Company to better control the
labor component of its manufacturing costs. None of the Company's employees is
represented by a labor union and the Company has never experienced a work
stoppage or strike. The Company considers its employee relations to be good.
JOINT VENTURE ARRANGEMENTS
FAR EAST JOINT VENTURE
SpeedFam Co., Ltd. (together with its subsidiaries and joint ventures, the
"Far East Joint Venture"), is headquartered in Kanagawa Prefecture, Japan.
Generally, the Far East Joint Venture designs, produces and markets in the Far
East equipment similar to that produced by the Company in the U.S. The Far
East Joint Venture conducts operations primarily in Japan but has subsidiaries
and branches located in China, Hong Kong, India, Korea, Singapore, Taiwan and
Thailand, and owns a majority interest in a Japanese subcontract manufacturing
organization, Saku Seiki Co. Ltd. ("Saku Seiki"). The Far East Joint Venture
operations in China, Hong Kong, Singapore, Korea and Thailand are primarily
marketing, sales and service functions. The subsidiaries in India and Taiwan
also include manufacturing facilities where certain of the equipment sold by
the subsidiaries is produced. Through a joint venture with Met-Coil Systems
Corporation (a U.S. company), the Far East Joint Venture manufactures and
markets in the Far East sheet metal forming equipment developed by Met-Coil
Systems Corporation.
Background. During the late 1960's, the Company marketed its products in
Japan through Japanese trading companies. At that time, the Company believed
that a presence in the Japanese market would enhance its competitive position
in the U.S. as well as provide additional sources of income and access to
technology. For numerous business and cultural reasons, the Company believed
it could most effectively penetrate the Japanese
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<PAGE>
market with the aid of a Japanese partner. In 1970 the Company entered into a
joint venture with a Japanese company, Obara Corporation ("Obara"), pursuant
to which the Far East Joint Venture was formed. The Company and Obara each own
a 50% interest in the Far East Joint Venture. Obara, a privately-owned
company, principally supplies welding guns and related products to the
automotive industry; its business is unrelated to that of the Company and the
Far East Joint Venture.
Terms of the Joint Venture Agreement. Pursuant to the terms of an agreement
between the Company and Obara dated November 14, 1970 (the "Joint Venture
Agreement"), the Far East Joint Venture will continue as long as SpeedFam Co.,
Ltd. is in corporate existence and both the Company and Obara are
shareholders. Both parties to the Joint Venture Agreement have agreed to
refrain from competing with the joint venture in Japan. The agreement may,
however, be terminated upon 90-days notification by either party in the event
of a substantial breach by the other party if such breach is not cured within
the 90-day period. In the event that either the Company or Obara desires to
sell its interest in the Far East Joint Venture, it must first offer its
interest to the other party, which then has 60 days to purchase the interest
at a price to be mutually agreed upon. If the interest is not purchased within
the 60-day period, the party desiring to sell its interest may sell it to a
third party free of the right of first offer provisions, provided that the
price is not less than the price initially offered by the other party.
Pursuant to the terms of a License and Technical Assistance Agreement
between the Company and SpeedFam Co., Ltd. dated November 14, 1970 (the
"Technology Agreement"), the Company licensed to the Far East Joint Venture
certain trademarks and technology, and granted to the Far East Joint Venture
the exclusive right to manufacture and sell in Japan, Korea, Taiwan, Hong
Kong, China, India, the Philippines, Thailand, Vietnam, Malaysia, Singapore
and Indonesia, and such other countries as the parties may agree to from time
to time, products similar to those manufactured and distributed by the
Company. In exchange for such rights, the Far East Joint Venture agreed to pay
to the Company a royalty of 4% of the total net sales of products sold by the
Far East Joint Venture that incorporate the technology. The Company also
agreed to provide technical assistance and to communicate to the Far East
Joint Venture all developments and improvements related to the technology. In
addition, the Far East Joint Venture agreed to communicate to the Company all
developments and improvements known to the Far East Joint Venture relating to
the technology, and the Company agreed to pay to the Far East Joint Venture a
2% royalty fee on machines sold by the Company that utilize certain of that
technology. The Technology Agreement continued for an initial term of ten
years and was renewable for subsequent ten year periods. By oral agreement in
1980, the Technology Agreement was extended and amended to reduce the
percentage of royalties to be paid by the Far East Joint Venture.
Notwithstanding the requirements of the Technology Agreement, although the Far
East Joint Venture had transferred technology to the Company, the Company and
the Far East Joint Venture agreed that no royalties would be paid by the
Company. By oral agreement in 1990, the Technology Agreement was extended for
a new ten-year period. By oral agreement in 1991, the Technology Agreement was
amended to eliminate the payment of royalties by either party. On July 24,
1995, the foregoing oral agreements were confirmed in writing. Unless
extended, the Technology Agreement will expire in November 2000.
Since the inception of the Far East Joint Venture, the Company and the Far
East Joint Venture have worked cooperatively on various research and
development projects and each entity has communicated significant technology
to the other. It is not anticipated that either the Company or the Far East
Joint Venture will pay royalties to the other in connection with the transfer
of technology in the foreseeable future, including with respect to the
Company's CMP technology.
Management. SpeedFam Co., Ltd. currently has eight directors serving on its
Board of Directors, including Messrs. Farley and Kouzuma, the Chairman and
President of the Company, respectively, as well as Hiroshi Obara, Suminori
Suzuki, Ryosuke Tojo, Shinya Iida, Hatsuyuki Arai and Isao Nagahashi. Mr.
Kouzuma is the Executive Vice President and General Manager of SpeedFam Co.,
Ltd. and is responsible for day to day operations and acts as the primary
liaison between the Company and Obara. Mr. Obara is the President of the Far
East Joint Venture. Mr. Suzuki, an employee of Obara, is the senior finance
officer of the Far East Joint Venture. Mr. Tojo is director of sales for the
silicon wafer market and also assists in the overall management of operations.
Mr. Iida is the chief technical officer and is responsible for all research,
development and engineering
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<PAGE>
operations. Messrs. Arai and Nagahashi are the directors of CMP and thin film
memory disk technology, respectively, and report to Mr. Iida. The Joint
Venture Agreement provides limited direction with respect to the relationship
between the joint venture partners and the operation and management of the Far
East Joint Venture. To date, decisions with respect to the strategic direction
of the Far East Joint Venture have been made by the Company and Obara from
time to time on the basis of informal discussions and the relationships forged
over time by the individuals. Business transactions between the Company and
the Far East Joint Venture, including those relating to the absence of payment
of royalties on transfers of certain technology, may not be consistent with
business decisions and results that would exist between two independent
entities dealing at arms-length.
Financial Information. During the Company's 1993, 1994 and 1995 fiscal years
and the nine months ended February 29, 1996, the Company's share of the net
earnings (loss) of the Far East Joint Venture was ($285,000), $450,000, $1.1
million and $3.4 million, respectively, representing (58.2%), 19.1%, 66.9% and
50.8%, respectively, of the Company's net earnings (loss). The Far East Joint
Venture has not paid significant dividends in the past and is expected to
retain substantially all of its earnings in the foreseeable future to support
the growth of its business. As a result, the Company's share of the net
earnings (loss) of the Far East Joint Venture has not in the past resulted and
is not expected in the future to result in a like effect on the cash flows of
the Company. During fiscal 1993, 1994, 1995 and the nine months ended February
29, 1996, 1.6%, 4.0%, 4.5% and 5.3% respectively, of the Company's total
revenue was attributable to commissions earned on products produced by the Far
East Joint Venture and which were sold by the Company. At February 29, 1996,
the Company's equity interest in the Far East Joint Venture was $16.7 million,
representing 17.1% of the Company's total assets and 30.7% of shareholders'
equity. Set forth below is certain selected financial information with respect
to the Far East Joint Venture which has been derived from consolidated
financial statements which have been audited by KPMG Peat Marwick LLP, with
the exception of the selected financial information as of and for the nine
months ended January 31, 1996, which is unaudited. Such information should be
read in conjunction with the consolidated financial statements and notes
thereto of the Far East Joint Venture appearing elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED APRIL 30, ENDED JANUARY 31,
------------------------- -----------------
1993 1994 1995 1996
------- ------- -------- -----------------
(in thousands)
Consolidated Statement of Earnings
Data:
<S> <C> <C> <C> <C>
Net sales......................... $75,747 $87,217 $108,664 $115,325
Gross profit...................... 21,509 23,812 31,576 37,861
Operating profit.................. 1,203 2,908 6,467 14,526
Net earnings (loss)(1)............ (460) 1,084 2,169 6,795
Consolidated Balance Sheet Data
(at period end):
Working capital................... $16,428 $18,377 $ 23,779 $ 22,617
Total assets...................... 76,335 86,869 110,813 113,330
Long-term debt, less current
portion........................... 10,800 12,387 12,528 8,305
Stockholders' equity.............. 23,746 26,641 34,215 33,408
</TABLE>
- --------
(1) Approximately one-half of such amount is recognized by the Company on the
equity method as "equity in net earnings (loss) of affiliates."
Products and Customers. Generally, the Far East Joint Venture designs,
produces and markets in the Far East equipment similar to that produced by the
Company in the U.S. The Far East Joint Venture's product mix is significantly
different than the Company's primarily because, as a percentage of sales, the
Far East Joint Venture sells substantially less slurry and slurry components
than the Company (Fujimi Incorporated sells slurries directly in the Far East)
and because of differences in the composition of the U.S. and Far East
markets. The Far East Joint Venture also designs, produces and markets edge
and flat polishing machines for the semiconductor wafer market and pre-
deposition cleaning machines for the thin film memory disk market and, more
recently, the flat panel display market. The Company distributes these
machines in the U.S. and Europe. The Far East Joint Venture also markets parts
and expendables and, to a much lesser degree than the Company, slurries
(primarily to thin film memory disk and silicon wafer manufacturers).
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<PAGE>
The Far East Joint Venture has developed and is currently manufacturing and
marketing a two head CMP system. The rate of adoption of the CMP process in
the fabrication of memory devices, which are predominately the type of
semiconductor devices manufactured in the Far East, has been historically
lower than that for advanced logic devices, which are widely manufactured in
the U.S. Accordingly, the marketing of the CMP system manufactured by the Far
East Joint Venture is substantially dependent on the rate of adoption of the
CMP process by the memory device manufacturing industry in the Far East
market.
The Far East Joint Venture's products are sold to semiconductor wafer
(primarily silicon), thin film memory disk and general industrial (primarily
quartz, ceramic and LCD glass) manufacturers. Major end user customers of the
Far East Joint Venture include: NSC Electron Corporation (silicon wafer
manufacturer), Nippon Light Metal Co. Ltd. (aluminum thin film memory disk
substrate manufacturer), Siltron Inc. (silicon wafer manufacturer), Toshiba
Ceramics Co., Ltd. (silicon wafer manufacturer) and Kobe Precision Technology
(thin film memory disk manufacturer). During the Far East Joint Venture's
fiscal years 1993, 1994, 1995 and nine months ended January 31, 1996, sales to
certain customers through Fujimi Incorporated, acting as a distributor,
accounted for approximately 15%, 7%, 11% and 12% of net sales, respectively.
Competition. The Far East Joint Venture competes in several distinct markets
including the semiconductor substrate equipment market, the thin film memory
disk equipment market and the general industrial equipment applications market
(primarily quartz, ceramic and LCD glass) and the slurries market. The Far
East Joint Venture competes on the basis of technology, overall cost of
ownership, product quality, price, availability, size of installed base,
breadth of product line and customer service and support. The Far East Joint
Venture faces intense competition from established competitors, some of which
have substantially greater financial, engineering, manufacturing and marketing
resources. In the equipment markets served, the Far East Joint Venture
generally competes with a relatively small number of competitors which,
together with the Far East Joint Venture, provide a substantial majority of
the products sold into those markets. In the slurries market, Fujimi
Incorporated is the provider of substantially all of the slurries sold by the
Far East Joint Venture. Fujimi Incorporated also sells directly to end users
and is a dominant supplier and distributor of slurries in the Far East region.
Sales, Marketing and Service. The Far East Joint Venture markets and sells
its products through a combination of Japanese trading companies and direct
sales personnel. As is customary in Japan, the Far East Joint Venture sells a
substantial portion of the products sold in Japan through trading companies,
although the Far East Joint Venture sales personnel have primary
responsibility for most aspects of the sale. The Far East Joint Venture
maintains a field service organization consisting of 42 persons based in the
major locations where the Far East Joint Venture maintains a presence, such as
Japan, India Korea, Singapore Taiwan and Thailand.
Research, Development and Manufacturing. The Far East Joint Venture
maintains a research and development staff of 56 persons. Research and
development efforts are focused on enhancing existing products as well as
developing new products and generally cover a broader range of products and
technologies than the Company's research and development efforts. The Company
and the Far East Joint Venture have in the past collaborated on various
projects and are expected to do so in the future.
The Far East Joint Venture or manufacturing subcontractors retained by the
Far East Joint Venture typically manufacture equipment and systems from
components and fabricated parts manufactured and supplied by others. Certain
of the items manufactured by others are made to the Company's specifications.
A portion of the products sold by the Far East Joint Venture are manufactured
by the Far East Joint Venture's majority owned subsidiary, Saku Seiki, and a
substantial portion are manufactured by unaffiliated third party
subcontractors for the Far East Joint Venture.
Employees. At May 1, 1996, the Far East Joint Venture had 394 full-time
employees, including 318 in Japan, 4 in Thailand, 12 in Korea, 32 in Taiwan,
17 in India, 8 in Singapore, 1 in Shanghai and 2 in Hong Kong. Of these
employees, 70 are engaged in manufacturing, 66 in marketing and sales, 42 in
field service, 53 in engineering, 56 in research and development, 47 in
management and 60 in clerical and general administration.
Certain Relationships. The Company acts as distributor in North America and
Europe of certain machines produced by the Far East Joint Venture. During
fiscal 1995 and the nine months ended February 29, 1996, commissions paid to
the Company relating to such distribution amounted to approximately $2.8
million and $4.0
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<PAGE>
million, respectively. Further, the Company purchases certain components used
in its machines from the Far East Joint Venture. During fiscal 1995 and the
nine months ended February 29, 1996, purchases of components from the Far East
Joint Venture totaled approximately $3.0 million and $2.4 million,
respectively.
Messrs. Farley and Kouzuma receive certain amounts from the Far East Joint
Venture consisting of directors' fees and bonuses, as well as dividends on
their individual holdings of stock in certain of SpeedFam Co., Ltd.'s
subsidiaries. During the Far East Joint Venture's fiscal year ended April 30,
1995, Messrs. Farley and Kouzuma received an aggregate of approximately
(Yen)15.3 million ($156,600) and (Yen)32.9 million, ($336,800), respectively
(based upon the yen/dollar exchange rate on dates of payment). During the Far
East Joint Venture's fiscal year ended April 30, 1996, Mr. Kouzuma received an
aggregate of approximately (Yen)39,240,000 million ($399,587) (based upon the
yen/dollar exchange rate on dates of payment). Pursuant to Mr. Farley's
employment agreement with the Company, all amounts payable to Mr. Farley from
the Far East Joint Venture since the date of his employment agreement and
through April 30, 1996, totaling approximately $85,000, were directed to the
Company. Prior to entering into his employment agreement with the Company and
for the fiscal year ended April 30, 1996, Mr. Farley received an aggregate of
approximately $44,000 from the Far East Joint Venture (based upon the
yen/dollar exchange rate on dates of payment).
Both Messrs. Farley and Kouzuma serve as directors of SpeedFam Co., Ltd. In
addition, both serve as directors of SpeedFam Clean Systems Co. Ltd., a
majority owned subsidiary of SpeedFam Co., Ltd. Mr. Kouzuma also serves as
President of SpeedFam Clean Systems Co. Ltd. In addition, each of Messrs.
Farley and Kouzuma own 5% of the outstanding capital stock of SpeedFam Clean
Systems Co., Ltd. Messrs. Farley and Kouzuma also serve as directors of Met-
Coil Limited, SpeedFam Co. Ltd.'s 50%-owned joint venture. Mr. Kouzuma owns
10.62% of the outstanding capital stock of Saku Seiki, a majority owned
subsidiary of SpeedFam Co., Ltd., and serves as a director of Saku Seiki.
Messrs. Farley and Kouzuma also serve as directors of several wholly owned
subsidiaries of SpeedFam Co. Ltd., namely SpeedFam Korea Limited, SpeedFam
Incorporated in Taiwan and SpeedFam India (Pvt.) Ltd.
FUJIMI JOINT VENTURE
Pursuant to a joint venture agreement dated September 7, 1984, the Company
and Fujimi Incorporated formed Fuijimi Corporation, an Illinois corporation
(the "Fujimi Joint Venture"). Each of Fuijimi Incorporated and the Company
owns 50% of the Fujimi Joint Venture's common stock. Fujimi Incorporated, a
publicly traded company in Japan, is a manufacturer of slurry, abrasives and
compounds in Japan. The initial term of the joint venture agreement was for a
period of five years, but the agreement continues in effect until such time as
either party terminates upon written notice delivered to the other party upon
one-year notice. The agreement may also be terminated upon 60-days
notification by either party in the event of a breach by the other party if
such breach is not cured within 60 days.
The Fujimi Joint Venture was organized to sell Fujimi Incorporated products
in North and South America. The Fujimi Joint Venture distributes abrasives,
polishing pads, diamond wheels and other products to the semiconductor wafer
and general industrial markets. Notwithstanding the written terms of the joint
venture agreement, the Company, through SpeedFam U.S., has distributed a
variety of products, primarily slurry, to manufacturers of thin film memory
disks. The Company has the exclusive right to distribute Fujimi Incorporated
memory disk polishing slurry in North America until October 1, 1999. Revenue
from sales of products by the Fujimi Joint Venture were $10.2 million in
fiscal 1993, $12.3 million in fiscal 1994, $15.8 million in fiscal 1995 and
$13.8 million in the nine months ended February 29, 1996. For a description of
other business relationships between the Company and Fujimi Incorporated, see
"Business--Manufacturing and Suppliers." The Fujimi Joint Venture imports the
products it sells and purchases such products in non-U.S. dollar denominated
transactions. This business is subject to both foreign exchange rate
fluctuations and has recently experienced increased competition which drives
down selling prices, the result of which is lower gross margins for the Fujimi
Joint Venture.
The Fujimi Joint Venture currently has six directors serving on its Board of
Directors, including Mr. Farley, Chairman of the Company, Mr. Kouzuma,
President of the Company, and Mr. Augur, President of SpeedFam U.S. The other
three directors, Messrs. Isamu Koshiyama, Shoji Azuma and Sadao Nakamura are
representatives of Fujimi Incorporated. Day to day management of the Fujimi
Joint Venture is under the control of its president, Mr. Donald R. Hixson. The
Fujimi Joint Venture employs four full-time sales personnel.
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<PAGE>
MANAGEMENT
The executive officers, key employees and directors of SpeedFam
International, Inc. and their ages as of June 1, 1996 are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS,
KEY EMPLOYEES
AND DIRECTORS AGE POSITION WITH THE COMPANY
- ------------------- --- -------------------------
<S> <C> <C>
James N. Farley (1) 67 Chairman, Chief Executive Officer and Director
Makoto Kouzuma (1) 56 President, Chief Operating Officer and Director
Roger K. Marach (1) 50 Treasurer, Chief Financial Officer and Assistant Secretary
Christopher E. Augur (1) 36 President of SpeedFam Corporation
Robert R. Smith (1) 53 Managing Director of SpeedFam Limited
Mukesh Desai 42 Vice President of SpeedFam Corporation--Director of Technology
of Semiconductor Group
Mark A. Hredzak 38 Vice President of SpeedFam Corporation--General Manager of
Electronics Equipment Group
Ellis E. Ponton 34 Vice President of SpeedFam Corporation--General Manager of
Semiconductor Group
Philbin L. Scott 37 General Manager of Consumable Products Group
for SpeedFam Corporation
Byron L. Sheets 41 Vice President of SpeedFam Corporation--General Manager of
Industrial Applications Group
Neil R. Bonke 54 Director-elect
Thomas J. McCook (2) (3) 72 Director
Dr. Stuart Meyer (2) (3) 59 Director
Robert M. Miller (2) 69 Director
Carl S. Pedersen (3) 82 Director
</TABLE>
- --------
(1) Messrs. Farley, Kouzuma, Marach, Augur and Smith are executive officers of
SpeedFam International, Inc.
(2) Member of Compensation Committee
(3) Member of Audit Committee
Mr. Farley has been a director of SpeedFam International, Inc. since 1961.
He was appointed Chairman and Chief Executive Officer by the Board of
Directors in 1993. Mr. Farley had been President of SpeedFam International,
Inc. from 1967 to 1993. Prior to that, he was Vice President of Sales and had
served as Business Manager since joining SpeedFam International, Inc. in 1960.
Mr. Farley was instrumental in developing the organization and is presently
responsible for developing and directing the future strategy of SpeedFam
International, Inc. Mr. Farley also serves on the board of two privately-held
companies. He holds a BSEE from Northwestern University.
Mr. Kouzuma has been a director of SpeedFam International, Inc. since 1982.
He was appointed President of SpeedFam International, Inc. in 1993. He was
Executive Vice President of SpeedFam International, Inc. and had the
additional post of President of SpeedFam Corporation from 1990 to 1993. He is
also Executive Vice President and General Manager of the Far East Joint
Venture. He has been responsible for the day to day operations of the Far East
Joint Venture since its founding in 1971. Mr. Kouzuma joined SpeedFam
International, Inc. in 1969 to open a Japanese liaison office. He graduated as
an Electrical Engineer from Chuo University in Tokyo, Japan. Mr. Kouzuma is a
resident of Japan.
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<PAGE>
Mr. Marach joined SpeedFam International, Inc. in 1988 as Chief Financial
Officer and was elected Treasurer in 1989. Prior to joining SpeedFam
International, Inc., Mr. Marach was the Assistant Treasurer of Ingersoll
International, Inc., a capital equipment manufacturer, for eight years and
previously worked for five years in auditing and treasury operations for G.D.
Searle & Co., a major pharmaceutical company. He has a BS in Economics
(Accounting) from the Illinois Institute of Technology, and a Masters in
Management (Finance) from Northwestern University.
Mr. Augur was named President of SpeedFam Corporation in April 1993. He was
the Executive Vice President from June 1992 to March 1993. From 1991 to 1992,
Mr. Augur served as the General Manager of the Electronic Equipment Group of
SpeedFam Corporation. He joined SpeedFam International, Inc. in 1982 and
assisted in establishing its Arizona operations. Prior to joining SpeedFam
International, Inc., Mr. Augur worked for Motorola in the semiconductor
products sector. He has a BS in Computer Systems Engineering from Arizona
State University and a Masters of Business Administration from the University
of Phoenix.
Mr. Smith was appointed Managing Director of SpeedFam Limited in 1974. Mr.
Smith was hired to organize SpeedFam Limited in 1974 and has been responsible
for its day to day operations since that time as well as for SpeedFam
International, Inc.'s other European subsidiary, SpeedFam GmbH. Mr. Smith has
a National Certificate in Mechanical Engineering from Lancaster Polytechnicon
in England.
Mr. Desai was appointed Vice President of SpeedFam Corporation in June 1995.
He joined SpeedFam Corporation as Director of Technology of the Semiconductor
Group in February 1994. He has extensive experience in CMP planarization
technology and worked in the CMP area at IBM from 1984 to 1994. From May, 1993
to February, 1994, Mr. Desai served as an IBM assignee at SEMATECH, Inc. and
acted as Project Leader on CMP research and development. He is currently
responsible for directing the Company's CMP development. He holds a BS in
Chemistry from Bombay University, Bombay, India, and a Masters of Science in
Chemistry from Polytechnic University, Brooklyn, New York.
Mr. Hredzak was appointed Vice President of SpeedFam Corporation in June
1995. Since 1993, he has been General Manager of the Electronics Equipment
Group. The Group previously served both the silicon wafer and the thin film
memory disk industries. As of June 1996, the Electronics Equipment Group
serves the thin film memory disk industry. From 1990 to 1993, Mr. Hredzak was
the sales manager for SpeedFam Corporation Cleaning Equipment Group. Mr.
Hredzak started with SpeedFam Corporation in 1988 in the sales department of
the Electronics Equipment Group. Mr. Hredzak received a BS in Metallurgical
and Materials Engineering from the University of Kentucky.
Mr. Ponton was appointed Vice President of SpeedFam Corporation in June
1995. Since 1993, he has been General Manager of the Semiconductor Group,
which focuses entirely on CMP and the semiconductor device industry. He was
the Assistant General Manager for the Electronics Equipment Group from 1992 to
1993, and its sales manager from 1988 to 1992. Mr. Ponton started with
SpeedFam Corporation in 1986 as a sales engineer and was promoted to sales
manager in 1988. Mr. Ponton has a BS in Geology and Mathematics from Ball
State University.
Mr. Scott was appointed General Manager of the Consumable Products Group of
SpeedFam Corporation in June 1995 and is responsible for slurry and slurry
component sales. He joined SpeedFam Corporation in May 1992 as the products
manager of disk slurry products. From 1988 to 1992, Mr. Scott worked at the
McDonnell Douglas Helicopter Company where he served as a Manufacturing
Research Engineer, Industrial Engineer and Manager of Production Scheduling.
He has a BA in Biology from UNC-Charlotte, a Masters of Environmental Science
from Miami University and a Masters of Science in Engineering from Arizona
State University.
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<PAGE>
Mr. Sheets was appointed Vice President of SpeedFam Corporation in June
1995. Since 1993, he has been General Manager of the Industrial Applications
Group, which services the broad industrial applications market. He was the
sales manager for the Industrial Applications Group from 1990 to 1993. Mr.
Sheets was hired in 1990 when Spitfire Tool and Machine Company ("Spitfire")
was acquired by SpeedFam Corporation from General Signal Corp. Mr. Sheets
worked for Spitfire from 1979 to 1990.
In May 1996, the Board of Directors appointed Mr. Bonke to fill a vacancy on
the Company's Board, effective at the time Mr. Bonke attends his first Board
of Directors meeting. Mr. Bonke has not yet attended a regular Board meeting.
Mr. Bonke has been Chairman of the Board of Electroglas, Inc. since April
1993, and its Chief Executive Officer from April 1993 through April 1996.
Electroglas, Inc., a public company, is subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. Mr. Bonke was a Group Vice
President of General Signal and President of General Signal's Semiconductor
Equipment Operations from September 1991 to July 1993.
Mr. McCook has been a director of SpeedFam International, Inc. since 1979.
He is currently serving as Vice Chairman of the Economic Development Council
of Cape Coral, Florida and was formerly Vice President of Stewart-Warner, an
automotive parts manufacturer.
Dr. Meyer has been a director of SpeedFam International, Inc. since 1982. He
has been an Associate Professor of Management and Strategy at the Kellogg
Graduate School of Management, Northwestern University since 1977.
Mr. Miller has been a director of SpeedFam International, Inc. since 1990.
He is currently Chairman of Okuma Technology Institute in Charlotte, North
Carolina. The Okuma Technology Institute is dedicated to machine tool and
cutting tool research and development. Since 1985, Mr. Miller has been
President of ITMC Inc., a marketing consulting firm providing service to
capital equipment manufacturers.
Mr. Pedersen has been a director of SpeedFam International, Inc. since 1979.
Since 1988, he has been Chairman Emeritus of Luther & Pedersen, a capital
equipment distributor in Aurora, Illinois. He previously served as Chairman of
Luther & Pedersen.
BOARD OF DIRECTORS
The Board of Directors currently consists of six persons. The Company's non-
employee directors each receive an annual retainer of $2,500, plus a fee of
$500 for each Board meeting and Committee meeting they attend. All directors
are reimbursed for expenses incurred in connection with attending Board and
Committee meetings.
On July 27, 1995 a Compensation Committee was appointed consisting of
Messrs. McCook, Meyer and Miller, and an Audit Committee was appointed
consisting of Messrs. McCook, Meyer and Pedersen. The duties of the
Compensation Committee are to provide a general review of the Company's
compensation and benefit plans to ensure that they meet corporate objectives.
The Compensation Committee (i) determines compensation for all officers of the
Company, (ii) grants awards to officers under the Company's compensation and
benefit plans and (iii) adopts major Company compensation policies and
practices. The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors and reviews the independence
of such auditors, approves the scope of the annual audit activities of the
independent auditors, approves the audit fees payable to the independent
auditors and reviews audit results.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation and Bylaws provide for
indemnification by the Company of its directors, officers, employees and
agents to the fullest extent permitted by law for expenses, judgments,
penalties, fines and amounts paid in settlement in connection with any
pending, threatened or completed action, suit or proceeding (other than by the
Company), to which any such person was made a party by reason of the fact that
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<PAGE>
he or she was acting in such capacity for the Company or was serving as such
for another corporation or enterprise at the Company's request, if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to a criminal
proceeding, had no reasonable cause to believe such conduct was unlawful. In
actions by the Company, such indemnification will be limited to expenses.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company. The Company is not aware
of any threatened litigation or proceeding which may result in a claim for
indemnification.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation awarded or paid by the Company to
the Chief Executive Officer and the four executive officers (the "Named
Executive Officers") of the Company during the fiscal years ended May 31, 1995
and 1996:
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) (# SHARES) COMPENSATION(2)
------------------ ------ -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
James N. Farley(3)
Chairman and Chief 1996 $252,120 $100,000 $13,754 0 $2,097
Executive Officer...... 1995 303,748 258,267 13,754 0 900
Makoto Kouzuma(3)
President and Chief Op- 1996 $166,859 $140,000 -- 46,796 $1,800
erating Officer........ 1995 254,823 117,906 -- 22,000 900
Roger K. Marach
Treasurer and Chief Fi- 1996 $144,200 $ 92,500 $ 6,838 31,198 $1,337
nancial Officer........ 1995 118,844 47,000 31,168 19,040 900
Christopher E. Augur
President of SpeedFam 1996 $139,327 $ 90,000 $ 6,838 28,078 $1,005
Corporation............ 1995 117,974 45,000 7,524 19,040 900
Robert R. Smith
Managing Director-- 1996 $141,883 $ 41,292 $18,118 12,479 --
SpeedFam Limited....... 1995 137,164 37,752 18,772 9,520 --
</TABLE>
- --------
(1) Represents auto allowances and, for Mr. Marach in fiscal 1995, relocation
expenses of $24,330.
(2) Consists of the Company's matching contribution to the Company's 401(k)
Plan and, for fiscal 1996 only, payments of life insurance premiums.
(3) Messrs. Farley and Kouzuma received an aggregate of approximately $156,600
and $336,800, respectively, from the Far East Joint Venture during the Far
East Joint Venture's fiscal year ended April 30, 1995. During the Far East
First Venture's fiscal year ended April 30, 1996, Mr. Kouzuma received an
aggregate of approximately $399,587 from the Far East Joint Venture and,
prior to entering into his employment agreement with the Company, Mr.
Farley received an aggregate of approximately $44,000 from the Far East
Joint Venture (based upon the yen/dollar exchange rate on dates of
payment). See "Joint Venture Arrangements--Far East Joint Venture--Certain
Relationships."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with James N. Farley as
Chairman of the Board of Directors and Chief Executive Officer, Makoto Kouzuma
as President and Chief Operating Officer and Roger K. Marach as Chief
Financial Officer and Treasurer; SpeedFam U.S. has entered into an employment
agreement with Christopher E. Augur as President; and SpeedFam U.K. has
entered into an employment agreement with
-49-
<PAGE>
Robert R. Smith, as Managing Director of SpeedFam Limited (collectively, the
"Employment Agreements"). The Employment Agreements, each dated September
1995, have an initial term of one year and may be terminated only for cause.
The Employment Agreements set salaries, provide for bonuses at the
discretion of the Compensation Committee of the Board of Directors, grant car
allowances, and entitle the employee to participate in and receive the
benefits of any and all pension, profit sharing, health, disability and
insurance plans which the respective company may maintain. Salaries for each
of Messrs. Farley, Kouzuma, Marach, Augur and Smith have been set by their
respective Employment Agreement at an annual amount of $250,000, $100,000,
$145,000, $140,000 and (Pounds)91,254 (approximately $147,000) (based on
pound/dollar exchange rate on May 31, 1995), respectively. Mr. Farley has
agreed to pay to the Company all compensation received from the Far East Joint
Venture. Mr. Kouzuma has agreed to limit his compensation from the Far East
Joint Venture to (Yen)32,240,000, (approximately $383,000) (based on
yen/dollar exchange rate on May 31, 1995).
In the event of sickness or disability which renders the employee unable to
perform his duties, the respective company may, at its option, cease to pay
compensation to the employee other than premiums on group health, disability
and life insurance plans until the employee is able to reassume his duties.
The Employment Agreements provide that upon the termination of the employee,
the employee agrees not to disclose trade secrets of the respective company,
agrees that for a period of one year any inventions relating to the respective
company's business will be the property of the respective company, and the
employee further agrees not to compete against the respective company for a
period of one year.
Messrs. Farley, Kouzuma, Marach, Augur and Smith have also separately
entered into severance agreements with the Company which provide for a
severance payment to the employee of 2.5 times the employee's Base Annual
Salary (as defined in the severance agreements) in the event of (a) a
voluntary or involuntary termination within a certain period following a
change in control, or (b) an involuntary termination (defined to mean a
termination other than for cause, or by reason of death or disability, or a
voluntary resignation) outside of a change in control period. As provided in
the agreements, the employee is entitled to the severance payment if a change
of control occurs resulting from a tender offer, exchange offer, merger,
consolidation or other business combination (each a "transaction") such that
(i) any person, other than James N. Farley or his affiliates, becomes the
beneficial owner of more than 50% of the combined voting power of the
outstanding securities of the Company; (ii) the directors of the Company,
prior to such transaction, cease to constitute a majority of the directors
following the transaction; (iii) the shareholders of the Company, prior to
such transaction, own, in the aggregate, less than 70% of the outstanding
voting securities of the surviving entity in the case of a merger or
consolidation; (iv) more than 50% of the voting securities of the Company are
transferred as a result of a tender offer or exchange offer; or (v) the
Company transfers substantially all of its assets to another corporation of
which the Company owns less than 50% of the outstanding voting securities.
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended May 31, 1996 to each of the Named Executive Officers. Mr.
Farley, Chairman and Chief Executive Officer, has not been granted any stock
options. No stock appreciation rights were granted during such year to any of
the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
-------------------------------------------------------- -----------------------------
PERCENT OF
NUMBER OF SECURITIES TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EXERCISE
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR(2) ($/SH)(3) DATE 5% 10%
- ---- -------------------- -------------- --------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Makoto Kouzuma.......... 46,796 14% $20.50 5/31/06 $603,310 $1,415,805
Roger K. Marach......... 31,198 10% $20.50 5/31/06 402,215 943,890
Christopher E. Augur.... 28,078 9% $20.50 5/31/06 361,991 849,495
Robert R. Smith......... 12,479 4% $20.50 5/31/06 160,884 377,550
</TABLE>
-50-
<PAGE>
- --------
(1) Options become exercisable over a five-year period with 20% vesting
annually beginning May 31, 1997. The term of the options is ten years.
(2) Based on an aggregate of 325,976 options granted to employees in fiscal
1996 including the Named Executive Officers.
(3) The exercise price per share of each option was equal to 100% of the fair
market value of the Common Stock on the date of grant as determined by the
Board of Directors.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the stock price on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and the option
is exercised and sold on the last day of its term for the appreciated
stock price. No gain to the optionee is possible unless the stock price
increases over the option term.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option/Values
The following table sets forth the number and value of the unexercised
options held by each of the Named Executive Officers at May 31, 1996. Mr.
Farley, Chairman and Chief Executive Officer, has not been granted any stock
options.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ --------------- ------------------
<S> <C> <C> <C> <C>
Makoto Kouzuma.......... 0 0 72,640/93,856 $1,161,806/691,804
Roger K. Marach......... 11,000 139,748 44,808/75,830 722,429/676,490
Christopher E. Augur.... 0 0 39,608/72,710 636,926/676,490
Robert R. Smith......... 20,000 251,360 30,304/44,095 491,114/491,165
</TABLE>
- --------
(1) Value is based on the difference between the stock option exercise price
and the closing price on May 31, 1996 of $20.50, multiplied by the number
of shares of Common Stock underlying the stock options. No market existed
for the Common Stock prior to this offering.
1995 PURCHASE PLAN
The Company's 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan")is
designed to provide employees of the Company and its Designated Subsidiaries
(as defined in the 1995 Purchase Plan) with an opportunity to purchase Common
Stock of the Company.
A summary of the principal features of the 1995 Purchase Plan follows.
Term. The 1995 Purchase Plan became effective on October 6, 1995 and will
continue in effect for a term of 20 years unless terminated earlier pursuant
to the provisions of the 1995 Purchase Plan.
Administration. The 1995 Purchase Plan is administered by the Board of
Directors or a committee of members of the Board appointed by the Board.
Participation. Only employees may participate in the 1995 Purchase Plan. For
this purpose, an "employee" is any person, including an officer, who is
regularly employed at least 20 hours per week and more than five months per
calendar year by the Company or one of its Designated Subsidiaries. No
employee shall be permitted to subscribe for shares under the 1995 Purchase
Plan if, immediately after the grant of the option, the employee would own 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any subsidiary (including stock issuable upon exercise of
options held by him or her), nor shall
-51-
<PAGE>
any employee be granted an option that would permit him or her to buy more
than $25,000 worth of stock (determined at the fair market value of the shares
at the time the option is granted) under the 1995 Purchase Plan in any
calendar year. At May 31, 1996 there were 382 employees eligible to
participate in the 1995 Purchase Plan.
Type of Awards. On the first day of an offering period, each eligible
employee participating in the 1995 Purchase Plan will be granted an option to
purchase (at the per share option price) up to a certain number of shares of
Common Stock. There will generally be one offering under the 1995 Purchase
Plan during each six month period. The first offering period commenced on
October 6, 1995 and was terminated on December 31, 1995. Subsequent offering
periods have been and are currently intended to be January 1 through June 30
and July 1 through December 31 and continue until the 1995 Purchase Plan is
terminated. The Board of Directors of the Company, or any committee designated
by the Board of Directors to administer the 1995 Purchase Plan will have the
power to change the duration of future offering periods with respect to future
offerings without shareholder approval if the change is announced at least
fifteen days prior to the first offering period to be affected.
Shares Available. The maximum number of shares of Common Stock originally
available for sale under the plan was 500,000 shares. In the event of any
changes in the capitalization of the Company effected without receipt of
consideration by the Company, such as stock splits, reverse stock splits or
stock dividends, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of outstanding shares of Common
Stock, proportionate adjustments will be made by the Company in the shares
subject to purchase and in the price per share.
Stock Options. The per share option price of shares sold in an offering
under the 1995 Purchase Plan will be the lower of (i) 85% of the fair market
value of a share of Common Stock of the Company on the first day of an
offering period or (ii) 85% of the fair market value of a share of Common
Stock on the last day of an offering period. The fair market value of a share
of Common Stock on a given date shall be the closing price as reported in The
Wall Street Journal or, if not so reported, the fair market value shall be
determined pursuant to the provisions of the 1995 Purchase Plan. The 1995
Purchase Plan provides that the purchase price of such shares of Common Stock
during the offering period shall not exceed 15% of total compensation during
such offering period. Funds received upon sales of Common Stock under the 1995
Purchase Plan will be used for general corporate purposes. The option for the
purchase of shares available to each participant in the 1995 Purchase Plan
will be exercised automatically on the last day of an offering period, and the
maximum number of shares will be purchased for such participant subject to
payment in full by the participant for such shares within 30 days. An eligible
employee who is a participant in the 1995 Purchase Plan may terminate his or
her interest in a given offering by signing and delivering to the Company a
notice of withdrawal from the 1995 Purchase Plan at least fifteen days prior
the last day of the offering period. Termination of a participant's employment
for any reason, including retirement or death, cancels his or her
participation in the 1995 Purchase Plan immediately.
Adjustments. The Board of Directors may make provision for adjusting the
number of shares of Common Stock reserved, as well as the price per share of
Common Stock covered by each outstanding option, in the event that the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation. In the event of the proposed liquidation or dissolution of the
Company, the offering period will cease and an employee's participation in the
1995 Purchase Plan will be terminated immediately before consummation of such
proposed event unless otherwise provided by the Board of Directors. In the
event of a sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the employee's
rights may be satisfied by assumption of the Company's obligations by such
acquiring or successor corporation unless the Board of Directors determines
that the employee will have the right to exercise the option as to all of the
optioned stock, including shares as to which the option would not otherwise be
exercisable. If the Board of Directors makes an option fully exercisable in
lieu of assumption or substitution in such event, the employee's option will
be fully exercisable for fifteen days from the date of notice by the Board of
Directors, after which the employee's rights under the 1995 Purchase Plan
shall terminate.
-52-
<PAGE>
Termination and Amendment. The Board of Directors may at any time amend or
terminate the 1995 Purchase Plan, except that no such termination may affect
options previously granted and no amendment may make any change in any option
granted prior to such time which adversely affects the rights of any
participant in the 1995 Purchase Plan. Under the 1995 Purchase Plan, an
amendment to increase the number of shares reserved for issuance requires the
prior approval of the shareholders of the Company.
1995 STOCK PLAN
The 1995 Stock Plan for Employees and Directors of the Company (the "1995
Stock Plan") is designed to enhance the long-term profitability and
shareholder value of the Company by offering stock-based incentives to those
individuals who are key to the growth and success of the Company, to attract
and retain executives and directors with experience and ability on a basis
competitive with industry practice and to encourage executives and directors
to acquire and maintain stock ownership in the Company. At May 31, 1996,
options and rights to acquire 8,000 shares of Common Stock under the 1995
Stock Plan were outstanding.
A summary of the principal features of the 1995 Stock Plan follows.
Term. The 1995 Stock Plan became effective as of July 27, 1995 and has no
fixed expiration date.
Administration. The 1995 Stock Plan is administered by the Compensation
Committee of the Board of Directors (the "Compensation Committee") which has
the exclusive authority to make awards under the 1995 Stock Plan and all
interpretations and determinations affecting the 1995 Stock Plan. No
Compensation Committee member will be eligible to participate in the 1995
Stock Plan or may be awarded equity securities of the Company pursuant to the
1995 Stock Plan or any other plan of the Company during the year prior to
Compensation Committee service unless the 1995 Stock Plan or any other such
plan and the award under the 1995 Stock Plan or any other such plan comply
with the applicable requirements of Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The 1995
Stock Plan and the grant of stock options to the directors pursuant to the
1995 Stock Plan have been structured to comply with the applicable
requirements of Rule 16b-3 and may only be amended to the extent permitted by
Rule 16b-3.
Participation. Participation in the 1995 Stock Plan is limited to key
officers and other employees of the Company and any of its subsidiaries
("Employees") and any member of the Board of Directors of the Company who is
not then an Employee or beneficial owner, either directly or indirectly, of
more than 10% of the Common Stock ("Eligible Director"), who are selected from
time to time by the Compensation Committee. Employees who are participants in
the 1995 Stock Plan are also eligible to participate in any other incentive
plan of the Company. Eligible Directors are eligible to receive automatic
grants of non-qualified stock options pursuant to the provisions of the 1995
Stock Plan.
Type of Awards. Awards under the 1995 Stock Plan may be in the form of stock
options (including incentive stock options ("ISOs") which meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and in particular with all such requirements which apply to
employees owning 10% or more of the total combined voting power of all classes
of stock of the Company), restricted shares and restricted units. Stock
Appreciation Rights ("SARs") may be awarded by the Compensation Committee in
connection with any option granted under the Plan, either at the time the
option is granted or thereafter at any time prior to the exercise, termination
or expiration of the option ("tandem right"), or separately ("freestanding
right"). Awards will be granted for no cash consideration or for such minimal
cash consideration as may be required by applicable law. However, the exercise
price per share of Common Stock purchasable under any ISO and the option price
of any SAR accompanying an ISO will not be less than 100% of the fair market
value of a share of Common Stock on the date of grant of the ISO or SAR
accompanying an ISO.
Shares Available. No more than 1,000,000 shares of Common Stock may be
issued under the 1995 Stock Plan (subject to adjustment as described below for
stock splits, stock dividends, recapitalizations, mergers and other events as
described in the 1995 Stock Plan). Generally, any shares of Common Stock which
cease to be
-53-
<PAGE>
subject to purchase under a granted option, or any forfeited restricted shares
or restricted units, will become available for subsequent awards under the
1995 Stock Plan.
Stock Options. The term of all options granted to Employees under the 1995
Stock Plan will be fixed by the Compensation Committee; however, the term of
ISOs may not exceed ten years from the grant date. The exercise price for any
shares of Common Stock purchasable under an option granted to Employees will
be determined by the Compensation Committee subject to adjustment as described
below. The exercise price for any shares purchasable under an ISO will not be
less than 100% of the fair market value of a share of Common Stock on the date
the ISO is granted. Each option granted to an Employee will become exercisable
as determined by the Compensation Committee, provided the Compensation
Committee may, in its discretion, accelerate the exercisability of any option,
in whole or in part, at any time. The terms of non-qualified stock options
granted to Eligible Directors, the exercise price for shares purchasable under
such options and the date such options become exercisable are determined
pursuant to the formula provision of the 1995 Stock Plan which can only be
amended to the extent permitted by Rule 16b-3. However, each option granted
either to an Employee or Eligible Director will become exercisable in full at
the earliest of the death, Eligible Retirement (as defined in the 1995 Stock
Plan) or Total Disability (as defined in the 1995 Stock Plan) of the option
holder or a Change in Control (as defined in the 1995 Stock Plan) of the
Company. Each option shall be exercisable in full or in part, subject to
certain requirements in the 1995 Stock Plan, by payment of the exercise price
in cash or already owned shares for the number of shares of Common Stock to be
purchased.
Stock Appreciation Rights. The Compensation Committee may grant SARs in
connection with any option granted under the 1995 Stock Plan, either as a
tandem right or a freestanding right. Each tandem right is subject to the same
terms and conditions as the related options. The exercise price of SARs
granted under the 1995 Stock Plan will be determined by the Compensation
Committee; however, the exercise price of each SAR granted in connection with
an ISO will not be less than 100% of the fair market value of a share of
Common Stock on the date the ISO is granted. Upon exercise of an SAR, the
holder will be entitled to receive the excess of the fair market value of a
share of Common Stock over the total exercise price for a share of Common
Stock, payable in cash (unless otherwise determined by the Compensation
Committee).
SARs may be granted to Employees deemed officers for purposes of Section 16
of the Exchange Act. SARs granted to such officers may not be transferred or
disposed of within six months from the date of grant or within six months of
the date the exercise price is fixed. SARs granted to such officers generally
may be exercised only during the ten business days beginning on the third
business day following announcement of the Company's quarterly earnings.
Restricted Shares. The Compensation Committee may make awards of shares of
Common Stock on such terms, conditions and restrictions as it determines. The
holder of such shares will generally have the rights of shareholders subject
to the provisions of the 1995 Stock Plan. The Compensation Committee may at
any time, in its sole discretion, waive the terms and conditions and/or
shorten the restricted period established for any award. All restrictions with
respect to a restricted share award will lapse upon the earliest to occur of
the death, Eligible Retirement or Total Disability of the holder or a Change
in Control of the Company. Except as set forth elsewhere in this summary and
in the 1995 Stock Plan, all restricted shares and all rights with respect to
such restricted shares will be forfeited by reason of termination of
employment. None of the shares subject to a restricted share award may be
sold, transferred, assigned or pledged until they are delivered to the holder
of the share award.
Restricted Units. The Compensation Committee is authorized to grant and to
determine the terms, conditions and restrictions of any restricted unit
awards. No shares of Common Stock will be issued at the time the award is made
and the Company will not be required to set aside funds for the payment of any
such award. The Compensation Committee may at any time, in its sole
discretion, waive the terms and conditions and/or shorten the restricted
period established for any award. All restrictions with respect to a
restricted unit award will lapse upon the earliest to occur of the death,
Eligible Retirement or Total Disability of the holder or a Change in Control
of the Company. Restricted unit awards may be paid in cash or shares or any
combination thereof.
-54-
<PAGE>
Adjustments. The Compensation Committee may, at any time, in the event of
any stock dividend, stock split, recapitalization, merger, consolidation or
other change in the capitalization of the Company or similar corporate
transaction or event affecting the Common Stock, in such manner as it deems
equitable, adjust, among other things, (i) the limitation of 1,000,000 shares
that may be issued under the 1995 Stock Plan; (ii) the number and class of
shares that may be subject to stock options, restricted shares or restricted
units that have not been issued; (iii) the exercise price to be paid for
unexercised stock options; and (iv) the share value used to determine the
amount or value of any award under the 1995 Stock Plan.
Termination and Amendment. The Board of Directors may suspend, terminate,
modify or amend the 1995 Stock Plan at any time, but if any such amendment
requires shareholder approval in order to meet the requirements of the then
applicable rules under Section 16(b) of the Exchange Act, such amendment may
not be effected without obtaining shareholder approval. The Board of Directors
may terminate the 1995 Stock Plan, but the terms of the 1995 Stock Plan will
continue to apply to awards granted prior to such termination. No suspension,
termination, modification or amendment of the 1995 Stock Plan may adversely
affect the rights of an Employee or Eligible Director under previously granted
awards.
1991 STOCK PLAN
The 1991 Employee Incentive Stock Option Plan, as amended (the "1991 Stock
Plan") is designed to reward valued employees of the Company by granting
incentive stock options to those individuals who are key to the growth and
success of the Company. Directors who are not employees are not eligible to
participate in the 1991 Stock Plan.
A summary of the principal features of the 1991 Stock Plan follows.
Term. The 1991 Stock Plan expires on May 31, 2001.
Administration. The 1991 Stock Plan is administered by the Compensation
Committee of the Board of Directors (the "Compensation Committee") which has
the exclusive authority to make awards under the 1991 Stock Plan and all
interpretations and determinations affecting the 1991 Stock Plan. No member of
the Compensation Committee will be eligible to participate in the 1991 Stock
Plan.
Participation. Participation in the 1991 Stock Plan is available only to
persons who are employees of the Company or of any of its subsidiaries (as
defined in Section 425 of the Code) ("Employees"). No person may be granted an
option under the 1991 Stock Plan who is the beneficial owner, either directly
or indirectly, of more than 10% of the Common Stock of the Company at the time
the option is granted, except as provided in the 1991 Stock Plan. The
Compensation Committee of the Board of Directors of the Company will determine
the employees to be granted options under the 1991 Stock Plan, the number of
shares of Common Stock subject to each option, and the period and terms and
conditions of each option in accordance with the provisions of the 1991 Stock
Plan.
Shares Available. No more than 1,500,000 shares of Common Stock may be
issued and sold pursuant to options granted under the 1991 Stock Plan (subject
to adjustment for stock splits, stock dividends, recapitalizations, mergers or
consolidations). At May 31, 1996, options to acquire 1,260,068 shares of
Common Stock under the 1991 Stock Plan were outstanding.
Stock Options. Awards under the 1991 Stock Plan will be in the form of
incentive stock options ("ISOs") which meet the requirements of Section 422 of
the Code and in particular with all such requirements which apply to employees
owning 10% or more of the total combined voting power of all classes of stock
of the Company. The term of all options granted to Employees under the 1991
Stock Plan will be fixed by the Compensation Committee, however, the term of
ISOs may not exceed 10 years from the grant date, unless the Employee to whom
the option is granted owns, at the time the option is granted, more than 10%
of the total combined voting power of all classes of stock of the Company,
then the term of such option may not exceed five years from the
-55-
<PAGE>
grant date. The exercise price for any shares purchasable under an ISO will be
determined by the Compensation Committee but will not be less than 100% of the
fair market value of the shares of Common Stock on the date the ISO is
granted. Each option granted to an Employee will become exercisable as
determined by the Compensation Committee provided the Compensation Committee
may, in its discretion, accelerate the exercisability of any option, in whole
or in part, at any time.
Restrictions. The aggregate fair market value of the Common Stock
(determined at the time the option is granted) with respect to which ISO's are
exercisable for the first time by an Employee during any calendar year may not
exceed $100,000. The Compensation Committee may make awards of shares of
Common Stock on such terms, conditions and restrictions as it determines. Any
option granted to an officer of the Company, or the shares of Common Stock
into which any such option is exercised, may not be transferred or disposed of
within six months from the date of grant. Except as set forth elsewhere in
this summary and in the 1991 Stock Plan, all shares of Common Stock and all
rights with respect to such shares of Common Stock will be forfeited by reason
of termination of employment. The right to purchase shares of Common Stock
under an option granted under the 1991 Stock Plan may not be sold,
transferred, assigned, pledged or otherwise disposed of, except that any
options granted to an Employee may be transferred upon the death of such
Employee.
Termination and Amendment. The Board of Directors may suspend, terminate,
modify or amend the 1991 Stock Plan at any time, but if any such amendment
requires shareholder approval in order to meet the requirements of the then
applicable rules under Section 16(b) of the Exchange Act, such amendment may
not be effected without obtaining shareholder approval. Without the approval
of shareholders, no amendment may be made to the 1991 Stock Plan which
increases the number of shares of Common Stock which may be purchased (except
with respect to certain recapitalizations), changes the purchase price or
extends the period during which the shares of Common Stock may be purchased
under any option. The Board of Directors may amend the 1991 Stock Plan at any
time and without shareholder approval to the extent necessary to cause ISOs
granted under the 1991 Stock Plan to meet the requirements of Section 422A of
the Code.
CERTAIN TRANSACTIONS
CERTAIN RELATIONSHIPS RELATED TO THE FAR EAST JOINT VENTURE
For a description of certain relationships between the Company and the Far
East Joint Venture and Messrs. Farley and Kouzuma and the Far East Joint
Venture, see "Joint Venture Arrangements--Far East Joint Venture--Certain
Relationships."
-56-
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of May 31,
1996, and as adjusted to reflect the sale of the Common Stock being offered
hereby (assuming no exercise of the Underwriters' over-allotment option) by
(i) each shareholder who is known by the Company to own beneficially more than
5% of the Common Stock, (ii) each of the Company's directors, (iii) each Named
Executive Officer, (iv) all directors and executive officers of the Company as
a group, and (v) each Selling Shareholder. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
----------------------- -----------------------
NAME AND ADDRESS NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ---------------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
James N. Farley(1)(2)... 2,562,525 23.8% 400,860 2,161,665 17.9%
Nancy Jo Farley(1)(3)... 1,110,850 10.3 50,000 1,060,850 8.8
Makoto Kouzuma(1)(4).... 835,420 7.8 70,000 765,420 6.3
SpeedFam Employees
Profit Sharing
Trust(1)(5)............. 351,380 3.3 50,000 301,380 2.5
Roger K. Marach(6)...... 70,808 * 15,000 55,808 *
Christopher E. Augur.... 54,608 * 25,000 29,608 *
Robert R. Smith(7)...... 172,124 1.6 20,000 152,124 1.3
Neil R. Bonke........... 0 * -- 0 *
Tom McCook.............. 66,380 * 16,380 50,000 *
Dr. Stuart Meyer........ 76,380 * 8,380 68,000 *
Robert M. Miller........ 18,380 * 4,000 14,380 *
Carl S. Pedersen(8)..... 70,380 * 380 70,000 *
All directors and
executive officers as a
group
(10 persons)........... 3,927,005 36.5% 560,000 3,367,005 27.8%
</TABLE>
- --------
*Less than one percent.
(1) The business address of Messrs. Farley and Kouzuma, Mrs. Farley and the
SpeedFam Employees Profit Sharing Trust is 7406 West Detroit, Chandler,
Arizona 85226.
(2) All shares beneficially owned by Mr. Farley are held in the James N.
Farley Trust, of which Mr. Farley acts as sole trustee. Excludes (i)
shares beneficially owned by Nancy Jo Farley (Mr. Farley's spouse), (ii)
an aggregate of 1,635,825 shares beneficially owned by Mr. Farley's adult
children, (iii) 762,780 shares held in the Makoto Kouzuma Trust, a
revocable trust, of which Mr. Farley serves as co-trustee, and (iv)
351,380 shares owned by the SpeedFam Employees Profit Sharing Trust, of
which Mr. Farley acts as co-trustee. Mr. Farley disclaims beneficial
ownership of all shares referred to (i) through (iv) above.
(3) Of such shares, 727,400 are held in the Nancy Jo Farley Trust, a revocable
trust. Charles A. Kelly, Secretary of the Company, acts as co-trustee of
such trust with Mr. Farley (the spouse of Nancy Jo Farley). Pursuant to
the trust agreement, Mr. Kelly has sole voting and dispositive power over
shares held in the trust. The Nancy Jo Farley Trust may be voluntarily
terminated by Mrs. Farley at any time. Includes 346,770 shares of Common
Stock over which Mrs. Farley has sole voting and dispositive power as
Custodian for nine minor grandchildren. Also includes 36,680 shares of
Common Stock over which Mrs. Farley has sole voting and dispositive power
as sole trustee of the James C. Farley Irrevocable Trust. Mrs. Farley
disclaims beneficial ownership as to such shares. Excludes shares
beneficially owned by Mr. Farley and an aggregate of 1,635,825 shares
beneficially owned by Mrs. Farley's adult children, as to all of which
Mrs. Farley disclaims beneficial ownership.
(4) Of such shares, 762,780 are held in the Makoto Kouzuma Trust, a revocable
trust. Mr. Kelly and Mr. Farley act as co-trustees of such trust and share
voting and dispositive power over shares held in the trust. The Makoto
Kouzuma Trust may be voluntarily terminated by Mr. Kouzuma at any time.
The remaining 72,640 shares are subject to issuance to Mr. Kouzuma upon
the exercise of certain stock options.
(5) Messrs. Farley, Marach and Kelly act as co-trustees of the Plan and share
voting and dispositive power over shares held by the Plan.
(6) Excludes 351,380 shares owned by the SpeedFam Employees Profit Sharing
Trust of which Mr. Marach serves as co-trustee. Mr. Marach disclaims
beneficial ownership of such shares.
(7) Includes 50,000 shares beneficially owned by Mr. Smith's spouse.
(8) Of such shares, 62,000 are held in the Pedersen Family Limited
Partnership, of which Pedersen Holdings, Inc. is sole general partner and
Mr. Pedersen serves as sole limited partner. Mr. Pedersen serves as
President of Pedersen Holdings, Inc. and own 33% of its outstanding stock.
The remaining 8,380 shares are subject to issuance to Mr. Pedersen upon
the exercise of certain stock options.
-57-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 1,000,000 shares of
Preferred Stock, none of which has been issued, and 20,000,000 shares of
Common Stock, of which 10,514,868 were currently issued and outstanding as of
May 31, 1996.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the shareholders generally, including the election of
directors. Subject to the rights of holders of any Preferred Stock
outstanding, holders of Common Stock are entitled to receive such dividends as
are declared by the Board of Directors out of funds legally available
therefor, and in the event of liquidation, dissolution or winding upon of the
Company, the holders of Common Stock are entitled to share ratably in any
assets remaining after payment of the Company's liabilities. Holders of Common
Stock do not have preemptive or other subscription rights. The Common Stock
currently outstanding is, and the shares of Common Stock offered by the
Company hereby will be, when issued, validly issued, fully paid and non-
assessable.
Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin, is the registrar and
transfer agent for the Common Stock.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series,
and the Board of Directors, without further approval of the shareholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, special series voting rights and
sinking fund provisions applicable to each such series of Preferred Stock. If
the Company issues a series of Preferred Stock in the future that has special
voting rights or preferences over the Common Stock with respect to the payment
of dividends or upon the Company's liquidation, dissolution or winding up, the
rights of the holders of the Common Stock may be adversely affected. The
issuance of shares of Preferred Stock could be utilized, under certain
circumstances, in an attempt to prevent an acquisition of the Company and may
adversely affect the voting and other rights of the holders of Common Stock.
ANTI-TAKEOVER STATUTES
Section 7.85 of the Illinois Business Corporation Act of 1983 (the "BCA")
provides that business combinations between an Illinois corporation with a
class of securities registered under the Exchange Act or a corporation which
elects to be subject to Section 7.85 and the beneficial holder of 10% or more
of the voting power of such corporation generally require (i) the approval of
80% of the votes of each class of stock entitled to vote and (ii) the
affirmative vote of at least a majority of the votes of each class of stock
entitled to be cast held by persons other than the 10% owner. Such
requirements will not apply if the transaction is approved by 2/3 of the
disinterested directors (generally defined as a director not affiliated or
associated with the 10% owner), the price to be paid to the shareholders of
the corporation is generally the higher of the fair market value (as defined
in the statute) or the price per share paid by the 10% owner in acquiring its
shares, and certain other conditions relating to the absence of dividend
defaults, the receipt of special benefits by the 10% owner and the provision
of specified information about the transaction to the corporation's public
shareholders, are satisfied.
Section 11.75 of the BCA provides that a corporation shall not engage in any
business combination with any interested shareholder (generally defined as the
beneficial owner of 15% or more of the outstanding voting shares of the
company) for a period of three years following the date that such shareholder
became an interested shareholder, unless (a) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder, or (b) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the
-58-
<PAGE>
transaction commenced (excluding for purposes of determining the number of
shares outstanding those shares owned (i) by persons who are directors and
also officers and (ii) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer), or (c) on or
subsequent to such date the business combination is approved by the board of
directors and authorized at an annual or special meeting of shareholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested shareholder.
Section 8.85 of the BCA permits directors and officers of an Illinois
corporation to consider the interests of constituencies other than the
corporation's shareholders when exercising their duties, including in the
consideration of a transaction which could result in a change of control of
the Company.
The Company is automatically subject to Section 8.85 and, as of the closing
date of the offering, will become subject to Section 7.85 and, depending on
the final distribution of the shares offered hereby and certain shareholder
residency requirements with the State of Illinois, Section 11.75.
-59-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding an
aggregate of 12,567,008 shares of Common Stock. Of these shares, 5,937,500
shares, including the 2,660,000 shares sold in the offering, will be freely
tradeable without restriction or further registration under the Securities
Act, except for any shares purchased by "affiliates" of the Company as that
term is defined under the Securities Act.
The remaining 6,629,508 shares held by existing shareholders of the Company
are "restricted" securities within the meaning of Rule 144 under the
Securities Act and are eligible for sale pursuant to the provisions of Rule
144 subject to the expiration of the lock-up agreements described below. Of
such shares, 1,923,945 shares of Common Stock have been held for more than
three years by shareholders who are not affiliates of the Company and are
eligible for sale in the public market in reliance on Rule 144(k) under the
Securities Act.
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated), including an affiliate, may
sell an amount of restricted securities which were last purchased from the
issuer or an affiliate of the issuer a minimum of two years prior to such
sale, such that, within any three-month period, such person's sales do not
exceed the greater of 1% of the then outstanding shares of the Company's
Common Stock (125,670 shares immediately after this offering), or the average
weekly trading volume in the Common Stock in the Nasdaq National Market during
the four calendar weeks preceding the date on which notice of such sale is
filed under Rule 144(h) of the Securities Act, or if no such notice is
required, the date of receipt of the order to execute the transaction. In
addition, under Rule 144(k), a shareholder who is not deemed an affiliate, and
has not been an affiliate for at least three months prior to the sale, is
entitled to sell restricted securities which were last purchased from the
issuer or an affiliate of the issuer a minimum of at least three years prior
to such sale without complying with the foregoing requirements. In calculating
the two and three year holding periods described above, a holder of restricted
securities can include the holding period of a prior owner who was not an
affiliate.
Certain stockholders of the Company have agreed pursuant to certain
agreements with the Underwriters (the "Lock-up Agreements") that they will
not, without the prior written consent of Lehman Brothers Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them (including any shares issuable upon the exercise of
stock options), or any security convertible or exchangeable for Common Stock,
for a period of 90 days after the date of the Prospectus. See "Underwriting."
As of May 31, 1996, options to purchase a total of 1,268,068 shares of
Common Stock were outstanding, of which options to purchase a total of 347,364
shares were immediately exercisable. Of such shares immediately exercisable,
244,880 shares are subject to Lock-Up Agreements. An additional 1,104,264
shares of Common Stock will be available for future stock option grants under
the Company's stock option plans.
-60-
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions in, the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc., Alex. Brown & Sons Incorporated and Needham &
Company, Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders,
and the Company and the Selling Shareholders have agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Lehman Brothers Inc. ....................................
Alex. Brown & Sons Incorporated..........................
Needham & Company, Inc...................................
---------
Total.................................................. 2,660,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to certain conditions, and that
if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all the shares of Common
Stock agreed to be purchased by the Underwriters must be so purchased.
The Company and the Selling Shareholders have been advised that the
Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain selected dealers (who may include the Underwriters)
at such public offering price less a selling concession not in excess of $
per share. The selected dealers may reallow a concession not in excess of
$ per share to certain brokers and dealers. After the initial public
offering, the public offering price, the concession to selected dealers and
the reallowance may be changed by the Underwriters.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 399,000 shares of Common Stock, exercisable solely to cover over-
allotments, at the offering price to the public less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
Certain holders of shares of Common Stock of the Company, owning an
aggregate of 6,205,320 shares, have agreed that they will not, subject to
certain limited exceptions, directly or indirectly, offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares for a period of 90 days after
the effective date of the offering without either the prior written consent of
Lehman Brothers Inc. Lehman Brothers Inc. reserves the right to release any or
all of such shareholders from their obligations under such lock-up agreements
at any time without notice. Any such release would increase the number of
shares available for sale into the public market, which could have a material
adverse effect on the price of the Common Stock. In addition, the Company has
agreed that it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable for such shares without the
prior written consent of Lehman Brothers Inc. for 90 days after the effective
date of the offering.
-61-
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Chapman and Cutler, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison, San Diego, California. Mr. Charles A. Kelly, a partner of Chapman
and Cutler, serves as Secretary of the Company and owns 60,000 shares of the
Company's Common Stock. In addition, Mr. Kelly has sole voting and dispositive
power over 727,400 shares of Common Stock held in the Nancy Jo Farley Trust, a
revocable trust, of which he serves as co-trustee. Mr. Kelly also shares
voting and dispositive power over 762,780 shares of Common Stock held in the
Makoto Kouzuma Trust, a revocable trust, of which he serves as co-trustee and
over 351,380 shares of Common Stock held in the SpeedFam Employees Profit
Sharing Trust, of which he serves as co-trustee. Mr. David S. Crossett, also a
partner of Chapman and Cutler, owns 500 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements and schedules of the Company and the
consolidated financial statements of the Far East Joint Venture included in
this Prospectus and elsewhere in the Registration Statement have been audited
by KPMG Peat Marwick LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
A Registration Statement (which term shall include any amendments thereto)
on Form S-1, relating to the Common Stock offered hereby has been filed by the
Company with the Commission. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement and the exhibits and schedules thereto which constitute a part of
the Registration Statement may be inspected by anyone without charge at the
offices of the Commission described above. Copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission.
The Company intends to furnish to its shareholders annual reports containing
consolidated financial statements audited by its independent accountants and
quarterly reports containing unaudited consolidated financial information.
Certain statements in this Registration Statement, including without
limitation certain of those contained in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Industry Background, --The SpeedFam CMP Solution, and --SpeedFam
Strategy," constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
-62-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
<S> <C>
ANNUAL
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets--at the end of fiscal years 1994 and 1995..... F-3
Consolidated Statements of Earnings--for the fiscal years 1993, 1994 and
1995..................................................................... F-4
Consolidated Statements of Shareholders' Equity--for the fiscal years
1993, 1994 and 1995...................................................... F-5
Consolidated Statements of Cash Flows--for the fiscal years 1993, 1994 and
1995..................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
INTERIM
Condensed Consolidated Balance Sheets--at May 31, 1995 and February 29,
1996 (unaudited)......................................................... F-21
Condensed Consolidated Statements of Earnings--for the nine months ended
February 28, 1995 and February 29, 1996 (unaudited)...................... F-22
Condensed Consolidated Statements of Cash Flows--for the nine months ended
February 28, 1995 and February 29, 1996 (unaudited)...................... F-23
Notes to Condensed Consolidated Financial Statements (unaudited).......... F-24
SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES
ANNUAL
Independent Auditors' Report.............................................. F-26
Consolidated Balance Sheets--at the end of fiscal years 1994 and 1995..... F-27
Consolidated Statements of Earnings--for the fiscal years 1993, 1994 and
1995..................................................................... F-28
Consolidated Statements of Shareholders' Equity--for the fiscal years
1993, 1994 and 1995...................................................... F-29
Consolidated Statements of Cash Flows--for the fiscal years 1993, 1994 and
1995..................................................................... F-30
Notes to Consolidated Financial Statements................................ F-31
</TABLE>
The above consolidated financial statements of SpeedFam Co., Ltd. and
consolidated subsidiaries are included in this prospectus pursuant to Rule 3-
09 of Regulation S-X.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
SpeedFam International, Inc.:
We have audited the accompanying consolidated balance sheets of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1994 and 1995,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1995.
These consolidated financial statements are the responsibility of the
management of SpeedFam International, Inc. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended May 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 5 to the consolidated financial statements, the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," were
adopted in fiscal year 1994.
KPMG PEAT MARWICK LLP
July 18, 1995, except as to note 15, which is as of July 27, 1995
Chicago, Illinois
F-2
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT THE END OF FISCAL YEARS 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
----------------
ASSETS 1994 1995
------ ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 809 $ 1,095
Trade accounts and notes receivable, less allowance for
doubtful accounts of $192 and $187 in 1994 and 1995,
respectively.............................................. 14,506 16,971
Inventories................................................ 10,728 17,995
Income taxes receivable.................................... 265 --
Deferred income taxes...................................... 95 147
Prepaid expenses and other current assets.................. 541 1,067
------- -------
Total current assets..................................... 26,944 37,275
Investments in affiliates.................................... 14,738 18,582
Property, plant and equipment, net........................... 2,996 3,061
Other assets................................................. 1,031 1,111
------- -------
Total assets............................................. $45,709 $60,029
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.......................... $ 899 $ 908
Accounts payable........................................... 6,747 7,138
Customer deposits.......................................... 1,078 5,662
Due to affiliates.......................................... 4,947 8,907
Accrued expenses........................................... 3,081 3,083
Income taxes............................................... 212 505
------- -------
Total current liabilities................................ 16,964 26,203
------- -------
Long-term liabilities:
Long-term debt............................................. 9,716 10,362
Deferred income taxes...................................... 453 427
------- -------
Total long-term liabilities.............................. 10,169 10,789
------- -------
Shareholders' equity:
Common stock, no par value, 20,000,000 shares authorized
and issued, 7,474,380 shares outstanding at the end of
fiscal year 1994 and 7,459,700 shares outstanding at the
end of fiscal year 1995................................... 1 1
Additional paid-in capital................................. 828 828
Retained earnings.......................................... 15,782 17,426
Foreign currency translation adjustment.................... 5,139 7,991
Treasury stock............................................. (3,174) (3,209)
------- -------
Total shareholders' equity............................... 18,576 23,037
------- -------
Total liabilities and shareholders' equity................... $45,709 $60,029
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenue:
Net sales......................................... $42,542 $49,247 $57,021
Commissions from affiliate........................ 772 2,134 2,757
------- ------- -------
Total revenue................................... 43,314 51,381 59,778
Cost of sales....................................... 32,472 38,945 45,494
------- ------- -------
Gross margin.................................... 10,842 12,436 14,284
------- ------- -------
Operating expenses:
Research, development and engineering............. 1,778 2,267 2,740
Selling, general, and administrative expenses..... 8,545 8,988 9,948
------- ------- -------
Total operating expenses........................ 10,323 11,255 12,688
------- ------- -------
Operating profit.................................... 519 1,181 1,596
------- ------- -------
Other income (expense):
Gains on sales of assets.......................... 42 19 246
Royalty income.................................... 91 245 264
Interest income................................... 26 34 52
Interest expense.................................. (824) (697) (959)
Disposal of FamTec AG............................. (300) 303 --
Miscellaneous, net................................ 574 373 (556)
------- ------- -------
(391) 277 (953)
------- ------- -------
Earnings from consolidated companies before income
taxes and cumulative effect of change in accounting
principle.......................................... 128 1,458 643
Income tax expense (benefit)........................ 573 (160) 186
------- ------- -------
Earnings (loss) from consolidated companies before
cumulative effect of change in accounting
principle.......................................... (445) 1,618 457
Equity in net earnings (loss) of affiliates......... (45) 655 1,187
------- ------- -------
Earnings (loss) before cumulative effect of change
in accounting principle............................ (490) 2,273 1,644
Cumulative effect of change in accounting principle
for income taxes................................... -- 78 --
------- ------- -------
Net earnings (loss)................................. $ (490) $ 2,351 $ 1,644
======= ======= =======
Net earnings (loss) per share....................... $ (0.06) $ 0.31 $ 0.20
======= ======= =======
Weighted average common and common equivalent
shares............................................. 7,615 7,619 8,146
======= ======= =======
Pro forma net earnings per share data (Note 16)
(Unaudited):
Pro forma net earnings............................ $ 1,966
=======
Pro forma net earnings per share.................. $ 0.18
=======
Pro forma common and common equivalent shares
outstanding...................................... 10,781
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1992. $ 1 $761 $13,921 $2,824 $(3,168) $14,339
Net loss................ -- -- (490) -- -- (490)
Foreign currency
translation adjustment. -- -- -- 1,767 -- 1,767
Purchase of treasury
stock.................. -- -- -- -- (6) (6)
Sale of treasury stock.. -- 56 -- -- 3 59
--- ---- ------- ------ ------- -------
Balance at May 31, 1993. 1 817 13,431 4,591 (3,171) 15,669
Net earnings............ -- -- 2,351 -- -- 2,351
Foreign currency
translation adjustment. -- -- -- 548 -- 548
Purchase of treasury
stock.................. -- -- -- -- (4) (4)
Sale of treasury stock.. -- 11 -- -- 1 12
--- ---- ------- ------ ------- -------
Balance at May 31, 1994. 1 828 15,782 5,139 (3,174) 18,576
Net earnings............ -- -- 1,644 -- -- 1,644
Foreign currency
translation adjustment. -- -- -- 2,852 -- 2,852
Purchase of treasury
stock.................. -- -- -- -- (35) (35)
--- ---- ------- ------ ------- -------
Balance at May 31, 1995. $ 1 $828 $17,426 $7,991 $(3,209) $23,037
=== ==== ======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------
1993 1994 1995
----- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................................. $(490) $ 2,351 $ 1,644
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Equity in net earnings (loss) of affiliates....... 45 (655) (1,187)
Depreciation and amortization..................... 654 675 635
Provision for losses on accounts receivable....... 45 7 3
Provision for deferred income taxes............... 302 (220) (120)
Gains on sales of assets.......................... (42) (19) (246)
Increase in cash surrender value of life
insurance........................................ (77) (119) (138)
Gain on disposal of FamTec AG..................... -- (298) --
Cumulative effect of change in accounting
principle........................................ -- (78) --
Change in assets and liabilities:
Decrease (increase) in trade accounts and notes
receivable..................................... 751 (7,782) (2,271)
(Increase) in inventories....................... (212) (3,297) (7,067)
(Increase) decrease in prepaid expenses and
other assets................................... (147) 50 (452)
(Decrease) increase in accounts payable and due
to affiliates.................................. (368) 5,569 4,149
(Decrease) increase in accrued expenses,
customer deposits and other liabilities........ (298) 1,670 4,474
Increase (decrease) in income taxes, net........ 32 (368) 566
----- ------- -------
Net cash provided by (used in) operating activities... 195 (2,514) (10)
----- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................ (314) (443) (744)
Proceeds from sales of assets....................... 163 46 431
Dividends from affiliates........................... 180 77 90
Other investing activities.......................... (106) (81) (83)
----- ------- -------
Net cash used in investing activities................. (77) (401) (306)
----- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock transactions......................... 53 8 (35)
Increase in short-term borrowings................... 83 -- --
Proceeds from long-term debt........................ 524 3,750 1,500
Principal payments on long-term debt................ (885) (778) (899)
----- ------- -------
Net cash (used in) provided by financing activities... (225) 2,980 566
----- ------- -------
Effect of foreign currency rate changes on cash....... (15) (21) 36
----- ------- -------
Net (decrease) increase in cash and cash equivalents.. (122) 44 286
Cash and cash equivalents at beginning of year........ 887 765 809
----- ------- -------
Cash and cash equivalents at end of year.............. $ 765 $ 809 $ 1,095
===== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest.......................................... $ 835 $ 664 $ 866
===== ======= =======
Income taxes...................................... $ 172 $ 412 $ 125
===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of SpeedFam
International, Inc. (the Company, formerly named FamTec International, Inc.),
an Illinois corporation, and the following wholly owned subsidiaries:
<TABLE>
<CAPTION>
SUBSIDIARIES INCORPORATED
------------ --------------
<S> <C>
SpeedFam Corporation.................................... United States
SpeedFam Limited........................................ United Kingdom
SpeedFam GmbH........................................... Germany
</TABLE>
All significant intercompany balances and transactions have been eliminated.
Non-U.S. subsidiaries are included in the consolidated financial statements
based upon fiscal years ended April 30. The Company's fiscal year ends on May
31.
The Company's investments in the common stock of affiliates, SpeedFam Co.,
Ltd. (a Japanese corporation, 50% owned), and Fujimi Corporation (an Illinois
corporation, 50% owned) are accounted for by the equity method using fiscal
years that end April 30 and May 31, respectively.
(b) Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks and highly liquid short-
term investments with original maturities of three months or less. Short-term
investments are carried at cost which approximates market.
(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 $596, $575 and $538 in fiscal years 1993, 1994 and
1995, respectively. The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 7 to 40 years
Machinery and equipment..................................... 5 years
Furniture and fixtures...................................... 3 to 5 years
Leasehold improvements...................................... 2 to 10 years
</TABLE>
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
(e) Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Statement 109 requires a change to the asset and liability
method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-7
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Effective June 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that accounting change in the fiscal year 1994
consolidated statement of earnings.
(f) Revenue Recognition
Sales of the Company's products are recorded upon shipment or when the
product is accepted by the customer. Commission revenue from affiliate is
recorded upon shipment of product.
(g) Installation and Warranty Costs
Costs to be incurred by the Company related to product installation and
warranty fulfillment are accrued at the date of shipment and are estimated by
the Company based on past experience. The accrual for product installation and
warranty fulfillment, included in accrued expenses in the consolidated balance
sheets, was $180 and $200 at the end of fiscal years 1994 and 1995,
respectively.
(h) Foreign Currency Translation
Assets and liabilities of the Company's non-U.S. operations have been
translated using the exchange rates in effect at the balance sheet dates.
Results of operations are translated using the average exchange rates
prevailing throughout the period. Local currencies are considered the
functional currencies of the Company's foreign entities. Foreign currency
exchange rates used to translate the financial statements are summarized
below:
<TABLE>
<CAPTION>
FOREIGN CURRENCY
PER U.S. DOLLAR
-------------------
1993 1994 1995
------ ------ -----
<S> <C> <C> <C>
Rates at balance sheet date:
Pound sterling ((Pounds))........................... .63 .66 .62
Deutsche mark (DM).................................. 1.59 1.65 1.39
Japanese yen ((Yen))................................ 111.15 101.65 84.20
</TABLE>
(i) Treasury Stock
The Company accounts for treasury stock using the cost method. In fiscal
years 1993 and 1994, the number of shares of treasury stock sold by the
Company amounted to 26,000 and 6,000, respectively. There were no sales of
treasury stock in fiscal year 1995. In fiscal years 1993, 1994 and 1995 the
number of shares of treasury stock purchased by the Company amounted to 2,800,
1,800, and 14,680, respectively. There are 12,540,300 shares of treasury stock
at the end of fiscal year 1995, including 1,096,800 shares held in escrow in
accordance with the terms of a note agreement with a former member of the
Board of Directors.
(j) Net Earnings (Loss) Per Share
Net earnings (loss) per share data has been computed using the weighted
average number of shares of common stock and common equivalent shares from
stock options (when dilutive using the treasury stock method). Stock options
issued during the twelve month period prior to the Company's proposed initial
public offering (see note 15) have been included in the calculation as if they
were outstanding for all periods presented (even if antidilutive using the
treasury stock method and the anticipated initial public offering price).
F-8
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(k) Concentration of Credit Risk
The Company designs, manufactures, markets and services high throughput
precision surface processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers, general industrial components and,
more recently, semiconductor devices through chemical mechanical polishing. In
addition, the Company markets and distributes parts and expendables and
polishing liquids, or slurry. The following is a summary of net sales to and
commissions earned from significant customers:
<TABLE>
<CAPTION>
CUSTOMER 1993 1994 1995
-------- ---- ---- ----
<S> <C> <C> <C>
A......................................................... 15% 21% 21%
B......................................................... * 10% 11%
C......................................................... * 11% *
</TABLE>
- --------
*Less than 10%.
(l) Patents and Trademarks
Patents and trademarks included in other assets, in the net amount of $277
and $311 at the end of fiscal years 1994 and 1995, respectively, are amortized
on a straight-line basis over 17 years for patents and 5 years for trademarks.
(m) Research, Development and Engineering
Expenditures for research, development and engineering of products and
processes are expensed as incurred.
(2) INVENTORIES
Inventories at the end of fiscal years 1994 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw materials............................................. $ 7,844 $10,383
Work-in-process........................................... 1,330 4,930
Finished goods............................................ 1,554 2,682
------- -------
Total inventories....................................... $10,728 $17,995
======= =======
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of fiscal years 1994 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Land.................................................... $ 184 $ 188
Buildings and improvements.............................. 1,991 2,013
Machinery and equipment................................. 2,710 2,448
Furniture and fixtures.................................. 651 1,125
Leasehold improvements.................................. 371 522
------- -------
5,907 6,296
Less accumulated depreciation........................... (2,911) (3,235)
------- -------
Net property, plant and equipment..................... $ 2,996 $ 3,061
======= =======
</TABLE>
F-9
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(4) INVESTMENT IN AFFILIATES
The Company owns a 50% interest in SpeedFam Co., Ltd. The Company's equity
interest in SpeedFam Co., Ltd. was $13,321 and $17,108 at the end of fiscal
years 1994 and 1995, respectively. SpeedFam Co., Ltd.'s consolidated financial
statements include the accounts of the following subsidiaries:
<TABLE>
<CAPTION>
COMPANY LOCATION
------- --------
<S> <C>
SpeedFam Clean System Co., Ltd.............................. Japan
Saku Seiki Co., Ltd......................................... Japan
SpeedFam Incorporated....................................... Taiwan
SpeedFam Korea Ltd.......................................... South Korea
SpeedFam India (Pvt.) Ltd................................... India
Precision Technology, Inc. ................................. South Korea
</TABLE>
Significant intercompany balances and transactions have been eliminated.
SpeedFam Co., Ltd.'s investments in two affiliated Japanese companies, Met-
Coil Ltd. and CRT K.K., are accounted for by the equity method.
Condensed consolidated financial statements of SpeedFam Co., Ltd. are as
follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
----------------
ASSETS 1994 1995
------ ------- --------
<S> <C> <C>
Current assets:
Cash and short-term investments.......................... $ 6,989 $ 15,531
Trade accounts and notes receivable, net................. 39,203 46,088
Inventories.............................................. 9,865 11,086
Due from affiliated companies ........................... 4,792 8,759
Prepaid expenses and other current assets................ 1,759 1,712
------- --------
Total current assets................................... 62,608 83,176
Investments in affiliates.................................. 928 1,223
Property, plant and equipment, net......................... 18,650 20,371
Deferred income taxes and other assets..................... 4,683 6,043
------- --------
Total assets........................................... $86,869 $110,813
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings.................................... $13,207 $ 15,744
Current portion of long-term debt........................ 1,815 2,406
Accounts payable......................................... 24,627 34,299
Accrued expenses......................................... 3,253 4,384
Income taxes payable..................................... 1,329 2,564
------- --------
Total current liabilities.............................. 44,231 59,397
Long-term debt............................................. 12,387 12,528
Liability for employee benefits............................ 2,017 2,595
Minority interest.......................................... 1,593 2,078
Stockholders' equity:
Common stock............................................. 210 210
Retained earnings........................................ 15,987 18,036
Foreign currency translation adjustment.................. 10,444 15,954
Unrealized gains on marketable securities................ -- 15
------- --------
Total liabilities and stockholders' equity............. $86,869 $110,813
======= ========
</TABLE>
F-10
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Net sales....................................... $75,747 $87,217 $108,664
Costs and operating expenses.................... 75,531 84,823 103,574
------- ------- --------
Earnings before income taxes.................... 216 2,394 5,090
Income taxes.................................... 725 1,026 2,755
------- ------- --------
Net earnings (loss) before minority interest.... (509) 1,368 2,335
Minority interest............................... (49) (241) (166)
------- ------- --------
Net earnings (loss) before cumulative effect of
change in accounting principle................. (460) 1,127 2,169
Cumulative effect of change in accounting
principle...................................... -- (43) --
------- ------- --------
Net earnings (loss)............................. (460) 1,084 2,169
Retained earnings at beginning of year.......... 15,700 14,958 15,987
Dividends....................................... (282) (55) (120)
------- ------- --------
Retained earnings at end of year................ $14,958 $15,987 $ 18,036
======= ======= ========
</TABLE>
The following is a summary of SpeedFam International, Inc. and consolidated
subsidiaries' transactions with SpeedFam Co., Ltd.
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam Co., Ltd............................. $ 447 $ 67 $ 259
====== ====== ======
Purchases from SpeedFam Co., Ltd....................... $3,276 $2,555 $3,046
====== ====== ======
Commission revenue..................................... $ 772 $2,134 $2,757
====== ====== ======
Commission expense..................................... $ 164 $ 91 $ 196
====== ====== ======
</TABLE>
Net amounts due to SpeedFam Co., Ltd. included in the consolidated balance
sheets at the end of fiscal years 1994 and 1995 are $4,595 and $8,698,
respectively.
The Company's investment in the common stock of Fujimi Corporation (an
Illinois corporation, 50% owned) is accounted for by the equity method using a
fiscal year that ends May 31. Summary financial information relating to Fujimi
Corporation is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
-------------
1994 1995
------ ------
<S> <C> <C>
Due from affiliates........................................... $ 352 $ 208
====== ======
Other current assets.......................................... $5,401 $6,649
====== ======
Noncurrent assets............................................. $ 23 $ 55
====== ======
Current liabilities........................................... $2,942 $3,963
====== ======
Total stockholders' equity.................................... $2,834 $2,949
====== ======
</TABLE>
F-11
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
MAY 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $10,227 $12,301 $15,783
Costs and operating expenses........................ 9,440 11,595 15,536
------- ------- -------
Earnings before income taxes........................ 787 706 247
Income taxes........................................ 306 296 72
------- ------- -------
Net earnings........................................ $ 481 $ 410 $ 175
======= ======= =======
</TABLE>
The Company received dividends from Fujimi Corporation of $40, $50 and $30
in fiscal years 1993, 1994, and 1995, respectively. Purchases from Fujimi
Corporation approximated $326, $775, and $1,301 in fiscal years 1993, 1994,
and 1995, respectively. Amounts due to Fujimi Corporation included in the
consolidated balance sheets at the end of fiscal years 1994 and 1995 are $352
and $208, respectively.
(5) INCOME TAXES
As discussed in note 1, the Company adopted Statement 109 effective June 1,
1993. The cumulative effect of this change in accounting for income taxes of
$78 was determined as of June 1, 1993 and is reported separately in the
consolidated statement of earnings in fiscal year 1994.
The Company files consolidated U.S. Federal income tax returns with its U.S.
subsidiary. Operations in the United Kingdom and Germany file local income tax
returns. Earnings (loss) from consolidated companies before income taxes and
cumulative effect of change in accounting principle are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ----
<S> <C> <C> <C>
U.S. .................................................. $ 167 $1,165 $183
Non-U.S. .............................................. (39) 293 460
----- ------ ----
Total.............................................. $ 128 $1,458 $643
===== ====== ====
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Current:
U.S. Federal......................................... $ 60 $ (72) $ 112
State................................................ 8 -- 12
Non-U.S. ............................................ 203 132 182
---- ----- -----
271 60 306
---- ----- -----
Deferred:
U.S. Federal and State............................... 302 (214) (92)
Non-U.S. ............................................ -- (6) (28)
---- ----- -----
302 (220) (120)
---- ----- -----
Income tax expense (benefit)....................... $573 $(160) $ 186
==== ===== =====
</TABLE>
F-12
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
In fiscal year 1993, deferred income tax expense results from timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The sources and tax effects of those timing
differences are as follows:
<TABLE>
<CAPTION>
1993
----
<S> <C>
DISC dividend...................................................... $ (7)
Property, plant and equipment...................................... 41
Inventory.......................................................... 145
Warranty accrual................................................... 132
Other.............................................................. (9)
----
Deferred income tax expense.................................... $302
====
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
liabilities at the end of fiscal years 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Property, plant and equipment............................... $(479) $(478)
Inventory................................................... (233) (257)
Allowance for doubtful accounts............................. 65 73
Trademark amortization...................................... 44 66
Warranty accrual............................................ 175 81
Alternative minimum tax credit carryforward................. 83 47
Unrealized foreign currency losses.......................... -- 141
Other....................................................... (13) 47
----- -----
Net deferred tax liability.............................. $(358) $(280)
===== =====
</TABLE>
There is no valuation allowance for deferred tax assets at the end of fiscal
years 1993, 1994 or 1995. Deferred tax assets are considered realizable due to
the expectation of future taxable income. At the end of fiscal year 1995, the
Company has an alternative minimum tax credit carryforward of approximately
$47 available to offset regular income tax in the future to the extent such
regular income tax exceeds the alternative minimum tax.
A reconciliation between the Company's effective tax rate and the "expected"
tax rate of 34% on earnings (loss) before income taxes and cumulative effect
of change in accounting principle is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate............................. 34% 34% 34%
Officers' life insurance............................... 36 2 4
U.S. tax benefit on disposal of FamTec AG.............. -- (51) --
Difference of non-U.S. and "expected" tax rates........ (8) 2 --
FamTec AG losses without tax benefit................... 221 -- --
Dividend income from non-U.S. affiliates............... 160 1 3
State taxes, net of U.S. Federal benefit............... 13 (1) --
Foreign sales corporation.............................. (22) (2) (13)
Other.................................................. 14 4 1
--- --- ---
Effective income tax rate.............................. 448% (11%) 29%
=== === ===
</TABLE>
No provision is made for income taxes on undistributed earnings of wholly
owned non-U.S. subsidiaries and SpeedFam Co., Ltd. because it is the Company's
present intention to reinvest substantially all the earnings of these
operations. At the end of fiscal year 1995 there were approximately $10,508 of
accumulated
F-13
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
undistributed earnings of those operations. It is not practical for the
Company to compute the amount of unrecognized deferred tax liability on the
undistributed earnings.
The Company has not recognized a deferred tax liability of approximately
$232 for its share of the undistributed earnings of Fujimi Corporation that
arose in fiscal year 1993 and prior years because the Company does not expect
those unremitted earnings to reverse and become taxable in the foreseeable
future. A deferred tax liability will be recognized when the Company expects
that it will recover those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investment. At the end of fiscal
year 1995 the undistributed earnings of Fujimi Corporation were approximately
$42. A deferred tax liability in the amount of $17 has been provided for the
undistributed earnings subsequent to fiscal year 1993.
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Loans under revolving line of credit due November 8,
1997; interest rate at bank's prime rate (9.00% at May
31, 1995) or LIBOR plus 2% (8.06% at May 31, 1995).... $ 5,000 $ 6,500
Term loan payable in quarterly installments of $100
with final installment of $1,900 on October 31, 1997;
interest rate fixed at 9%............................. 3,200 2,800
Term loan payable in monthly installments of $26
(including interest) beginning April 1, 1994 for five
years; interest rate fixed at 9.25%................... 1,208 1,000
Term loan in the amount of (Pounds)142,507, payable in
monthly installments of (Pounds)4,700 ($8) for 15
years beginning in November 1987, interest rate of
2.25% over the bank's base rate (6.75% at April 30,
1995)................................................. 281 229
Note payable in equal annual installments of $207
through January 15, 1999; interest rate of prime less
1/2% (however, not less than 8% or greater than 12%);
an imputed interest rate of 15% results in a debt
discount of $87 at May 31, 1995....................... 1,035 828
Other.................................................. 16 --
------- -------
Total long-term debt............................... 10,740 11,357
Less current portion of long-term debt................. 899 908
Less debt discount..................................... 125 87
------- -------
Net long-term debt................................. $ 9,716 $10,362
======= =======
</TABLE>
In fiscal year 1995 the Company's U.S. subsidiary, SpeedFam Corporation,
entered into a new secured credit agreement with two U.S. banks. The credit
agreement provides a $9,500 revolving line of credit maturing November 8,
1997. The Company and subsidiary must meet certain financial objectives each
year as defined in the credit agreement and subsequent amendments. The
borrowings under the credit agreement are secured by the assets of the
subsidiary and are guaranteed by the Company.
The term loan payable in monthly installments of $26 is secured by certain
machinery of SpeedFam Corporation with a net book value of $321 at the end of
fiscal year 1995.
F-14
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The term loan, payable in pounds sterling at April 30, 1995, is secured by
the assets of SpeedFam Limited and a (Pounds)250 ($403) keyman life insurance
policy.
During fiscal year 1990, the Company entered into a nine-year note agreement
with an individual who was then a director of SpeedFam International, Inc.,
for the purchase of common stock. The loan is secured by 1,096,800 shares of
the Company's stock held in escrow and included in treasury stock. This note
is subordinate to the Company's other short-term borrowings and long-term
debt. Any additional borrowings from the revolving line of credit,
institutional lenders, and SpeedFam Co., Ltd. up to approximately $13,000 will
also be superior to this note.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
1996............................. $ 908
1997............................. 937
1998............................. 9,057
1999............................. 455
-------
$11,357
=======
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
The Company has agreed with its shareholders that, in the event of their
deaths, it will buy shares in the Company owned by them, or other specified
persons or fiduciaries, to the extent permitted by law. The share value is
determined by an established formula. Such commitments, as regards the
Company's major shareholder, will be fulfilled by the proceeds of an insurance
policy on his life and the anticipated issuance of subordinated debt and
cumulative preferred stock to the estate of the shareholder. At the end of
fiscal year 1995 the obligation to the majority shareholder in excess of the
face value of the insurance policy was approximately $16,131.
The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2000. Rental expense aggregated
approximately $559, $468, and $611 in fiscal years 1993, 1994, and 1995,
respectively.
Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1995 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1996.............................. $ 775
1997.............................. 659
1998.............................. 446
1999.............................. 367
2000 and thereafter............... 237
------
Total......................... $2,484
======
</TABLE>
(8) FORWARD EXCHANGE CONTRACTS
The Company enters into forward foreign exchange contracts to hedge certain
firm commitments denominated principally in Japanese yen. The terms of the
contracts are rarely more than one year. The contracts are entered into at the
time an order is received to preserve the expected profit by protecting the
F-15
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Company from the risk that those commitments will be adversely affected by
changes in exchange rates. Unrealized gains and losses on the forward
contracts are deferred until the related transaction occurs.
During fiscal year 1995, the Company incurred foreign currency transaction
losses on three purchase transactions as a result of not hedging on a timely
basis (i.e., at the purchase order date). These losses amounted to $350 and
are included in Miscellaneous, net in the accompanying consolidated statement
of earnings in fiscal year 1995. At the end of fiscal years 1994 and 1995,
deferred net gains (losses) amounted to $161 and ($310), respectively.
The table below summarizes the contractual amounts of the Company's forward
exchange contracts in U.S. dollars. The amounts represent the U.S. dollar
equivalent of commitments to purchase or sell foreign currencies.
<TABLE>
<CAPTION>
1994 1995
----------- ----------------
BUY SELL BUY SELL
------ ---- -------- -------
<S> <C> <C> <C> <C>
Japanese yen................................. $3,883 $298 $ 15,399 $10,448
====== ==== ======== =======
German mark.................................. $ -- $ -- $ 65 $ --
====== ==== ======== =======
</TABLE>
(9) SAVINGS AND PROFIT-SHARING PLANS
The Company maintains savings and profit-sharing plans for its employees.
The plans cover certain employees who meet length of service requirements.
Contribution expense under the plans, determined by the Company's Board of
Directors, aggregated $87, $180, and $60 in fiscal years 1993, 1994, and 1995,
respectively.
(10) EMPLOYEE INCENTIVE STOCK OPTION PLAN
On September 12, 1991, the shareholders approved the Employee Incentive
Stock Option Plan of 1991 reserving 1,500,000 shares of common stock for sale
or award as stock options to officers and key employees. Prior to fiscal year
1995, 822,000 stock options were granted at 100% or 110% of the value of the
Company's common stock as determined by an established formula, of which
295,440 are exercisable at the end of fiscal year 1995. The average exercise
price for the stock options granted prior to fiscal year 1995 is $2.04. In
fiscal year 1995, 281,660 stock options were granted at the fair value of the
Company's common stock as determined by an independent appraiser, none of
which are exercisable at the end of fiscal year 1995. The average exercise
price for the stock options granted in fiscal year 1995 is $5.38. The stock
options vest over five years (i.e., 20% each year) with the exception of
163,800 stock options issued in 1992 which vested immediately. The stock
options expire ten years after the grant date except for 48,600 stock options
which expire five years after the grant date. None of the stock options have
been exercised at the end of fiscal year 1995.
(11) DISPOSAL OF FAMTEC AG
During fiscal year 1993, the Company decided to shut down the operations of
FamTec AG and established a reserve of $300 for the associated estimated
costs. During January 1994, the bankruptcy of FamTec AG was announced and
published in Switzerland. The current plan of the bankruptcy administrator is
to apportion and distribute the assets of FamTec AG among the creditors to the
extent available with no possible recourse to the Company. The plan has
brought about the dissolution of FamTec AG and has caused the Company to no
longer have ownership of the entity.
F-16
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
As a result of this circumstance, the Company's net investment in FamTec AG
was written off in 1994. Since the liabilities and foreign currency
translation adjustment associated with FamTec AG exceeded its assets, the
disposal resulted in a pretax gain of $303 and an income tax benefit of $740
in fiscal year 1994. The benefit arose from the write-off and resulting
deduction of the Company's investment in FamTec AG for U.S. tax purposes.
Results of operations of FamTec AG are not included in the 1994 consolidated
statement of earnings nor are they material. The net loss of FamTec AG
included in the 1993 consolidated statements of earnings was $832.
(12) LITIGATION SETTLEMENT AND CANCELLATION CHARGE
In January 1993, the Company reached a favorable settlement with a
competitor over the infringement of a patent owned by the Company. Title to
the patent was granted to the competitor. The Company received in the
settlement a royalty free non-exclusive license to use the technology, an
immediate cash payment of $300 and a promissory note in the amount of $500
payable over five years in equal quarterly installments of $25 plus interest
at the prime rate. The total settlement amount of $800 is included as income
in miscellaneous, net in the statement of earnings for fiscal year 1993.
Additionally, the Company received a 2% royalty fee on machines sold by the
competitor to a maximum fee of $600. The royalty fee was satisfied as of
November 30, 1994.
In connection with the cancellation of an order, the Company recorded income
of $379 in fiscal year 1994. This amount is included in miscellaneous, net in
the 1994 consolidated statement of earnings.
(13) BUSINESS SEGMENT INFORMATION
The Company classifies its products into two core business segments: (i)
equipment, parts and expendables, which represent the Company's operations in
designing, manufacturing, and selling high throughput, precision surface
polishing, grinding and lapping machines and systems and (ii) slurries, which
represents distribution and sales of materials used in the customers'
manufacturing process. Information concerning the Company's business segments
in fiscal years 1993, 1994, and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenue:
Sales to unaffiliated customers:
Equipment, Parts and Expendables............... $22,490 $24,336 $29,846
Slurries....................................... 20,052 24,911 27,175
------- ------- -------
Total sales to unaffiliated customers........ 42,542 49,247 57,021
Commissions from affiliate--Equipment, Parts and
Expendables.................................... 772 2,134 2,757
------- ------- -------
Total revenue................................ $43,314 $51,381 $59,778
======= ======= =======
Segment operating profit:
Equipment, Parts and Expendables............... $ 336 $ 1,840 $ 2,475
Slurries....................................... 1,342 1,705 1,759
------- ------- -------
Segment operating profit..................... 1,678 3,545 4,234
General corporate expense........................ (726) (1,390) (2,632)
Interest expense............................... (824) (697) (959)
------- ------- -------
Earnings from consolidated companies before
income taxes and cumulative effect of change
in accounting principle..................... $ 128 $ 1,458 $ 643
======= ======= =======
</TABLE>
F-17
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Identifiable assets:
Equipment, Parts and Expendables.................. $15,113 $21,727 $30,538
Slurries.......................................... 5,301 6,825 7,828
Investments in affiliates......................... 13,134 14,738 18,582
Corporate assets.................................. 1,979 2,419 3,081
------- ------- -------
Total identifiable assets....................... $35,527 $45,709 $60,029
======= ======= =======
Capital expenditures:
Equipment, Parts and Expendables.................. $ 251 $ 236 $ 470
Slurries.......................................... 34 15 12
Corporate......................................... 29 192 262
------- ------- -------
Total capital additions......................... $ 314 $ 443 $ 744
======= ======= =======
Depreciation expense:
Equipment, Parts and Expendables.................. $ 535 $ 496 $ 437
Slurries.......................................... 34 30 28
Corporate......................................... 27 49 73
------- ------- -------
Total depreciation expense...................... $ 596 $ 575 $ 538
======= ======= =======
</TABLE>
Intersegment sales are not material. Operating profit represents total
revenue less operating expenses, and excludes equity in net earnings (loss) of
affiliates, general corporate expenses, interest expense and income taxes.
Identifiable assets are those assets employed in each segment's operation,
including an allocated value. Corporate assets consist primarily of cash and
assets not employed in production.
Information regarding the Company's operations in the United States and
internationally are presented below:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales:
United States................................ $35,141 $41,492 $47,587
Europe....................................... 8,913 8,559 10,355
Intercompany sales........................... (1,512) (804) (921)
------- ------- -------
Consolidated net sales......................... $42,542 $49,247 $57,021
======= ======= =======
Operating profit:
United States................................ $ 368 $ 757 $ 1,478
Europe....................................... (261) 44 165
Eliminations................................. 412 380 (47)
------- ------- -------
Operating profit............................... $ 519 $ 1,181 $ 1,596
======= ======= =======
Identifiable assets:
United States................................ $15,208 $24,768 $33,408
Europe....................................... 5,206 3,784 4,958
Corporate.................................... 15,113 17,157 21,663
------- ------- -------
Consolidated identifiable assets............... $35,527 $45,709 $60,029
======= ======= =======
</TABLE>
F-18
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Following is a summary of unaudited quarterly information:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1994:
Total revenue............................ $12,704 $10,067 $11,267 $17,343
======= ======= ======= =======
Gross margin............................. $ 3,005 $ 2,081 $ 2,559 $ 4,791
======= ======= ======= =======
Earnings (loss) before cumulative effect
of accounting change.................... $ 126 $ (592) $ 1,733 $ 1,006
Cumulative effect of accounting change... 78 -- -- --
------- ------- ------- -------
Net earnings (loss)...................... $ 204 $ (592) $ 1,733 $ 1,006
======= ======= ======= =======
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1995:
Total revenue............................ $13,953 $13,080 $13,006 $19,739
======= ======= ======= =======
Gross margin............................. $ 2,773 $ 2,660 $ 3,309 $ 5,542
======= ======= ======= =======
Net earnings (loss)...................... $ 146 $ (433) $ 403 $ 1,528
======= ======= ======= =======
</TABLE>
(15) SUBSEQUENT EVENTS
In July 1995, the Board of Directors and shareholders of the Company
approved the following matters:
. Amended the Company's articles of incorporation to increase the number of
common shares authorized to be issued to 20 million shares, to create a
class of preferred shares and authorize issuance of up to 1 million such
shares, and to authorize a 20 for 1 split of existing common shares. The
split of shares has been retroactively reflected in the consolidated
financial statements.
. Created or amended stock option and purchase plans for directors and
employees which allow for the issuance of up to 3 million shares of
common stock, pursuant to awarded options, restricted shares, units,
rights or payroll deductions.
. Changed the name of the Company to SpeedFam International, Inc. (formerly
FamTec International, Inc.).
. Approved cancellation of the treasury stock upon completion of the
Offering (see below).
. Approved termination of the agreement to buy back shares from
shareholders in the event of their deaths as described in note 7.
The Company intends to offer 2,500,000 shares of common stock in an initial
public offering (the "Offering"), the proceeds of which are to be used for
working capital and to repay the revolving line of credit and the note payable
to a former director of the Company. As a result, common and common equivalent
shares will increase from 8.2 million shares to 10.7 million shares.
F-19
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN THOUSANDS)
(16) PRO FORMA NET EARNINGS PER SHARE (UNAUDITED)
The pro forma earnings per share information presented for the year ended
May 31, 1995 has been prepared assuming: (i) the Offering had occurred at the
beginning of the fiscal year 1995, resulting in reduced interest expense, net
of tax from the repayment of the revolving line of credit and the note payable
to a former director of the Company with the proceeds of the Offering, (ii) an
increase in common and common equivalent shares reflecting the offering of
2,500,000 shares, and (iii) an increase in common and common equivalent shares
reflecting the dilutive impact of stock options as if they were outstanding
the entire fiscal year 1995 (using the treasury stock method and the
anticipated public offering price).
F-20
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
1995 1996
------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 1,095 $10,100
Trade accounts and notes receivable, net.................... 16,971 31,159
Inventories................................................. 17,995 25,772
Other current assets........................................ 1,214 2,744
------- -------
Total current assets...................................... 37,275 69,775
Investments in affiliates..................................... 18,582 18,334
Property, plant and equipment, net............................ 3,061 8,037
Other assets.................................................. 1,111 1,410
------- -------
Total assets............................................ $60,029 $97,556
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings and current portion of long-term debt. $ 908 $ 714
Accounts payable and due to affiliates...................... 16,045 22,666
Customer deposits........................................... 5,662 9,250
Other current liabilities................................... 3,588 7,384
------- -------
Total current liabilities................................. 26,203 40,014
------- -------
Long-term liabilities:
Long-term debt.............................................. 10,362 2,783
Deferred income taxes....................................... 427 420
------- -------
Total long-term liabilities............................... 10,789 3,203
------- -------
Shareholders' equity:
Common stock, no par value, 20,000,000 shares authorized and
issued, 7,459,700 shares outstanding at May 31, 1995 and
10,397,200 shares outstanding at February 29, 1996......... 1 1
Additional paid-in capital.................................. 828 26,016
Retained earnings........................................... 17,426 24,115
Foreign currency translation adjustment..................... 7,991 4,207
Treasury stock.............................................. (3,209) --
------- -------
Total shareholders' equity................................ 23,037 54,339
------- -------
Total liabilities and shareholders' equity.............. $60,029 $97,556
======= =======
</TABLE>
F-21
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Revenue:
Net sales.......................................... $38,996 $72,353
Commissions from affiliate......................... 1,043 4,041
------- -------
Total revenue.................................... 40,039 76,394
Cost of sales........................................ 31,297 51,481
------- -------
Gross margin..................................... 8,742 24,913
------- -------
Research, development and engineering.............. 1,991 6,993
Selling, general and administrative expenses....... 7,404 12,617
------- -------
Operating profit (loss).............................. (653) 5,303
Interest expense..................................... (769) (615)
Other income, net.................................... 73 440
------- -------
Earnings (loss) from consolidated companies before
income taxes........................................ (1,349) 5,128
Income tax expense (benefit)......................... (484) 2,002
------- -------
Earnings (loss) from consolidated companies.......... (865) 3,126
Equity in net earnings of affiliates................. 981 3,563
------- -------
Net earnings......................................... $ 116 $ 6,689
======= =======
Net earnings per share............................... $ 0.01 $ 0.68
======= =======
Weighted average common and common equivalent shares. 8,148 9,790
======= =======
Pro forma net earnings per share data (Note 5):
Pro forma net earnings............................. $ 352 $ 6,893
======= =======
Pro forma net earnings per share................... $ 0.03 $ 0.62
======= =======
Pro forma common and common equivalent shares
outstanding....................................... 11,211 11,206
======= =======
</TABLE>
F-22
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings....................................... $ 116 $ 6,689
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in net earnings of affiliates............. (981) (3,563)
Depreciation and amortization.................... 470 721
Other............................................ (367) 13
Change in assets and liabilities
(Increase) decrease in trade accounts and notes
receivable.................................... 44 (14,578)
Increase in inventories........................ (4,671) (7,910)
Increase in other assets....................... (112) (1,866)
Increase in accounts payable and due to
affiliates.................................... 149 6,854
Increase in accrued expenses, customer deposits
and other liabilities......................... 4,304 7,507
------ --------
Net cash used in operating activities................ (1,048) (6,133)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital investments, net........................... (358) (5,579)
Other investing activities......................... 241 238
------ --------
Net cash used in investing activities................ (117) (5,341)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock............. -- 28,380
Treasury stock transactions........................ (1) 16
Proceeds from long-term debt....................... 1,200 3,999
Principal payments on long-term debt............... (672) (11,848)
------ --------
Net cash provided by financing activities............ 527 20,547
------ --------
Effect of foreign currency rate changes on cash...... 10 (68)
------ --------
Net increase (decrease) in cash and cash equivalents. (628) 9,005
Cash and cash equivalents at beginning of year....... 809 1,095
------ --------
Cash and cash equivalents at February 28, 1995 and
February 29, 1996................................... $ 181 $ 10,100
====== ========
</TABLE>
F-23
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by management without audit. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures made are adequate to make
the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended May 31, 1995, as filed with the
Securities and Exchange Commission on August 10, 1995 as part of its
Registration Statement on Form S-1. In the opinion of management the
information furnished herein reflects all adjustments (consisting of normal
recurring adjustments) necessary for a fair statement of results for the
interim periods presented. Results of operations for the nine months ended
February 29, 1996 are not necessarily indicative of results to be expected for
the full fiscal year.
(2) INVENTORIES
The components of inventory were:
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
1995 1996
------- ------------
<S> <C> <C>
Raw materials........................................ $10,383 $13,785
Work-in-process...................................... 4,930 10,657
Finished goods....................................... 2,682 1,330
------- -------
$17,995 $25,772
======= =======
</TABLE>
(3) INVESTMENT IN AFFILIATES
The Company owns a 50% interest in SpeedFam Co., Ltd. which is translated in
accordance with FAS No. 52. The Company's equity interest in SpeedFam Co.,
Ltd. was $17,108 and $16,704 at May 31, 1995 and at February 29, 1996,
respectively based on the balance sheet of SpeedFam Co., Ltd. at April 30,
1995 and January 31, 1996, respectively. The remaining equity interest
included in investments in affiliates relates to Fujimi Corporation and is not
significant to the consolidated financial statements. Condensed consolidated
financial statements of SpeedFam Co., Ltd., which are consolidated on a fiscal
year that ends April 30, are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
ASSETS 1995 1996
------ --------- -----------
<S> <C> <C>
Total current assets...................................... $ 83,176 $ 89,403
Investment in affiliates.................................. 1,223 997
Property, plant and equipment, net........................ 20,371 16,672
Deferred income taxes and other assets.................... 6,043 6,258
-------- --------
Total assets.......................................... $110,813 $113,330
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Total current liabilities................................. $ 59,397 $ 66,786
Long-term debt............................................ 12,528 8,305
Other long-term liabilities............................... 4,673 4,831
Stockholders' equity
Common stock............................................ 210 664
Retained earnings....................................... 18,036 24,101
Foreign currency translation adjustment................. 15,954 8,479
Unrealized gains on marketable securities............... 15 164
-------- --------
Total liabilities and stockholders' equity............ $110,813 $113,330
======== ========
</TABLE>
F-24
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JANUARY 31,
-----------------
1995 1996
------- --------
<S> <C> <C>
Net sales.................................................... $74,802 $115,325
Costs and operating expenses................................. 70,737 101,633
------- --------
Earnings before income taxes................................. 4,065 13,692
Income taxes................................................. 2,200 6,653
------- --------
Net earnings before minority interest........................ 1,865 7,039
Minority interest............................................ 105 244
------- --------
Net earnings................................................. 1,760 6,795
Beginning retained earnings.................................. 15,987 18,036
Dividends.................................................... (120) (276)
Transfers to capital......................................... -- (454)
------- --------
Ending retained earnings..................................... $17,627 $ 24,101
======= ========
</TABLE>
(4) OFFERING OF COMMON STOCK
On October 26, 1995, the Company completed its initial public offering of
common stock. In connection therewith, the Company issued 2,927,500 shares of
common stock and received proceeds of $28,380, net of underwriters' discounts
and commissions and offering expenses. Subsequent to the offering and prior to
the end of the second quarter, the Company paid off a significant portion of
its long-term debt with the proceeds from the public offering. Approximately
$10,499 was used to repay borrowings under a revolving line of credit
agreement with two U.S. banks. In addition, approximately $879 was used to
repay a note payable, including accrued interest, to a former director of the
company.
(5) PRO FORMA DATA
The pro forma earnings per share information presented for the nine months
ended February 28, 1995 and February 29, 1996 has been prepared assuming: (i)
the offering had occurred at the beginning of the periods presented, resulting
in reduced interest expense, net of tax from the repayment of the revolving
line of credit and a note payable to a former director of the Company with the
proceeds of the offering and (ii) an increase in common and common equivalent
shares reflecting the offering of 2,927,500 shares.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
SpeedFam Co., Ltd.:
We have audited the accompanying consolidated balance sheets of SpeedFam
Co., Ltd. and consolidated subsidiaries as of April 30, 1994 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 1995.
These consolidated financial statements are the responsibility of the
management of SpeedFam Co., Ltd. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
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, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1995 in conformity with generally accepted
accounting principles.
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 7, 1995
Chicago, Illinois
F-26
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT THE END OF FISCAL YEARS 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
APRIL 30,
------------------
1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,523 $ 7,234
Short-term investments.................................... 1,466 8,297
Trade accounts and notes receivable, less allowance for
doubtful accounts of $345 and $428 in 1994 and 1995,
respectively............................................. 39,203 46,088
Inventories............................................... 9,865 11,086
Due from affiliated companies............................. 4,792 8,759
Income taxes receivable................................... -- 44
Prepaid expenses and other current assets................. 1,529 1,478
Deferred income taxes..................................... 230 190
-------- --------
Total current assets.................................... 62,608 83,176
Investments in affiliates................................... 928 1,223
Property, plant and equipment, net.......................... 18,650 20,371
Deferred income taxes....................................... 438 512
Other assets................................................ 4,245 5,531
-------- --------
$ 86,869 $110,813
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings..................................... $ 13,207 $ 15,744
Current portion of long-term debt......................... 1,815 2,406
Accounts payable.......................................... 24,627 34,299
Accrued expenses.......................................... 3,253 4,384
Income taxes payable...................................... 1,329 2,564
-------- --------
Total current liabilities............................... 44,231 59,397
-------- --------
Long-term liabilities:
Long-term debt............................................ 12,387 12,528
Liability for employee benefits........................... 2,017 2,595
Minority interest......................................... 1,593 2,078
-------- --------
Total long-term liabilities............................. 15,997 17,201
-------- --------
Stockholders' Equity:
Common stock, $6 par value, 240,000 shares authorized,
120,000 shares issued and outstanding.................... 210 210
Retained earnings......................................... 15,987 18,036
Foreign currency translation adjustment................... 10,444 15,954
Unrealized gains on marketable securities................. -- 15
-------- --------
Total stockholders' equity.............................. 26,641 34,215
-------- --------
$ 86,869 $110,813
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Net sales.......................................... $75,747 $87,217 $108,664
Cost of sales...................................... 54,238 63,405 77,088
------- ------- --------
Gross profit....................................... 21,509 23,812 31,576
Selling, general, and administrative expenses...... 20,306 20,904 25,109
------- ------- --------
Operating profit................................... 1,203 2,908 6,467
------- ------- --------
Other income (expense):
Losses on sales of assets........................ (77) (69) (293)
Equity in net earnings (loss) of affiliates...... (69) 110 89
Interest income.................................. 210 207 317
Interest expense................................. (1,252) (1,119) (1,056)
Miscellaneous, net............................... 201 357 (434)
------- ------- --------
(987) (514) (1,377)
------- ------- --------
Earnings before income taxes, minority interest and
cumulative effect of change in accounting
principle......................................... 216 2,394 5,090
Income tax expense................................. 725 1,026 2,755
------- ------- --------
Earnings (loss) before minority interest and
cumulative effect of change in accounting
principle......................................... (509) 1,368 2,335
Minority interest.................................. (49) (241) (166)
------- ------- --------
Earnings (loss) before cumulative effect of change
in accounting principle........................... (460) 1,127 2,169
Cumulative effect of change in accounting
principle......................................... -- (43) --
------- ------- --------
Net earnings (loss)................................ $ (460) $ 1,084 $ 2,169
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
COMMON RETAINED TRANSLATION GAINS ON
STOCK EARNINGS ADJUSTMENT SECURITIES TOTAL
------ -------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1992...... $210 $15,700 $ 4,938 $-- $20,848
Net loss....................... -- (460) -- -- (460)
Foreign currency translation
adjustment.................... -- -- 3,640 -- 3,640
Cash dividends................. -- (282) -- -- (282)
---- ------- ------- --- -------
Balance at April 30, 1993...... 210 14,958 8,578 -- 23,746
Net earnings................... -- 1,084 -- -- 1,084
Foreign currency translation
adjustment.................... -- -- 1,866 -- 1,866
Cash dividends................. -- (55) -- -- (55)
---- ------- ------- --- -------
Balance at April 30, 1994...... 210 15,987 10,444 -- 26,641
Net earnings................... -- 2,169 -- -- 2,169
Foreign currency translation
adjustment.................... -- -- 5,510 -- 5,510
Cash dividends................. -- (120) -- -- (120)
Unrealized gains on securities. -- -- -- 15 15
---- ------- ------- --- -------
Balance at April 30, 1995...... $210 $18,036 $15,954 $15 $34,215
==== ======= ======= === =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL
30,
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss).................................. $ (460) $1,084 $2,169
Adjustments to reconcile net earnings (loss) to net
cash provided by
(used in) operating activities:
Equity in net earnings (loss) of affiliates........ 69 (110) (89)
Depreciation and amortization...................... 2,237 2,668 2,531
Provision for deferred income taxes................ 272 (327) 76
Losses on sales of assets.......................... 77 69 293
Cumulative effect of change in accounting
principle......................................... -- 43 --
Other, net......................................... (25) 61 375
Change in assets and liabilities:
Decrease (increase) in trade accounts and notes
receivable
and due from affiliates......................... 3,737 (2,744) (1,729)
Decrease in inventories.......................... 1,154 1,813 608
(Increase) in prepaid expenses and other assets.. (418) (552) (316)
(Decrease) increase in accounts payable.......... (5,768) 2,255 4,028
(Decrease) increase in accrued expenses and other
liabilities..................................... (394) 1,215 717
(Decrease) increase in income taxes, net......... (2,446) 922 862
------ ------ ------
Net cash (used in) provided by operating activities.... (1,965) 6,397 9,525
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................. (2,364) (3,315) (1,214)
Proceeds from sales of assets........................ 166 6 354
Other investing activities........................... (149) 18 (5,676)
------ ------ ------
Net cash used in investing activities.................. (2,347) (3,291) (6,536)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid....................................... (282) (55) (120)
Increase in short-term borrowings.................... (78) (2,551) (155)
Proceeds from long-term debt......................... 2,469 3,008 247
Principal payments on long-term debt................. (480) (2,293) (2,165)
Issuance of debenture bond........................... 2,457 -- --
------ ------ ------
Net cash provided by (used in) financing activities.... 4,086 (1,891) (2,193)
------ ------ ------
Effect of foreign currency rate changes on cash........ 478 254 915
------ ------ ------
Net increase in cash and cash equivalents.............. 252 1,469 1,711
Cash and cash equivalents at beginning of year......... 3,802 4,054 5,523
------ ------ ------
Cash and cash equivalents at end of year............... $4,054 $5,523 $7,234
====== ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................... $1,239 $1,162 $1,487
====== ====== ======
Income taxes....................................... $2,674 $ 450 $1,783
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The Company and its consolidated Japanese subsidiaries maintain their books
of account in conformity with the financial accounting standards of Japan. The
Company's non-Japan subsidiaries maintain their books of account in conformity
with the financial accounting standards of the countries in which they are
located. The consolidated financial statements presented herein in U.S.
dollars have been adjusted to conform to United States generally accepted
accounting principles.
(b) Principles of Consolidation
The outstanding capital stock of SpeedFam Co., Ltd. is owned in equal
amounts by Obara Corporation, a Japanese corporation, and SpeedFam
International, Inc., a U.S. holding company.
The consolidated financial statements include the accounts of SpeedFam Co.,
Ltd. (the "Company"), a Japanese corporation, and the following subsidiaries:
<TABLE>
<CAPTION>
PERCENTAGE FISCAL
SUBSIDIARIES OWNERSHIP LOCATION YEAR-END
------------ ---------- ----------- --------
<S> <C> <C> <C>
SpeedFam Clean System Co., Ltd............ 61.25% Japan March 31
Saku Seiki K.K............................ 53.54% Japan March 31
SpeedFam Incorporated..................... 99.90% Taiwan March 31
SpeedFam Korea Ltd........................ 100.00% South Korea March 31
SpeedFam India (Pvt.) Ltd................. 95.82% India March 31
Precision Technology, Inc................. 100.00% South Korea April 30
</TABLE>
All significant intercompany balances and transactions have been eliminated.
The Company's fiscal year ends on April 30.
The Company's investments in the common stock of affiliates, Met Coil Ltd.
(50% owned) and CRT K.K. (23.8% owned), are accounted for by the equity
method.
The investment in Clean Technology K.K., a 45.08% owned affiliate of
SpeedFam Clean System Co., Ltd., and 4.92% owned by the Company, is accounted
for by the equity method.
At the end of 1993, Precision Technology, Inc. ceased operations and
transferred certain fixed assets at their net book value to SpeedFam Korea
Ltd., which was established in October 1993.
(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.
F-31
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Effective May 1, 1994, the Company adopted Statement 115. The effect of
adoption on the consolidated financial statements was not material. Prior to
May 1, 1994, marketable equity securities were carried at the lower of cost or
market and other investment securities were carried at cost.
(e) Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is provided on
the declining-balance method over the estimated useful lives of the assets.
Depreciation expense was $2,106, $2,512, and $2,312 in fiscal years 1993,
1994, and 1995, respectively. The estimated useful lives of the assets are as
follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 8 to 60 years
Machinery and equipment..................................... 4 to 13 years
Furniture and fixtures...................................... 2 to 20 years
Leasehold improvements...................................... 2 years
</TABLE>
(f) Inventories
Inventories are stated at the lower of cost, determined principally by the
first-in, first-out (FIFO) method, or market.
(g) Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Statement 109 requires a change to the asset and liability
method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Effective May 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that accounting change in the fiscal year 1994
consolidated statement of earnings.
(h) Research and Development
Research and development expense amounted to approximately $1,253, $1,634
and $1,748 in fiscal years 1993, 1994, and 1995, respectively.
(i) Foreign Currency Translation
Assets and liabilities have been translated using the exchange rates in
effect at the balance sheet dates. Results of operations are translated using
the average exchange rates prevailing throughout the period. Local currencies
are considered the functional currencies of the Company's non-Japan entities.
Net foreign currency exchange gains (losses) amounted to $8, $61 and ($50), in
fiscal years 1993, 1994, and 1995, respectively.
F-32
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(j) Concentration of Credit Risk
The Company and its subsidiaries are engaged in the design, engineering,
manufacture, and distribution of capital goods and related operating supplies
used in high technology industries such as semiconductor, electronic, memory
disk substrates and other manufacturing markets. The Company had sales to a
Japanese company that amounted to approximately 15%, 7%, and 10.5% of net
sales in fiscal years 1993, 1994, and 1995, respectively.
(k) Revenue Recognition
Sales of the Company's products are recorded upon shipment.
(l) Warranty Costs
Generally, the Company provides a one-year warranty against manufacturer's
defects on all machines sold. Due to the specialized nature of the products,
warranty expense is recorded when it is probable and can be estimated rather
than on a units-produced or revenue basis.
(2) INVENTORIES
Inventories at the end of fiscal years 1994 and 1995 are summarized below:
<TABLE>
<CAPTION>
1994 1995
------ -------
<S> <C> <C>
Raw materials.............................................. $2,173 $ 1,211
Work in process............................................ 6,636 8,671
Finished goods............................................. 1,056 1,204
------ -------
Total inventories...................................... $9,865 $11,086
====== =======
</TABLE>
(3) MARKETABLE SECURITIES
Marketable securities at the end of fiscal year 1995 are summarized as
follows:
<TABLE>
<S> <C>
Available-for-sale, at fair value--equity securities............. $ 651
Held-to-maturity, at amortized cost--debt securities............. 6,096
-------
$ 6,747
=======
</TABLE>
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value of available-for-sale and held-to-maturity securities at
the end of fiscal year 1995 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Available-for-sale equity
securities...................... $ 618 $45 $12 $ 651
====== === === ======
Held-to-maturity debt securities. $6,096 $-- $-- $6,096
====== === === ======
</TABLE>
Marketable debt securities are included in short-term investments and
marketable equity securities are included in other assets. Debt securities
mature within one year. Short-term investments at the end of fiscal year 1995
include time deposits of $2,201.
F-33
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
No investments classified as available-for-sale were sold during fiscal year
1995. The Company does not hold securities for trading purposes.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of fiscal years 1994 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Land..................................................... $ 4,721 $ 5,665
Buildings and improvements............................... 11,043 13,352
Machinery and equipment.................................. 15,360 17,929
Furniture and fixtures................................... 2,054 2,772
Leasehold improvements................................... 14 14
------- -------
33,192 39,732
Less accumulated depreciation............................ 14,542 19,361
------- -------
Net property, plant and equipment.................... $18,650 $20,371
======= =======
</TABLE>
(5) INCOME TAXES
As discussed in note 1, the Company adopted Statement No. 109 effective May
1, 1993. The cumulative effect of this change in accounting for income taxes
of $43 was determined as of May 1, 1993 and is reported separately in the
consolidated statement of earnings in fiscal year 1994.
Earnings (loss) before income taxes, minority interest and cumulative effect
of change in accounting principle are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Japan................................................ $ (92) $1,564 $3,216
Non-Japan............................................ 308 830 1,874
----- ------ ------
Total............................................ $ 216 $2,394 $5,090
===== ====== ======
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Current:
Japan.............................................. $ 365 $1,139 $2,159
Non-Japan.......................................... 88 214 520
----- ------ ------
453 1,353 2,679
Deferred:
Japan.............................................. 272 (327) 76
----- ------ ------
Total............................................ $ 725 $1,026 $2,755
===== ====== ======
</TABLE>
In fiscal year 1993, deferred income tax expense results from timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The sources and tax effects of those timing
differences are as follows:
F-34
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993
-----
<S> <C>
Business tax....................................................... $ 225
Undistributed earnings of affiliates............................... 61
Property, plant and equipment...................................... 28
Employee benefits.................................................. (17)
Inventory.......................................................... 26
Research and development........................................... (39)
Other.............................................................. (12)
-----
Deferred income tax expense.................................... $ 272
=====
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets at the end of fiscal years 1994 and 1995 are presented below:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Property, plant and equipment.............................. $(346) $(507)
Inventory.................................................. 139 (52)
Allowance for doubtful accounts............................ (36) (46)
Employee benefits.......................................... 942 1,199
Accrued vacation........................................... -- 97
Net operating losses....................................... 125 --
Other...................................................... (31) 11
Valuation allowance........................................ (125) --
----- -----
$ 668 $ 702
===== =====
</TABLE>
There is no valuation allowance for deferred tax assets at the end of fiscal
year 1995. The valuation allowance for deferred tax assets at the end of
fiscal year 1994 related to a tax loss carryforward at Saku Seiki K.K. that
was used in fiscal year 1995. Deferred tax assets are considered realizable
due to the expectation of future taxable income.
A reconciliation between the Company's effective tax rate and the "expected"
tax rate of 51% in Japan on earnings before income taxes, minority interest
and cumulative effect of change in accounting principle is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate................................ 51% 51% 51%
Expenses not deductible for tax purposes.................. 232 15 14
Equity in earnings of affiliates.......................... 16 (2) (1)
Differences of non-Japan and "expected" tax rates......... (31) (9) (5)
Utilization of tax loss carryforward...................... -- (5) (3)
Tax benefits not recognized on operating losses of
subsidiaries............................................. 93 -- --
Liquidation of PTI Korea.................................. 28 -- --
Tax credit for research and development................... (18) (6) (2)
Tax credit for non-Japan tax.............................. (46) -- --
Reduced tax rate applicable to earnings less than
threshold................................................ (7) (1) (1)
Other, net................................................ 18 -- 1
--- --- ---
Effective income tax rate................................. 336% 43% 54%
=== === ===
</TABLE>
F-35
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
No provision is made for income taxes on undistributed earnings of non-Japan
subsidiaries because it is the Company's present intention to reinvest
substantially all the earnings of these operations. At the end of fiscal year
1995, there were approximately $3,198 of accumulated undistributed earnings of
non-Japan subsidiaries. The Company believes that the amount of income taxes
that would be incurred if these earnings were remitted would not be
significant because of available tax credits.
The Company's corporate tax returns through April 30, 1987 have been
examined by the Japanese tax authorities.
(6) SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Bank borrowings, including overdraft.................... $ 7,596 $ 7,984
Trade notes discounted at banks with recourse........... 5,611 7,760
-------- -------
$ 13,207 $15,744
======== =======
</TABLE>
Short-term borrowings are secured by trade notes receivable with a net book
value of $7,760 at the end of fiscal year 1995. The short-term borrowings had
weighted average interest rates of 3.54% and 3.28% in fiscal years 1994 and
1995, respectively.
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Mortgage debentures:
1st Series, due November 1997, fixed interest rate of
7.7%................................................. $ 984 $ 1,188
2nd Series, due September 1999, fixed interest rate of
5.7%................................................. 2,951 3,563
-------- -------
3,935 4,751
-------- -------
Loans from banks and other financial institutions,
maturing 1990-2004, with weighted average interest
rates of 4.42% and 4.2% in 1994 and 1995, respectively. 10,267 10,183
-------- -------
Total long-term debt................................ 14,202 14,934
Less current portion of long-term debt.................. 1,815 2,406
-------- -------
Net long-term debt.................................. $ 12,387 $12,528
======== =======
</TABLE>
The mortgage debentures are secured by land, buildings and machinery and
other assets with a net book value of $13,893 at the end of fiscal year 1995.
At the end of fiscal year 1995, the Company has provided guarantees for up
to $1,188 and $207 of bank borrowings by Met-Coil Ltd., Japan, a 50% owned
affiliate, and SpeedFam India (Pvt.) Ltd., a subsidiary of the Company,
respectively. The Company does not anticipate any loss from these
arrangements.
F-36
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
1996........................... $ 2,406
1997........................... 3,398
1998........................... 1,797
1999........................... 4,965
2000 and thereafter............ 2,368
-------
$14,934
=======
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2001. Rental expense aggregated
approximately $1,153, $1,471, and $1,500 in fiscal years 1993, 1994 and 1995,
respectively.
Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1995 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1996.............................. $ 762
1997.............................. 596
1998.............................. 350
1999.............................. 283
2000 and thereafter............... 248
------
Total......................... $2,239
======
</TABLE>
At the end of fiscal year 1995, outstanding commitments for the purchase of
property, plant and equipment were approximately $647.
(9) PENSION AND SEVERANCE BENEFITS
The Company maintains pension and severance benefit plans for its employees.
Employees who leave the Company upon retirement because of age or sever their
connection with the Company for reasons other than dismissal for cause are
entitled to lump-sum payments based on their current rate of pay and length of
service.
Effective June 1, 1984 the Company adopted an insured pension plan which
also covers employees of SpeedFam Clean Systems Co., Ltd., the terms of which
provide for the ultimate funding of retirement benefits when due. Premiums
paid under the insured plan constitute the funding of the current costs of the
liability under the plan and the funding of the related past service costs
over a 15-year period.
A separate retirement benefits program for directors and statutory auditors
is not covered by the pension plan described above. The program provides
directors and statutory auditors who retire or sever their connection with the
Company lump-sum payments based on current rates of pay, determined according
to their title and the length of service. Directors and statutory auditors may
also be granted, at the discretion of the Company, additional lump-sum
payments for meritorious service. It is not the policy of the Company to fund
these
F-37
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
retirement and severance benefits, but provision has been made in the
financial statements for the estimated accrued liabilities under the plan. The
liability related to these retirement benefits included in the accompanying
consolidated balance sheets at the end of fiscal years 1994 and 1995 amounted
to $1,765 and $2,256, respectively. The retirement benefits expense amounted
to $158, $165, and $181 in fiscal years 1993, 1994 and 1995, respectively.
Two subsidiaries of the Company have separate employee retirement and
severance plan arrangements. Payments with respect to voluntary severance are
less in amount and vary with length of service than payments for involuntary
severance and retirement. The subsidiaries have recorded estimated liabilities
in the accompanying consolidated balance sheets at the end of fiscal years
1994 and 1995 of $252 and $338, respectively, based upon the amount, net of
the benefits to be paid by a government-sponsored small enterprise mutual aid
retirement fund, which would be payable if all employees had to retire
voluntary. Plan assets plus the accrued liability approximate vested benefits.
The expense related to these employee retirement and severance plans amounted
to $34, $20 and $20 in fiscal years 1993, 1994 and 1995, respectively. The
Company believes that the effect of not adopting Statement of Financial
Accounting Standard No. 87, "Employers' Accounting for Pensions" for these
plans is not material to the consolidated financial statements.
The funded status of the insured pension plan at the end of fiscal years
1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $(1,018) $(1,338)
Nonvested benefits.................................... (49) (46)
------- -------
Accumulated benefit obligation.......................... (1,067) (1,384)
------- -------
Projected benefit obligation............................ (1,569) (2,015)
Plan assets at fair value............................... 1,304 1,785
------- -------
Projected benefit obligation in excess of plan assets... (265) (230)
Unrecognized net loss................................... 127 76
Unrecognized net obligation at transition............... 223 251
------- -------
Prepaid pension cost.................................... $ 85 $ 97
======= =======
</TABLE>
The components of net periodic pension cost for the insured pension plan are
shown below:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year........ $128 $167 $204
Interest cost on projected benefit obligation........... 51 69 89
Actual return on plan assets............................ (32) (41) (46)
Net amortization and deferral........................... 22 25 19
---- ---- ----
$169 $220 $266
==== ==== ====
Significant actuarial assumptions:
Discount rate......................................... 5.5% 5.5% 5.5%
Rate of salary increase............................... 3.0% 3.0% 3.0%
Expected long-term return on plan assets.............. 3.0% 3.0% 3.0%
</TABLE>
Plan assets represent the Company's share of funds invested by a trustee in
pooled accounts comprised of cash in banks, securities, and real estate.
F-38
<PAGE>
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(10) LEGAL RESERVE AND CASH DIVIDENDS
The Japanese Commercial Code provides that earnings in an amount equal to at
least 10% of retained earnings be appropriated as a legal reserve until such
reserve equals 25% of stated common stock. This legal reserve is not available
for dividends but may be used to reduce a deficit or may be transferred to
stated common stock. Certain foreign subsidiaries are also required to
appropriate their earnings to legal reserves under the laws of the respective
countries. The legal reserve included as a component of retained earnings at
the end of fiscal year 1995 amounted to $310.
The accompanying consolidated financial statements do not reflect dividends
of $356 ($3 per share) declared subsequent to fiscal year 1995 by the Board of
Directors related to fiscal year 1995.
On July 20, 1995, shareholders approved the capitalization of a portion of
fiscal year 1995 earnings available for dividends amounting to $463 through
the issuance of 78,000 shares of new common stock with a par value of $6 (0.65
new share against each issued and outstanding share at the end of fiscal year
1995).
(11) RELATED PARTY TRANSACTIONS
The following is a summary of SpeedFam Co., Ltd. and consolidated
subsidiaries' transactions with SpeedFam International, Inc.
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam International, Inc. .............. $2,786 $3,121 $2,984
====== ====== ======
Purchases from SpeedFam International, Inc. ........ $ 377 $ 134 $ 251
====== ====== ======
Commission income................................... $ 164 $ 91 $ 125
====== ====== ======
Commission expense.................................. $ 892 $1,999 $2,952
====== ====== ======
</TABLE>
Commission expense is the amount earned by SpeedFam International, Inc.
related to the Company's sales of machines in the U.S. and Europe, which sales
amounted to $2,759, $5,497 and $8,772 in fiscal years 1993, 1994 and 1995.
The following is a summary of SpeedFam Co., Ltd. transactions with Met-Coil
Ltd., a 50% owned affiliate accounted for by the equity method:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Sales to Met-Coil Ltd. ................................... $ -- $281 $148
==== ==== ====
Purchases from Met-Coil Ltd. ............................. $ -- $767 $836
==== ==== ====
Interest income........................................... $ 50 $ 50 $ 14
==== ==== ====
Interest expense.......................................... $ -- $ 3 $ 5
==== ==== ====
</TABLE>
F-39
<PAGE>
SpeedFam provides a
wide variety of
polishing slurries
with a range of
removal rates and
surface finishes for
memory disk, silicon
wafer and other
applications.
Polishing pads are an
essential component of the
polishing process.
The Company supplies
a wide variety of
abrasives that are
used in polishing and
lapping processes.
The Company provides
specialized
carriers, precision-
shaped backing
films, retainer
rings, and other
process specific
fixturing to secure
the memory disk,
semiconductor wafer
or component during
the polishing
process.
In order to provide a total
solution to its customers'
surface processing
requirements, the Company
supplies a full complement of
process specific materials
including slurries, pads,
abrasives, carriers, backing
films, grinding stones, and
other items.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CRE-
ATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 14
Use of Proceeds........................................................... 14
Price Range of Common Stock and Dividend Policy........................... 15
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 26
Joint Venture Arrangements................................................ 41
Management................................................................ 46
Certain Transactions...................................................... 56
Principal and Selling Shareholders........................................ 57
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 62
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,660,000 SHARES
LOGO
SPEEDFAM INTERNATIONAL, INC.
COMMON STOCK
-----------------
PROSPECTUS
, 1996
-----------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
NEEDHAM & COMPANY, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The costs of issuance and distribution will be borne by the Registrant and are
estimated to be:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 18,658
NASD Filing Fee................................................. 2,367
Blue Sky Fees and Expenses...................................... 10,000
Transfer Agent Fees............................................. 1,500
Accounting Fees and Expenses.................................... 50,000
Legal Fees and Expenses......................................... 75,000
Printing and Engraving.......................................... 100,000
Miscellaneous................................................... 12,475
--------
Total......................................................... $270,000
========
</TABLE>
Incremental expenses relating to the sale of shares by the Selling
Shareholders will be borne by the Selling Shareholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 8.75 of the Illinois Business Corporation Act of 1983, as amended
(the "BCA") sets forth the conditions and limitations governing the
indemnification of officers, directors, and other persons.
Reference is made to Article X of the Company's Bylaws, a copy of which is
filed as Exhibit 3.2 to this Registration Statement, which provides for
indemnification of directors, officers, employees or agents of the Company to
the full extent permitted by the above-mentioned section of the Act.
Section 8.75(g) of the BCA and Article X, Section (g) of the Bylaws also
authorize the Company to purchase and maintain insurance on behalf of any
director, officer, employee or agent of the Company against any liability
asserted against or incurred by them in such capacity or arising out of their
status as such whether or not the Company would have the power to indemnify
such director, officer, employee or agent against such liability under the
applicable provisions of the Act or Bylaws. The Company currently maintains a
directors and officers liability policy in the amount of $5 million.
Reference is made to Section 6 of the Underwriting Agreement, a copy of
which is filed as Exhibit 1.1 to the Registration Statement, for information
concerning indemnification arrangements among the Company and the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In April of 1994, the Company sold 5,000 shares to Mr. M. Desai and 1000
shares to Mr. Y. Kim. The purchase price for such shares was $2.04 per share.
With the exception of Mr. C. Kelly, who serves as secretary of the Company,
all aforementioned individuals were either employees or directors of the
Company or an affiliate of the Company at the time of purchase. All such
transactions were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) of the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 Form of Underwriting Agreement.
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.
*5.1 Opinion of Chapman and Cutler.
10.1 Revolving Credit Agreement between the Registrant and The First
Natioinal Bank of Chicago and Firstar Bank Milwaukee, N.A. dated April
15, 1996.
*10.2 Multi-Currency and Term Loan Facility and Debenture between
Registrant's subsidiary and The First National Bank of Chicago, dated
June , 1996.
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
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 Chapman and Cutler (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Neil R. Bonke, Director-elect.
24.1 Power of Attorney
</TABLE>
- --------
*To be filed by amendment.
(b) Financial Statement Schedules
Schedule I--Condensed Financial Information of Registrant
Schedule II--Valuation and Qualifying Accounts
All other Schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chandler, County of
Maricopa, Arizona, on June 11, 1996.
SpeedFam International, Inc.
/s/ James N. Farley
By
-------------------------------------
James N. Farley, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ James N. Farley Chairman, Chief June 11, 1996
________________________________________ Executive Officer
James N. Farley and Director
/s/ Makoto Kouzuma President, Chief June 11, 1996
________________________________________ Operating Officer
Makoto Kouzuma and Director
/s/ Roger K. Marach Treasurer, Assistant June 11, 1996
________________________________________ Secretary and Chief
Roger K. Marach Financial Officer
(Principal financial
and accounting
officer)
June , 1996
________________________________________
Neil R. Bonke Director
/s/ Thomas J. McCook June 11, 1996
________________________________________
Thomas J. McCook Director
/s/ Dr. Stuart Meyer June 11, 1996
________________________________________
Dr. Stuart Meyer Director
/s/ Robert Miller June 11, 1996
________________________________________
Robert Miller Director
/s/ Carl S. Pedersen June 11, 1996
________________________________________
Carl S. Pedersen Director
</TABLE>
II-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SpeedFam International, Inc.:
Under date of July 18, 1995, except as to note 15, which is as of July 27,
1995, we reported on the consolidated balance sheets of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1994 and 1995,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1995,
which are included in the prospectus. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules in the registration statement.
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 18, 1995
Chicago, Illinois
<PAGE>
Schedule I
SPEEDFAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
SPEEDFAM INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
---------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 1 $ 1
Due from affiliated companies................................. 113 173
Prepaid expenses and other current assets..................... 413 536
------- -------
Total current assets........................................... 527 709
Investments in subsidiaries and affiliates..................... 22,431 27,468
Property, plant and equipment, net............................. 55 54
Other assets................................................... 537 670
------- -------
$23,550 $28,901
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 224 $ 207
Accounts payable.............................................. 111 156
Due to affiliates............................................. 3,511 4,486
Accrued expenses.............................................. 516 328
Income taxes.................................................. -- 317
------- -------
Total current liabilities...................................... 4,362 5,494
Long-term debt................................................. 702 534
Deferred income taxes.......................................... 258 253
Stockholders' equity........................................... 18,228 22,620
------- -------
$23,550 $28,901
======= =======
</TABLE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED,
-----------------------
1993 1994 1995
------- ------ ------
<S> <C> <C> <C>
Revenue.............................................. $ 82 $ 71 $ 96
Cost and operating expenses.......................... 444 798 648
Other income (expense)............................... (347) 251 (151)
------- ------ ------
Earnings (loss) before income taxes and equity in net
earnings (loss) of subsidiaries and affiliates...... (709) (476) (703)
Income tax expense (benefit)......................... 161 (379) (3)
Equity in net earnings (loss) of subsidiaries and
affiliates........................................... (14) 2,325 2,275
------- ------ ------
Net earnings (loss).................................. $ (884) $2,228 $1,575
======= ====== ======
</TABLE>
S-1
<PAGE>
SPEEDFAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
SPEEDFAM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED,
---------------------
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................... $(884) $2,228 $1,575
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Equity in net loss (earnings) of subsidiaries and
affiliates.............................................. 14 (2,325) (2,275)
Depreciation and amortization......................... 39 90 92
Provision for deferred income taxes................... 93 (302) (75)
Gains on sales of assets.............................. -- (7) (15)
Increase in cash surrender value...................... (77) (119) (138)
Gain on disposal of FamTec A.G........................ -- (411) --
Change in assets and liabilities...................... 392 1,055 1,037
----- ------ ------
Cash flows (used in) provided by operating activities.. (423) 209 201
----- ------ ------
Cash flows from investing activities:
Capital expenditures.................................. (2) (80) (42)
Proceeds from sales of assets......................... -- 21 42
Dividends from subsidiaries and affiliates............ 642 77 90
Other investing activities............................ -- (28) (32)
----- ------ ------
Net cash provided by (used in) investing activities.... 640 (10) 58
----- ------ ------
Cash flows from financing activities:
Treasury transactions, net............................ 54 8 (35)
Principal payments on long-term debt.................. (267) (267) (224)
----- ------ ------
Net cash used in financing activities.................. (213) (259) (259)
----- ------ ------
Net increase (decrease) in cash and cash equivalents... 4 (60) --
Cash and cash equivalents at beginning of year......... 57 61 1
----- ------ ------
Cash and cash equivalents at end of year............... $ 61 $ 1 $ 1
===== ====== ======
</TABLE>
S-2
<PAGE>
Schedule II
SPEEDFAM INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED MAY 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
CHARGED OTHER ACCOUNTS DEDUCTIONS
BALANCE AT TO COSTS (TRANSLATION (WRITE- BALANCE
BEGINNING AND ADJUSTMENT OFFS AND AT END
DESCRIPTION OF YEAR EXPENSE AND RECOVERIES) ADJUSTMENTS) OF YEAR
----------- ---------- --------- --------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1993.................. 184 45 -- 20 209
1994.................. 209 7 (7) 17 192
1995.................. 192 3 7 15 187
<CAPTION>
CHARGED CHARGED TO
BALANCE AT TO COSTS OTHER ACCOUNTS DEDUCTIONS BALANCE
BEGINNING AND (TRANSLATION (WRITE-OFFS AT END
DESCRIPTION OF YEAR EXPENSE ADJUSTMENTS) OF INVENTORY) OF YEAR
----------- ---------- --------- --------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Inventory obsolescence:
1993.................. 813 450 2 439 826
1994.................. 826 4 (4) 665 161
1995.................. 161 305 7 121 352
<CAPTION>
CHARGED
BALANCE AT TO 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:
1993.................. 540 39 -- 419 160
1994.................. 160 420 -- 100 480
1995.................. 480 (145) -- 135 200
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
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.
*5.1 Opinion of Chapman and Cutler.
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 Multi-Currency and Term Loan Facility and Debenture between
Registrant's subsidiary and The First National Bank of Chicago,
dated June , 1996.
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.17 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 Chapman and Cutler (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Neil R. Bonke, Director-elect.
24.1 Power of Attorney.
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
3,000,000 SHARES
SPEEDFAM INTERNATIONAL, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
July , 1996
Lehman Brothers Inc.
Alex. Brown & Sons Incorporated
Needham & Company, Inc.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Ladies and Gentlemen:
SpeedFam International, Inc., an Illinois corporation (the "Company") and
certain shareholders of the Company named in Schedule 2 hereto (the "Selling
Shareholders") propose to sell an aggregate of 3,000,000 shares (the "Firm
Stock") of the Company's Common Stock (the "Common Stock"). Of the 3,000,000
shares of the Firm Stock, 2,660,000 are being sold by the Company and 660,000
by the Selling Shareholders. In addition, the Company proposes to grant to the
Underwriters named in Schedule 1 hereto (the "Underwriters") an option to
purchase up to an additional 399,000 shares of the Common Stock on the terms
and for the purposes set forth in Section 3 (the "Option Stock"). The Firm
Stock and the Option Stock, if purchased, are hereinafter collectively called
the "Stock." This is to confirm the agreement concerning the purchase of the
Stock from the Company and the Selling Shareholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The Company
represents, warrants and agrees that:
(a) A registration statement on Form S-1, Registration No. 333- ,
with respect to the Stock has (i) been prepared by the Company in
conformity with the requirements of the United States Securities Act of
1933, as amended (the "Securities Act") and the rules and regulations (the
"Rule and Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been transmitted
electronically for filing with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of such
registration statement and any amendments thereto have been delivered by
the Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means the date
and the time as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became effective
under the Securities Act and any prospectus filed with the Commission by
the Company with the consent of the Representatives pursuant to Rule 424(a)
of the Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time, including all
information contained in the final prospectus transmitted for filing with
the Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with the provisions hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to paragraph (b)
of Rule 430A of the Rules and Regulations; and "Prospectus" means such
final prospectus, as first transmitted for filing with the Commission
pursuant to paragraph (1) or (4) of Rule 424(b), paragraph
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(1) of Rule 434(a) or Rule 462(b) of the Rules and Regulations. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are transmitted for filing
with the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The Company and each of its Subsidiaries ( Subsidiaries shall include
all entities in which the Company directly or indirectly, has an ownership
interest, specifically including SpeedFam Corporation, SpeedFam Limited,
and SpeedFam (Gmbh, as well as SpeedFam Co., Ltd., a Japanese corporation,
and Fujimi Corporation, on Illinois Corporation, and all subsidiaries and
other entities in which such entities hold an ownership interest) have been
duly incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as foreign corporations
in each jurisdiction in which their respective ownership or lease of
property or the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own or hold
their respective properties and to conduct the businesses in which they are
engaged;
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform in all material respects to the description thereof
contained in the Prospectus; and all of the issued shares of capital stock
of each Subsidiary of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable and (except for directors'
qualifying shares) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims.
(e) The shares of the Stock to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and non-assessable; and the Stock will
conform to the description thereof contained in the Prospectus.
(f) This Agreement has been duly authorized, executed and delivered by
the Company.
(g) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound or to which any of the property or assets
of the Company or any of its Subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of the
Company or any of its Subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its Subsidiaries or any of their properties or
assets; and except for the registration of the Stock under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and applicable state securities laws
in connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby.
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(h) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued
pursuant to employee benefit plans, qualified stock options plans, stock
purchase plans or other employee compensation plans or pursuant to
outstanding options, rights or warrants.
(j) Neither the Company nor any of its Subsidiaries has sustained, since
the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
such date and except as contemplated by Section 1(i) above, there has not
been any change in the capital stock or long-term debt of the Company or
any of its Subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, shareholders' equity or
results of operations of the Company and its Subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the Prospectus.
(k) The financial statements (including the related notes and supporting
schedules) filed as part of the Registration Statement or included in the
Prospectus present fairly the financial condition and results of operations
of the entities purported to be shown thereby, at the dates and for the
periods indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved except as may be described therein.
(l) KPMG Peat Marwick LLP, who have audited certain financial statements
of the Company, whose report appears in the Prospectus and who,
concurrently with the execution hereof, delivering the initial letter
referred to in Section 9(k) hereof, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
(m) The Company and each of its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and its Subsidiaries; and all real property
and buildings held under lease by the Company and its Subsidiaries are held
by them under valid, subsisting and enforceable leases, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to or affecting
creditors, rights generally or by general equitable principles, and with
such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and
its Subsidiaries.
(n) The Company and each of its Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses
in similar industries.
(o) The Company and each of its Subsidiaries own or possess adequate
rights to use all material patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the conduct of
their respective businesses will conflict with, and have not received any
notice of any claim by third parties that the Company or any of its
Subsidiaries is infringing on the intellectual property rights of such
third parties.
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(p) There are no legal or governmental proceedings pending to which the
Company or any of its Subsidiaries is a party or of which any property or
assets of the Company or any of its Subsidiaries is the subject which, if
determined adversely to the Company or any of its Subsidiaries, might have
a material adverse effect on the consolidated financial position,
shareholders' equity, results of operations, business or prospects of the
Company and its Subsidiaries, taken as a whole; and to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(q) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) No labor disturbance by the employees of the Company exists or, to
the knowledge of the Company, is imminent which might be expected to have a
material adverse effect on the consolidated financial position,
shareholders' equity, results of operations, business or prospects of the
Company and its Subsidiaries, taken as a whole.
(s) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and, to the best knowledge of the
Company, nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(t) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes shown as due thereon, and no tax deficiency has been
determined adversely to the Company or any of its Subsidiaries which has
had (nor does the Company have any knowledge of any tax deficiency which,
if determined adversely to the Company or any of its Subsidiaries, might
have) a material adverse effect on the consolidated financial position,
shareholders' equity, results of operations, business or prospects of the
Company and its Subsidiaries, taken as a whole.
(u) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities (other
than the issuance of options pursuant to the Company's stock option plans
or stock purchase plan or as contemplated by Section 1(i) above), (ii)
incurred any material liability or obligation, direct or contingent, other
than liabilities and obligations which were incurred in the ordinary course
of business, (iii) entered into any material transaction not in the
ordinary course of business or (iv) declared or paid any dividend on its
capital stock.
(v) The Company (i) makes and keeps accurate books and records and (ii)
maintains internal accounting controls which provide reasonable assurance
that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for
its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable intervals.
(w) Neither the Company nor any of its Subsidiaries (i) is in violation
of its charter or by-laws, (ii) is in default in any material respect, and
no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any
term, covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement or other agreement or
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instrument to which it is a party or by which it is bound or to which any
of its properties or assets is subject or (iii) is in violation in any
material respect of any law, ordinance, governmental rule, regulation or
court decree to which it or its property or assets may be subject or has
failed to obtain any material license, permit, certificate, franchise or
other governmental authorization or permit necessary to the ownership of
its property or to the conduct of its business.
(x) To the best knowledge of the Company and its Subsidiaries, neither
the Company nor any of its Subsidiaries, nor any director, officer, agent,
employee or other person associated with or acting on behalf of the Company
or any of its Subsidiaries, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(y) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its Subsidiaries (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or its Subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, shareholders' equity or results of
operations of the Company and its Subsidiaries; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of
its Subsidiaries or with respect to which the Company or any of its
Subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a material adverse effect on the general affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(z) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940
and the rules and regulations of the Commission thereunder.
2. Representations, Warranties and Agreements of the Selling Shareholders.
Each Selling Shareholder (except as otherwise set forth in subsections (f) and
(g), severally and not jointly represents, warrants and agrees that:
(a) Such Selling Shareholder has, and immediately prior to the First
Delivery Date (as defined in Section 5 hereof) such Selling Shareholder
will have good and valid title to the shares of Stock to be sold by the
Selling Shareholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such shares and
payment therefor pursuant hereto, good and valid title to such shares, free
and clear of all liens, encumbrances, equities or claims, will pass to the
several Underwriters assuming they acquire without notice of any adverse
claim.
(b) Such Selling Shareholder has placed in custody under a custody
agreement (the "Custody Agreement" and, together with all other similar
agreements executed by the other Selling Shareholders, the "Custody
Agreements") with , as custodian (the "Custodian"),
for delivery under this Agreement, certificates in negotiable form (with
signature guaranteed by a commercial bank or trust company having an office
or correspondent in the United States or a member firm of the New York or
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American Stock Exchanges) representing the shares of Stock to be sold by
such Selling Shareholder hereunder.
(c) Such Selling Shareholder has duly and irrevocably executed and
delivered a power of attorney (the "Power of Attorney" and, together with
all other similar agreements executed by the other Selling Shareholders,
the "Powers of Attorney") appointing the Custodian and one or more other
persons, as attorneys-in-fact, with full power of substitution, and with
full authority (exercisable by any one or more of them) to execute and
deliver this Agreement and to take such other action as may be necessary or
desirable to carry out the provisions hereof on behalf of the Selling
Shareholder.
(d) Such Selling Shareholder has full right, power and authority to enter
into this Agreement, the Power of Attorney and the Custody Agreement; the
execution, delivery and performance of this Agreement, the Power of
Attorney and the Custody Agreement by such Selling Shareholder and the
consummation by such Selling Shareholder of the transactions contemplated
hereby and thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or to which any of the property or
assets of such Selling Shareholder is subject, nor will such actions result
in any violation of the provisions of the charter or by-laws of such
Selling Shareholder, the articles of partnership of such Selling
Shareholder, or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over such Selling
Shareholder or the property or assets of such Selling Shareholder; and,
except for the registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or qualifications as may
be required under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement, the
Power of Attorney or the Custody Agreement by such Selling Shareholder and
the consummation by such Selling Shareholder of the transactions
contemplated hereby and thereby, except such as may be required by the
Securities of Blue Sky laws of the various states in connection with the
offer and sale of the shares of stock.
(e) The Selling Shareholder has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the shares of the Stock.
(f) James N. Farley and Makoto Kouzuma (the Key Selling Shareholders)
represent and warrant that The Registration Statement and the Prospectus
and any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the applicable
effective date (as to the Registration Staement and any amendment thereto)
and as of the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement of a material
fact or omit to state a material fact required to be stated herein or
necessary to make the statements therein not misleading provided that no
representation or warranty be made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance upon
an in conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
(g) The Key Selling Shareholders have no reason to believe that the
representations and warranties of the Company contained in Section 1 hereof
are not materially true and correct, is familiar with the Registration
Statement and the Prospectus (as amended or supplemented) and has no
knowledge of any material fact, condition or information not disclosed in
the Registration Statement, as of the effective date, or the Prospectus (or
any amendment or supplement thereto), as of the applicable filing date,
which has adversely effected or may adversely effect the business of the
Company and is not prompted to sell shares of Common Stock by any
information concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
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3. Purchase of Stock by the Underwriters. On the basis of the representations
and warranties contained in, and subject to the terms and conditions of, this
Agreement, the Company agrees to sell 2,000,000 shares of the Firm Stock and
each Selling Shareholder hereby agrees to sell the number of shares of the Firm
Stock set opposite its name in Schedule 2 hereto, severally and not jointly, to
the several Underwriters and each of the Underwriters, severally and not
jointly, agrees to purchase the number of shares of the Firm Stock set opposite
that Underwriter's name in Schedule 1 hereto. Each Underwriter shall be
obligated to purchase from the Company, and from each Selling Shareholder, that
number of shares of the Firm Stock which represents the same proportion of the
number of shares of the Firm Stock to be sold to the Company, and by each
Selling Shareholder, as the number of shares of the Firm Stock set forth
opposite the name of each Underwriter in Schedule 1 represents the total number
of shares of the Firm Stock to be purchased by all of the Underwriters to avoid
fractional shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option to purchase up
to 399,000 shares of Option Stock. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased from the Company for the account of the Underwiters in proportion to
that number of shares of the Option Stock which represents the same proportion
of the number of shares of the Option Stock which represents the same
proportion of the number of shares of the Firm Stock set forth opposite the
name of such Underwriter in Schedule 1 represents of the total number of shares
of the Firm Stock to be purchased by all of the Underwriters pursuant to this
Agreement. The respective purchase obligations of each Underwriter with respect
to the Option Stock shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be
$ per share.
The Company and the Selling Shareholders shall not be obligated to deliver
any of the Stock to be delivered on the First Delivery Date or the Second
Delivery Date (as hereinafter defined), as the case may be, except upon payment
for all the Stock to be purchased on such Delivery Date as provided herein.
4. Offering of Stock by the Underwriters. Upon authorization by the
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set
forth in the Prospectus.
It is understood that up to 2,660,000 shares of the Firm Stock will initially
be reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc. to
employees and persons having business relationships with the Company and its
Subsidiaries who have heretofore delivered to the Representatives offers to
purchase shares of Firm Stock in form satisfactory to the Representatives, and
that any allocation of such Firm Stock among such persons will be made in
accordance with timely directions received by the Representatives from the
Company. It is further understood that any shares of such Firm Stock which are
not purchased by such persons will be offered by the Underwriters to the public
upon the terms and conditions set forth in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and payment for the
Firm Stock shall be made at the office of Chapman and Cutler, Chicago, Illinois
at 9:00 A.M., central time, on the fourth full business day following the date
of this Agreement or at such other date or place as shall be determined by
agreement between the Representatives and the Company. Such date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company and the Selling Shareholders shall deliver or cause to be delivered
certificates representing the Firm Stock to the Representatives for the account
of each Underwriter against payment to or upon the order of the Company and the
Selling Shareholders of the purchase price by certified or official bank check
or checks payable or wire transfer in New York Clearing House (same-day) funds.
Time shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of each
Underwriter hereunder. Upon delivery, the Firm Stock shall be registered in
such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the
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certificates for the Firm Stock, the Company and the Selling Shareholders shall
make the certificates representing the Firm Stock available for inspection by
the Representatives in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this Agreement
the option granted in Section 3 may be exercised by written notice being given
to the Company by the Representatives. Such notice shall set forth the
aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representatives, when the shares of Option
Stock are to be delivered; provided, however, that such date and time shall not
be earlier than the First Delivery Date nor earlier than the second full
business day after the date on which the option shall have been exercised nor
later than the fifth business day after the date on which the option shall have
been exercised. The date and time the shares of Option Stock are delivered are
sometimes referred to as the "Second Delivery Date" and the First Delivery Date
and the Second Delivery Date are sometimes each referred to as a "Delivery
Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 5 (or at
such other place as shall be determined by agreement between the
Representatives and the Company) at 9:00 A.M., central time, on the Second
Delivery Date. On the Second Delivery Date, the Company shall deliver or cause
to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable or wire transfer in New York Clearing House (same-day)
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation
of each Underwriter hereunder. Upon delivery, the Option Stock shall be
registered in such names and in such denominations as the Representatives shall
request in the aforesaid written notice. For the purpose of expediting the
checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the Second Delivery
Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Representatives
and to transmit for filing such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than the Commission's close of business on the
second business day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act; to make no further amendment or any supplement to
the Registration Statement or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof; to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or notification of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel for
the Underwriters a conformed copy of the Registration Statement as
originally transmitted for filing with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
other than this
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Agreement, the computation of per share earnings and any exhibits
incorporated by reference to the Company's Registration Statement on Form
S-1, SEC File No. 33-95628), (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus and, if the delivery
of a prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Stock or any other securities
relating thereto and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply with the
Securities Act, to notify the Representatives and, upon their request, to
file such document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance;
(d) To transmit for filing promptly with the Commission any amendment to
the Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Representatives,
be required by the Securities Act or requested by the Commission;
(e) Prior to transmission of filing with the Commission any amendment to
the Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a
copy thereof to the Representatives and counsel for the Underwriters;
(f) As soon as practicable after the Effective Date to make generally
available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its Subsidiaries
(which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company,
Rule 158);
(g) For a period of five years following the Effective Date, to furnish
to the Representatives copies of all materials furnished by the Company to
its shareholders and all public reports and all reports and financial
statements furnished by the Company to the principal national securities
exchange upon which the Common Stock may be listed pursuant to requirements
of or agreements with such exchange or to the Commission pursuant to the
Exchange Act or any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the Representatives
may reasonably request to qualify the Stock for offering and sale under the
securities laws of such jurisdictions as the Representatives may request
and to comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Stock;
(i) For a period of 90 days from the date of the Prospectus, not to,
directly or indirectly, offer for sale, sell or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Stock and shares or
options issued or granted pursuant to employee benefit plans, qualified
stock option plans or other employee compensation plans existing on the
date hereof or pursuant to currently outstanding options, warrants or
rights), or sell or grant options, rights or warrants with respect to any
shares of Common Stock (other than the grant of options pursuant to option
plans existing on the date hereof), without the prior written consent of
Lehman Brothers Inc.; and to cause each officer and director of the Company
to furnish to the Representatives, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, offer for sale, sell or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the
future of) any shares of Common Stock for a period of 90 days from the date
of the Prospectus, without the prior written consent of Lehman Brothers
Inc.;
(j) Prior to the Effective Date, to apply for the listing of the Stock on
the Nasdaq National Market System and to use its best efforts to complete
that listing, subject only to official notice of issuance, prior to the
First Delivery Date;
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(k) To apply the net proceeds from the sale of the Stock being sold by
the Company substantially as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that neither the
Company nor any Subsidiary shall become an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the Commission thereunder.
7. Further Agreements of the Selling Shareholders. Each Selling Shareholder
severally agrees:
(a) For a period of 90 days from the date of the Prospectus, not to,
directly or indirectly, offer for sale, sell or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Stock), without the
prior written consent of Lehman Brothers Inc.;
(b) That the Stock to be sold by such Selling Shareholder hereunder,
which is represented by the certificates held in custody for the Selling
Shareholder, is subject to the interest of the Underwriters and the other
Selling Shareholders thereunder, that the arrangements made by such Selling
Shareholder for such custody are to that extent irrevocable, and that the
obligations of such Selling Shareholder hereunder shall not be terminated
by any act of such Selling Shareholder, by operation of law, by the death
or related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the costs of delivering and distributing the
Custody Agreements and the Powers of Attorney; (f) the filing fees incident
to securing any required review by the National Association of Securities
Dealers, Inc. of the terms of sale of the Stock; (g) any applicable listing
or other fees; (h) the fees and expenses of qualifying the Stock under the
securities laws of the several jurisdictions as provided in Section 6(h)
and of preparing, printing and distributing a Blue Sky Memorandum
(including related fees and expenses of counsel to the Underwriters); (i)
all other costs and expenses incident to the performance of the obligations
of the Company under this Agreement; provided that, except as provided in
Section 13, the Underwriters shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on
the Stock which they may sell and the expenses of advertising any offering
of the Stock made by the Underwriters.
8. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable
in that connection; (b) the costs incident to the preparation, printing and
filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally transmitted for filing and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), any Preliminary Prospectus, the Prospectus and any amendment or
supplement to the Prospectus, all as provided in this Agreement; (d) the costs
of producing and distributing this Agreement and any other related documents
in connection with the offering, purchase, sale and delivery of the stock; (e)
the costs of delivering and distributing the Custody Agreements and the Powers
of Attorney; (f) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of sale of
the Stock; (g) any applicable listing or other fees; (h) the fees and expenses
of qualifying the Stock under the securities laws of the several jurisdictions
as provided in Section 6(h) and of preparing, printing and distributing a Blue
Sky Memorandum (including related fees and expenses of counsel to the
Underwriters); (i) all other costs and expenses incident to the performance of
the obligations of the Company under this Agreement; provided that, except as
provided in Section 13, the Underwriters shall pay their own costs and
expenses, including the costs and expenses of their counsel, any transfer
taxes on the Stock which they may sell and the expenses of advertising any
offering of the Stock made by the Underwriters.
9. Conditions of Underwriters' Obligations. The respective obligations of
the Underwriters hereunder are subject to the accuracy in all material
respects, when made and on each Delivery Date, of the representations and
warranties of the Company and the Selling Shareholders contained herein, to
the performance by the Company and the Selling Shareholders in all material
respects, of their respective obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Prospectus shall have been timely transmitted for filing with the
Commission in accordance with Section 6(a); no stop order suspending the
effectiveness of the Registration Statement or any part
10
<PAGE>
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company on
or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Brobeck, Phleger & Harrison
LLP, counsel for the Underwriters, is material or omits to state a fact
which, in the opinion of such counsel, is material and is required to be
stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Custody Agreements,
the Powers of Attorney, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the Underwriters, and the Company and the
Selling Shareholders shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass upon
such matters.
(d) Chapman and Cutler shall have furnished to the Representatives its
written opinion, as counsel to the Company, addressed to the Underwriters
and dated such Delivery Date, in form and substance reasonably satisfactory
to the Representatives, to the effect that:
(i) Each of the Company and SpeedFam Corporation ("SpeedFam") has
been duly incorporated and validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, except where the
failure to see qualify would not have a material adverse effect on the
financial condition, earnings, operations, business or business
prospects of such corporation, and have all power and authority
necessary to own or hold their respective properties and conduct the
businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company (including the shares of Stock being delivered on such Delivery
Date upon issuance and delivery against payment therefore in accordance
with the terms hereof) have been duly and validly authorized and
issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; and all of the issued
shares of capital stock of each Subsidiary of the Company have been
duly and validly authorized and issued and are fully paid, non-
assessable and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(iii) There are no preemptive or other rights that have not been
properly waived to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of the Stock pursuant to the
Company's charter or by-laws or any agreement or other instrument known
to such counsel;
(iv) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or SpeedFam is a party or of which any
property or assets of the Company or SpeedFam is the subject which, if
determined adversely to the Company or SpeedFam, might have a material
adverse effect on the consolidated financial position, shareholders'
equity, results of operations, business or prospects of the Company and
its Subsidiaries, taken as a whole; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(v) The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion, the
Prospectus was transmitted for filing with the Commission pursuant to
the subparagraph of Rule 424(b) of the Rules and Regulations specified
in such opinion on the date specified therein and no stop order
suspending the effectiveness of the Registration Statement has been
issued and, to the knowledge of such counsel, no proceeding for that
purpose is pending or threatened by the Commission;
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<PAGE>
(vi) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to such
Delivery Date (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Securities Act and the Rules and Regulations;
(vii) To the best of such counsel's knowledge, there are no contracts
or other documents which are required to be described in the Prospectus
or filed as exhibits to the Registration Statement by the Securities
Act or by the Rules and Regulations which have not been described or
filed as exhibits to the Registration Statement or incorporated therein
by reference as permitted by the Rules and Regulations;
(viii) This Agreement has been duly authorized, executed and
delivered by the Company;
(ix) The issue and sale of the shares of Stock being delivered on
such Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound or to which any of the
property or assets of the Company or any of its Subsidiaries is
subject, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any of its
Subsidiaries or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its Subsidiaries or any of
their properties or assets; and, except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby; and
(x) To the best of such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right (other than rights which have been
waived or satisfied) to require the Company to file a registration
statement under the Securities Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the laws of the State of Illinois, and (ii) as to questions of
fact upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy in such opinions, representations or certificates. Copies of any
opinion, representation or certificate so relied upon shall be delivered to
the Representatives and to the Representatives' counsel. Such counsel shall
also have furnished to the Representatives a written statement, addressed
to the Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that based on the
foregoing and with no independent check or verification thereof, no facts
have come to the attention of such counsel which lead it to believe that
the Registration Statement, as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein
not misleading, or that the Prospectus contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
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<PAGE>
(e) Chapman and Cutler shall have furnished to the Representatives its
written opinion, as counsel to the Selling Shareholders, addressed to the
Underwriters and dated the First Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) Each Selling Shareholder has full right, power and authority to
enter into this Agreement, the Power of Attorney and the Custody
Agreement; the execution, delivery and performance of this Agreement,
the Power of Attorney and the Custody Agreement by each Selling
Shareholder and the consummation by each Selling Shareholder of the
transactions contemplated hereby and thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any statute, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known to
such counsel to which such Selling Shareholder is a party or by which
such Selling Shareholder is bound or to which any of the property or
assets of such Selling Shareholder is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws or
the articles of partnership of any Selling Shareholder, or any statute
or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over any such Selling
Shareholder or the property or assets of any Selling Shareholder; and,
except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable
state securities laws in connection with the purchase and distribution
of the Stock by the Underwriters, no consent, approval, authorization
or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Power of Attorney or the Custody
Agreement by any Selling Shareholder and the consummation by such
Selling Shareholder of the transactions contemplated hereby and
thereby;
(ii) This Agreement has been duly authorized, executed and delivered
by or on behalf of each Selling Shareholder;
(iii) A Power-of-Attorney and a Custody Agreement have been duly
authorized, executed and delivered by each Selling Shareholder and
constitute valid and binding agreements of such Selling Shareholder,
enforceable in accordance with their respective terms; and
(iv) Immediately prior to the First Delivery Date, each Selling
Shareholder had good and valid title to the shares of Stock to be sold
by such Selling Shareholder under this Agreement, free and clear of all
liens, encumbrances, equities or claims, and full right, power and
authority to sell, assign, transfer and deliver such shares to be sold
by such Selling Shareholder hereunder;
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the laws of the State of Illinois and (ii) in rendering the
opinions above, rely upon a certificate of each Selling Shareholder (or
representations of such Selling Shareholder as set forth in the Power of
Attorney) in respect of matters of fact, provided that such counsel shall
furnish copies thereof to the Representatives and state that it believes
that both the Underwriters and it are justified in relying upon such
certificate.
(f) Snell & Wilmer shall have furnished to the Representatives its
written opinion, as special patent counsel to the Company, addressed to the
Underwriters and dated the First Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no pending or threatened actions,
suits, proceedings or claims of any third party challenging the
validity or scope of any United States or foreign patent filed by the
Company, and no actual or threatened claim of infringement by the
Company of a patent held by a third party has been brought to such
counsel's attention by such third party; and
(ii) Such counsel has carefully examined the Prospectus and no facts
have come to such counsel's attention that leads it to believe that the
information contained under the captions "Risk Factors--Intellectual
Property Rights" and "Business--Intellectual Property", insofar as it
concerns patent matters, as of the Effective Date, contained any untrue
statement of a material fact or omitted to state
13
<PAGE>
any material fact required to be stated therein or necessary to make
the statements therein not misleading or that, as of the date of such
opinion, the information contained in such sections of the Prospectus
contains any untrue statement of a material fact or omits to sate any
material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the laws of the State of Arizona, and as to questions of fact
upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy in such opinions, representations or certificates. Copies of any
opinion, representation or certificate so relied upon shall be delivered to
the Representatives and to the Representatives' counsel.
(g) Baker & McKenzie shall have furnished to the Representatives its
written opinion, as counsel to SpeedFam Limited, addressed to the
Underwriters and dated such Delivery Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
(i) SpeedFam Limited has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(ii) SpeedFam Limited has the corporate power to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) SpeedFam Limited is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in
which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure so to
qualify would not have a material adverse effect on the financial
condition, earnings, operations, business or business prospects of such
corporation; and
(iv) With respect to SpeedFam Limited, the performance of this
Agreement and the consummation of the transactions herein contemplated
(other than performance of the Company's indemnification and
contribution obligations hereunder, concerning which no opinion need be
expressed) will not, to such counsel's knowledge, result in the
violation of any foreign statue, rule or regulation.
(h) Baker & McKenzie shall have furnished to the Representatives its
written opinion, as counsel to SpeedFam Gmbh, addressed to the Underwriters
and dated such Delivery Date, in form and substance reasonably satisfactory
to the Representatives, to the effect that:
Counsel rendering the foregoing opinion may rely as to questions of fact
upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy in such representations or certificate. Copies of any
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(i) Sanno Law Offices shall have furnished to the Representatives its
written opinion, as counsel to SpeedFam Co., Ltd., a Japanese corporation,
addressed to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(v) SpeedFam Co., Ltd., a Japanese corporation has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of Japan, with full corporate power and authority to own
or lease its properties and conduct its business;
(vi) Each of the subsidiaries of SpeedFam Co., Ltd., including
without limitation SpeedFam Clean System Co., Ltd. (Japan), Saku Seki
K.K. (Japan), SpeedFam Incorporated (Taiwan), SpeedFam India (Pvt.)
Ltd. (India), SpeedFam Korea Ltd. (Korea), SpeedFam Thailand Co. Ltd.
(Thailand) and Met Coil Ltd. (Japan), (collectively the "SpeedFam Ltd.
Subsidiaries") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with the corporate power and authority to own or lease
its properties and conduct its business;
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<PAGE>
(vii) Each branch of the SpeedFam Co., Ltd. has been duly qualified
and is in good standing in its applicable jurisdiction. SpeedFam Co.,
Ltd. is qualified to do business as a foreign corporation in each
jurisdiction where its failure to do so would have a materially adverse
effect on its business or properties;
(viii) The descriptions and representations of SpeedFam Co., Ltd. and
the SpeedFam Ltd. Subsidiaries as set forth in the Registration
Statement are true and accurate in all material respects as of the date
hereof;
(ix) The authorized capital stock of SpeedFam Co., Ltd. and the
SpeedFam Ltd. Subsidiaries conforms as to legal matters in all material
respects to the descriptions thereof contained in the Registration
Statement;
(x) The outstanding shares of capital stock of SpeedFam Co., Ltd. and
the SpeedFam Ltd. Subsidiaries have been duly and validly authorized
and issued, are fully paid and nonassessable, and are not subject to
any preemptive or similar rights;
(xi) Neither SpeedFam Co., Ltd. nor any of the SpeedFam Ltd.
Subsidiaries is in default under any of the Material Agreements (as
defined in such opinion), the material terms of the Material Agreements
have been substantially performed, and there is no litigation or other
governmental proceeding pending or threatened in connection with any of
the Material Agreements; and
(xii) With respect to SpeedFam Co., Ltd., the performance of this
Agreement and the consummation of the transactions herein contemplated
(other than performance of the Company's indemnification and
contribution obligations hereunder, concerning which no opinion need be
expressed) will not, to such counsel's knowledge, result in the
violation of any foreign statue, rule or regulation.
Counsel rendering the foregoing opinion may rely as to questions of fact
upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy in such representations or certificate. Copies of any
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(j) Kenji Misona shall have furnished to the Representatives its written
opinion, as counsel to the SpeedFam Co., Ltd., addressed to the
Underwriters and dated such Delivery Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
(xiii) There is no litigation, action, proceeding or governmental
investigation pending or threatened to which SpeedFam Co., Ltd. is or
may become a party, or to which any of the properties of SpeedFam Co.,
Ltd. is or may become subject, or against any of its officers,
directors or employees, and, to the best such counsel's knowledge, none
of the foregoing has received any threat thereof.
Counsel rendering the foregoing opinion may rely as to questions of fact
upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy in such representations or certificate. Copies of any
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(k) The Representatives shall have received from Brobeck, Phleger &
Harrison LLP counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(l) At the time of execution of this Agreement, the Representatives shall
have received from KPMG Peat Marwick LLP a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and
dated the date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the
15
<PAGE>
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(m) With respect to the letter of KPMG Peat Marwick LLP referred to in
the preceding paragraph and delivered to the Representatives concurrently
with the execution of this Agreement (the "initial letter"), the Company
shall have furnished to the Representatives a letter (the "bring-down
letter") of such accountants, addressed to the Underwriters and dated such
Delivery Date (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
of the bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(n) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, executed by its Chairman of the
Board or its President and its Chief Financial Officer stating that:
(xiv) The representations, warranties and agreements of the Company
in Section 1 are true and correct in all material respects as of such
Delivery Date; the Company has complied in all material respects with
all its agreements contained herein; and the conditions set forth in
Sections 9(a) and 9(o) have been fulfilled; and
(xv) They have carefully examined the Registration Statement and the
Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or amendment
to the Registration Statement or the Prospectus.
(o) Each Selling Shareholder (or the Custodian or one or more attorneys-
in-fact on behalf of the Selling Shareholders) shall have furnished to the
Representatives on the First Delivery Date a certificate, dated the First
Delivery Date, signed by, or on behalf of, the Selling Shareholder (or the
Custodian or one or more attorneys-in-fact) stating that the
representations, warranties and agreements of such Selling Shareholder
contained in Section 2 are true and correct in all material respects as of
the First Delivery Date and that such Selling Shareholder has complied in
all material respects with all agreements contained herein to be performed
by such Selling Shareholder at or prior to the First Delivery Date.
(p) (i) Neither the Company nor any of its Subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus or
(ii) since such date, there shall not have been any change in the capital
stock or long-term debt of the Company or any of its Subsidiaries (except
as contemplated by Section 1(v) hereof) or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its Subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
16
<PAGE>
(q) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(r) The Nasdaq National Market System shall have approved the Stock for
listing subject only to official notice of issuance and evidence of
satisfactory distribution.
All opinions, letters, evidence and certificates mentioned above or elsewhere
in this Agreement shall be deemed to be in compliance with the provisions
hereof only if they are in form and substance reasonably satisfactory to
counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter, its
officers and employees and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the Company (or based
upon any written information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the securities laws of
any state or other jurisdiction (any such application, document or
information being hereinafter called a Blue Sky Application), (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not misleading,
and shall reimburse each Underwriter and each such officer, employee or
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by that Underwriter, officer, employee or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any such
amendment or supplement, or in any Blue Sky Application, in reliance upon
and in conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise
have to any Underwriter or to any officer, employee or controlling person
of that Underwriter.
(b) Each Key Selling Shareholder, severally and not jointly, shall
indemnify and hold harmless each Underwriter, its officers and employees,
and each person, if any, who controls any Underwriter within the meaning of
the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any
17
<PAGE>
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to
which that Underwriter, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
in any Preliminary Prospectus, the Registration Statement or the Prospectus
or in any amendment or supplement thereto or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, Registration Statement or
the Prospectus, or in any amendment or supplement thereto, any material
fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to
such key Selling Shareholder furnished in writing or on behalf of such key
Selling Shareholder expressly for use in the Registration Statement or
Prospectus, and shall reimburse each Underwriter, its officers and
employees and each such controlling person for any legal or other expenses
reasonably incurred by that Underwriter, its officers and employees or
controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that (i) the Key
Selling Shareholders shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any such amendment or supplement in
reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein, (ii) the Key
Selling Shareholders shall in no event be liable for losses or claims
exceeding the proceeds received by each such Key Selling Shareholder from
the sale of their respective Stock upon the confirmation of the sale
contemplated hereunder, and (iii) each Underwriter shall first seek
indenification from the Company from claims under this subsection (b) prior
to seeking indemnification from the Key Selling Shareholders. The foregoing
indemnity agreement is in addition to any liability which the Key Selling
Shareholders may otherwise have to any Underwriter or any officer, employee
or controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, its officers and employees, each of its directors and
each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or
any such director, officer or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Prospectus, the Registration Statement or the Prospectus or
in any amendment or supplement thereto, or (B) in any Blue Sky Application
or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person
in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses
are incurred. The foregoing indemnity agreement is in addition to any
liability which any Underwriter may otherwise have to the Company or any
such director, officer, employee or controlling person.
(d) Promptly after receipt by an indemnified party under this Section 10
of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 10 except to the extent
it has been
18
<PAGE>
materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under
this Section 10. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of
such claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that the Representatives shall have the right to employ counsel to
represent jointly the Representatives and those other Underwriters and
their respective officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity
may be sought by the Underwriters against the Company or any Selling
Shareholder under this Section 10 if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those
Underwriters, officers, employees and controlling persons to be jointly
represented by separate counsel, and in that event the fees and expenses of
such separate counsel shall be paid by the Company or the Selling
Shareholders. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to
such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding, or (ii) be
liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled
with the consent of the indemnifying party or if there be a final judgment
of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss
or liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 10 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10(a), 10(b) or 10(c) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company, the Selling
Shareholders and the Underwriters, respectively, from the offering of the
Stock or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, the Selling Shareholders and the
Underwriters respectively with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Selling Shareholders and the
Underwriters, respectively with respect to such offering shall be deemed to
be in the same proportion as the total net proceeds from the offering of
the Stock purchased under this Agreement (before deducting expenses)
received by the Company, the Selling Shareholders, respectively and the
total underwriting discounts and commissions received by the Underwriters
with respect to the shares of the Stock purchased under this Agreement, on
the other, bear to the total gross proceeds from the offering of the shares
of the Stock under this Agreement, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined
by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Shareholders or
the Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to
this Section were to be determined by pro rata allocation (even if the
19
<PAGE>
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be
deemed to include, for purposes of this Section 10(e), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 10(e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 10(e)
are several in proportion to their respective underwriting obligations and
not joint.
(f) The Underwriters severally confirm and the Company acknowledges that
the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, the legend concerning over-
allotments on the inside front cover page of and the section "Underwriting"
in, the Prospectus are correct and constitute the only information
concerning such Underwriters furnished in writing to the Company by or on
behalf of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus.
11. Defaulting Underwriters. If, on either Delivery Date, any Underwriter
defaults in the performance of its obligations under this Agreement, the
remaining non-defaulting Underwriters shall be obligated to purchase the Stock
which the defaulting Underwriter agreed but failed to purchase on such Delivery
Date in the respective proportions which the number of shares of the Firm Stock
set opposite the name of each remaining non-defaulting Underwriter in Schedule
1 hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.9% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 3. If the foregoing maximums are
exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have the
right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Stock to be purchased on such Delivery Date. If
the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery
Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any non-
defaulting Underwriter or the Company or the Selling Shareholders, except that
the Company will continue to be liable for the payment of expenses to the
extent set forth in Sections 8 and 13. As used in this Agreement, the term
"Underwriter" includes, for all purposes of this Agreement unless the context
requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to
this Section 11, purchases Firm Stock which a defaulting Underwriter agreed but
failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company and the Selling Shareholders for damages
caused by its default. If other underwriters are obligated or agree to purchase
the Stock of a defaulting or withdrawing Underwriter, either the
Representatives or the Company may postpone the Delivery Date for up to seven
full business days in order to effect any changes that in the opinion of
counsel for the Company or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or arrangement.
12. Termination. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the
Company and the Selling Shareholders prior to delivery of and payment
20
<PAGE>
for the Firm Stock if, prior to that time, any of the events described in
Sections 9(o) or 9(p), shall have occurred or if the Underwriters shall decline
to purchase the Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) the Company or any
Selling Shareholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholder(s) to perform any agreement on its part to
be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Shareholder(s)
is not fulfilled, the Company will reimburse the Underwriters for all
reasonable out-of-pocket expenses (including fees and disbursements of counsel)
incurred by the Underwriters in connection with this Agreement and the proposed
purchase of the Stock, and upon demand the Company shall pay the full amount
thereof to the Representative(s). If this Agreement is terminated pursuant to
Section 11 by reason of the default of one or more Underwriters, neither the
Company nor any Selling Shareholder shall be obligated to reimburse any
defaulting Underwriter on account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements hereunder
shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant to Section
10(d), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., Three World Financial Center, 10th Floor, New York, NY
10285;
(b) if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: James N. Farley, Chief Executive Officer
(Fax: (602) 961-2171), with a copy to Jonathan A. Koff, at the address set
forth on the cover page of the Registration Statement (Fax: (312) 701-
2361);
(c) the Selling Shareholders, shall be delivered or sent by mail, telex
or facsimile transmission to such Selling Shareholder at the address set
forth on Schedule 2 hereto;
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company, and
the Selling Shareholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent,
notice or agreement given or made on behalf of the Selling Shareholders by the
Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement shall inure to
the benefit of and be binding upon the Underwriters, the Company, the Selling
Shareholders and their respective personal representatives and successors. This
Agreement and the terms and provisions hereof are for the sole benefit of only
those persons, except that (A) the representations, warranties, indemnities and
agreements of the Company and the Selling Shareholders contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any Underwriter within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the Underwriters contained in
Section 10(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers and Selling Shareholders of the Company who
have signed the Registration Statement and any person controlling the Company
within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 15, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations, warranties and
agreements of the Company, the Selling Shareholders and the Underwriters
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Stock and shall remain
21
<PAGE>
in full force and effect, regardless of any investigation made by or on behalf
of any of them or any person controlling any of them.
17. Definition of the Term "Business Day." For purposes of this Agreement,
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more counterparts
and, if executed in more than one counterpart, the executed counterparts shall
each be deemed to be an original but all such counterparts shall together
constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement among the Company, the
Selling Shareholders and the Underwriters, please indicate your acceptance in
the space provided for that purpose below.
Very truly yours,
SPEEDFAM INTERNATIONAL, INC.
By: _________________________________
The Selling Shareholders named in
Schedule 2 to this Agreement
By: _________________________________
Attorney-in-Fact
ACCEPTED, JULY , 1996:
Lehman Brothers Inc.
Alex. Brown & Sons Incorporated
Needham & Company, Inc.
For themselves and as
Representatives
of the several Underwriters named
in Schedule 1 hereto
By: Lehman Brothers Inc.
By: _________________________________
Authorized Representative
22
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc...................................................
Alex. Brown & Sons Incorporated.......................................
Needham & Company, Inc................................................
---------
Total............................................................. 2,660,000
=========
</TABLE>
23
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES NUMBER OF SHARES
SELLING SHAREHOLDER OF FIRM STOCK OF OPTION STOCK
------------------- ---------------- ----------------
<S> <C> <C>
------- -------
Total..................................... 660,000
======= =======
</TABLE>
24
<PAGE>
EXHIBIT 3.2
CERTIFICATE
The undersigned, Charles A. Kelly, hereby certifies that:
1. He is the secretary of SpeedFam International, Inc. and as such has
custody of the minute books of the company.
2. The following is a true and correct copy of a resolution adopted by the
Board of Directors of the Company at a regular meeting held on May 28, 1996 and
such resolution is still in full force and effect:
"Resolved that Section 1 of Article II of the By-Laws of the Company
shall be amended as follows:
Section 1: Annual Meetings. The annual meeting of the shareholders
shall be held in October of each year beginning in 1996, at times and
places to be determined by the Board of Directors. The purpose of the
meeting is to elect directors and to transact such other business as
may come before the meeting. If the election of directors shall not
occur on the day designated 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."
By: /s/ Charles A. Kelly
-----------------------------
Charles A. Kelly, Secretary,
SpeedFam International, Inc.
Subscribed and sworn to
before me this 6th day
of June, 1996
/s/ Melissa Jankowski
- -----------------------
Notary Public
My Commission Expires: 3/26/2000
<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
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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.
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(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.
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(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.
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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
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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.
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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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
----
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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<PAGE>
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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<PAGE>
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
iii
<PAGE>
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
iv
<PAGE>
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.
1
<PAGE>
"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
2
<PAGE>
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,
3
<PAGE>
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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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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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.
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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.
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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.
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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
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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
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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
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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
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
----------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings (loss)..... $2,429 $1,054 $ (490) $2,351 $1,644 $ 116 $6,689
====== ====== ====== ====== ====== ====== ======
Average number of common
shares outstanding
during the year........ 7,481 7,488 7,471 7,475 7,468 7,470 8,978
Add dilutive impact of
stock options.......... 144 144 144 144 678 678 812
------ ------ ------ ------ ------ ------ ------
Weighted average common
and common equivalent
shares................. 7,625 7,632 7,615 7,619 8,146 8,148 9,790
====== ====== ====== ====== ====== ====== ======
Net earnings (loss) per
share.................. $ 0.32 $ 0.14 $(0.06) $ 0.31 $ 0.20 $ 0.01 $ 0.68
====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.2
The Board of Directors
SpeedFam International, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
June 7, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF NAMED DIRECTOR
I hereby consent to be named as director-elect in the Registration Statement
on Form S-1 filed by SpeedFam International, Inc.
/s/ Neil R. Bonke
-------------------------------------
Neil R. Bonke
Date: June 11, 1996
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Know all men by these presents, that each of the undersigned hereby
authorizes James N. Farley, Makoto Kouzuma, and Roger K. Marach, each with
full power of substitution, to execute in the name and on behalf of such
person a Registration Statement on Form S-1 and all amendments thereto
(including post-effective amendments) and, if necessary, a Registration
Statement on Form S-1 filed pursuant to Rule 462 under Securities Act of 1933,
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, making such
changes to such Registration Statement and any amendment and any post-
effective amendment thereto as the Registrant deems appropriate, and appoints
each of James N. Farley, Makoto Kouzuma, and Roger K. Marach, each with full
power of substitution, attorney-in-fact to sign such Registration Statement
and any amendment and any post-effective amendment thereto, and any
Registration Statement on Form S-1 filed pursuant to Rule 462, and to file the
same, with exhibits thereto, and other documents in connection therewith.
SIGNATURES TITLE
<TABLE>
<S> <C>
/s/ James N. Farley Chairman, Chief Executive Officer
___________________________________________ and Director
JAMES N. FARLEY
/s/ Makoto Kouzuma President, Chief Operating Officer
___________________________________________ and Director
MAKOTO KOUZUMA
/s/ Roger K. Marach Treasurer, Assistant Secretary and
___________________________________________ Chief Financial Officer
ROGER K. MARACH
Director
___________________________________________
NEIL R. BONKE
/s/ Thomas J. McCook Director
___________________________________________
THOMAS J. MCCOOK
/s/ Dr. Stuart Meyer Director
___________________________________________
DR. STUART MEYER
/s/ Robert Miller Director
___________________________________________
ROBERT MILLER
/s/ Carl S. Pedersen Director
___________________________________________
CARL S. PEDERSEN
</TABLE>
