<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPEEDFAM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
ILLINOIS 36-2421613
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
------------------------
305 NORTH 54TH STREET
CHANDLER, ARIZONA 85226
(602) 705-2100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MAKOTO KOUZUMA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
305 NORTH 54TH STREET
CHANDLER, ARIZONA 85226
(602) 705-2100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies of all communications to:
<TABLE>
<S> <C>
JONATHAN A. KOFF JOHN A. DENNISTON
STATHY DARCY MARTIN C. NICHOLS
CHAPMAN AND CUTLER BROBECK, PHLEGER & HARRISON LLP
111 WEST MONROE STREET 550 WEST C STREET, SUITE 1300
CHICAGO, ILLINOIS 60603 SAN DIEGO, CALIFORNIA 92101
(312) 845-3000 (619) 234-1966
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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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<CAPTION>
=================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value.......... 2,495,500 $55.0625 $137,408,469 $41,639
=================================================================================================================
</TABLE>
(1) Includes 325,500 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.
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.
================================================================================
<PAGE> 2
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 September 17, 1997
PROSPECTUS
2,170,000 SHARES
[SPEEDFAM LOGO]
COMMON STOCK
---------------------------
Of the 2,170,000 shares of Common Stock, no par value (the "Common Stock")
offered hereby, 2,000,000 shares are being sold by SpeedFam International, Inc.
("SpeedFam" or the "Company") and 170,000 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 Stock Market under the
symbol "SFAM." The last sale price for the Common Stock on September 16, 1997,
as reported on the Nasdaq Stock Market, was $54 1/4 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 7.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================
PROCEEDS TO
PRICE TO PROCEEDS TO SELLING
PUBLIC UNDERWRITING COMPANY(2) SHAREHOLDERS
DISCOUNTS AND
COMMISSIONS(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the offering of $400,000 payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 325,500 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 , 1997.
---------------------------
LEHMAN BROTHERS
BT ALEX. BROWN
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
, 1997
<PAGE> 3
AVAILABLE 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. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy
statements and other information filed by the Company.
This prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the securities offered hereby. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described above. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document previously filed by the Company with the Commission
is incorporated in this Prospectus by reference: the Company's Annual Report on
Form 10-K for the year ended May 31, 1997.
In addition, all documents filed by the Company with the Commission after
the date of this Prospectus pursuant to Section 13(a), 13(c), 14 and 15(d) of
the Exchange Act and prior to the termination of the offering made hereby shall
be deemed to be incorporated in this Prospectus by reference and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which is incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Certain information incorporated by reference herein contains forward-looking
statements as such term is defined in Section 27A of the Securities Act and
Section 21E of the Exchange Act. Certain factors as discussed therein could
cause actual results to differ materially from those in the forward-looking
statements.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, INCLUDING EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS BUT EXCLUDING ALL OTHER EXHIBITS TO SUCH DOCUMENTS. REQUESTS
SHOULD BE MADE TO THE COMPANY AT ITS GENERAL MAILING ADDRESS: SPEEDFAM
INTERNATIONAL, INC., 305 NORTH 54TH STREET, CHANDLER, ARIZONA 85226, TELEPHONE
NUMBER (602) 705-2113, ATTN: INVESTOR RELATIONS DEPARTMENT.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF A PENALTY BID. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
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 or incorporated by reference 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 chemical
mechanical planarization, or "CMP," systems used in the fabrication of
semiconductor devices and other high throughput precision surface processing
systems used in the fabrication of thin film memory disk media, semiconductor
wafers and general industrial components. 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 advanced semiconductors,
thin film memory disk media and semiconductor wafers. Major customers of the
Company include AMD, Akashic, Hewlett-Packard, IBM, Komag, MEMC, Mitsubishi
Siltec, Motorola, Rockwell International, Seagate, Siemens 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 currently offers the Auriga, a multiple head, two polishing
table CMP system for use in the manufacture of advanced semiconductor devices.
In addition, the Company has recently introduced the Auriga-C, which integrates
technology from the Company's Capella, its post-CMP cleaning system. The
integration of post-CMP cleaning to CMP polish is known as "dry-in/dry-out"
capability and results in polished, cleaned and dry wafers. The Company has also
recently introduced the Altair, an in situ end-point detection system, which is
designed to measure precisely the actual remaining film thickness on a wafer
during the CMP polishing process. Deliveries of the Auriga-C for revenue are
expected to begin in the second quarter of fiscal 1998. The Company's CMP
systems are designed to provide high throughput, low cost of ownership and
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 $316 million in 1996 and it currently projects the market to be
approximately $1.2 billion in the year 2001.
The Company's strategy is to establish and maintain market leadership in
high throughput surface processing of advanced semiconductors, thin film memory
disk media, semiconductor wafer and other high value-added products. The Company
employs dedicated business units focusing on each such market. The Company
provides an entire processing solution including process expertise, training,
cooperative development, slurry and expendables, along with equipment. During
the Company's fiscal years ended May 31, 1995, 1996 and 1997, 54.5%, 78.5% and
84.8%, respectively, of the Company's total revenue was derived from the
3
<PAGE> 5
sale of capital equipment, parts and expendables (including commissions) and
45.5%, 21.5% and 15.2%, 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.
THE OFFERING
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<S> <C>
Common Stock to be Offered:
By the Company............... 2,000,000 shares
By the Selling
Shareholders.............. 170,000 shares
----------
Total................ 2,170,000 shares
Common Stock Outstanding after
the Offering................. 15,475,036 shares(1)
Use of Proceeds................ To fund capital expenditures and for working capital and
other general corporate purposes. See "Use of Proceeds."
Nasdaq Stock Market Symbol..... SFAM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Total revenue......................................... $59,778 $120,170 $173,424
Gross margin.......................................... 14,284 41,509 69,923
Operating profit...................................... 1,596 11,091 21,486
Other income (expense)................................ (953) (208) (298)
Income tax expense.................................... 186 4,266 8,037
Earnings from consolidated companies.................. 457 6,617 13,151
Equity in net earnings of affiliates(2)............... 1,187 5,204 7,068
Net earnings.......................................... $ 1,644 $ 11,821 $ 20,219
Net earnings per share................................ $ 0.20 $ 1.16 $ 1.67
Weighted average common and common equivalent
shares............................................. 8,146 10,159 12,127
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $106,822 $210,040
Total assets..................................................... 206,500 309,718
Long-term debt, less current maturities.......................... 272 272
Stockholders' equity............................................. 156,533 259,751
</TABLE>
- ---------------
(1) Based on shares of Common Stock outstanding at September 2, 1997. Excludes
an aggregate of 2,412,164 shares of Common Stock reserved for issuance under
the Company's employee benefit plans, of which options to acquire 1,423,329
shares of Common Stock were outstanding at September 2, 1997.
(2) Includes $1,100,000, $4,759,000 and $5,513,000 for the 1995, 1996 and 1997
fiscal years, respectively, attributable to the Company's share of net
earnings from the Far East Joint Venture, accounted for on the equity
method. See "Joint Venture Arrangements" and the consolidated financial
statements of the Far East Joint Venture included elsewhere herein. The
remainder represents the Company's share of net earnings from a separate
joint venture.
(3) 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 $54 1/4
per share), 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.
4
<PAGE> 6
RECENT DEVELOPMENTS
The following table presents certain unaudited financial data for the three
months ended August 31, 1996 and 1997. In the opinion of management, this
information has been presented on the same basis as the audited consolidated
financial statements appearing elsewhere in this Prospectus, and all necessary
adjustments have been included in the amounts stated below to present fairly the
unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company. Results of operations for any
quarter are not necessarily indicative of the results to be expected for the
entire fiscal year or for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-------------------------------------
1996 1997 1996 1997
------- ------- ------- -------
(PERCENTAGE OF
(IN THOUSANDS, TOTAL REVENUE)
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
REVENUE:
Net sales................................................. $38,059 $51,915 95.8 96.4%
Commissions from affiliate................................ 1,669 1,932 4.2 3.6
------- ------- ------- -------
Total revenue............................................. 39,728 53,847 100.0 100.0
Cost of sales............................................. 25,782 30,831 64.9 57.3
------- ------- ------- -------
Gross margin............................................ 13,946 23,016 35.1 42.7
OPERATING EXPENSES:
Research, development, and engineering.................... 3,781 6,785 9.5 12.6
Selling, general, and administrative expenses............. 6,805 9,369 17.1 17.4
------- ------- ------- -------
Operating profit.......................................... 3,360 6,862 8.5 12.7
Other income (expense).................................... (445) 759 (1.1) 1.5
------- ------- ------- -------
Earnings from consolidated companies before income
taxes................................................... 2,915 7,621 7.4 14.2
Income tax expense........................................ 1,063 2,793 2.7 5.2
------- ------- ------- -------
Earnings from consolidated companies...................... 1,852 4,828 4.7 9.0
Equity in net earnings of affiliates...................... 2,186 729 5.5 1.3
------- ------- ------- -------
Net earnings.............................................. $ 4,038 $ 5,557 10.2% 10.3%
======= ======= ======= =======
Net earnings per share.................................... $ .36 $ .39
======= =======
Weighted average common and common equivalent shares...... 11,277 14,242
======= =======
</TABLE>
The Company reported total revenue of $53.8 million, up 35.5% from the
$39.7 million reported for the same period a year ago. Backlog at the end of the
first quarter was $68.3 million, up from $58.9 million a quarter earlier and
from $41.4 million a year ago.
Net earnings were $5.6 million, up 37.6% from $4.0 million a year earlier.
Net earnings per share were $0.39, compared with $0.36 for the first quarter of
fiscal 1997. This comparison includes the effect of a 26.3% increase in weighted
average shares outstanding following the Company's Common Stock offering in
February 1997.
For the first quarter of fiscal 1998, the equipment, parts and expendables
segment of the Company's business contributed revenue of $43.8 million, or 84.4%
of net sales, up from $31.2 million, or 82.0%, a year earlier. The slurries
segment (polishing liquids and abrasives) accounted for $8.1 million, or 15.6%
of net sales, compared with $6.8 million, or 18.0%, for the first quarter of
fiscal 1997.
5
<PAGE> 7
Sales of CMP systems to the semiconductor device market generated $30.7
million, or 57.0% of total revenue, nearly double the $16.3 million, or 41.0% of
total revenue, reported a year earlier. The Company shipped 14 Auriga CMP
systems during the quarter.
Revenue from the thin film memory disk media market accounted for $16.2
million, or 30.1% of total revenue, compared with $16.2 million, or 40.8%, for
the first quarter of fiscal 1997. Although overall sales to this market were
flat with the prior year, equipment sales declined due to general overcapacity
in the memory disk industry and increased competition, which the Company expects
to continue for at least the next several quarters.
Sales to the silicon wafer and industrial components markets contributed
revenue of $6.9 million, or 12.9% of total revenue, compared with $7.2 million,
or 18.2%, a year ago.
The Company's commission revenue on sales of equipment produced by the Far
East Joint Venture for the silicon wafer and thin film memory disk media markets
in the United States and Europe totaled $1.9 million, compared with $1.7 million
for the first quarter of fiscal 1997.
The Company's overall gross margin for the first quarter of fiscal 1998
improved to 42.7% from 35.1% the prior year. This increase was due to the
continued shift in the revenue mix to higher margin CMP systems.
Research, development and engineering expenses were $6.8 million, or 12.6%
of total revenue, up from $3.8 million, or 9.5%, a year earlier. This increase
reflected the Company's significant investment in dry-in/dry-out and end-point
detection capabilities for its CMP systems; upgrading a key product in the
memory disk polishing market; and various process technologies for the
semiconductor device, thin film memory disk media and silicon wafer markets.
Selling, general and administrative expenses were $9.4 million, or 17.4% of
total revenue, compared with $6.8 million, or 17.1%, a year ago. The percentage
increase was due primarily to higher commissions paid to the Far East Joint
Venture for sales of CMP systems manufactured in the United States, and
continued investments in the Company's sales, support and administrative
infrastructure.
As a result of revenue growth and gross margin improvement, the Company's
first quarter operating profit was $6.9 million, or 12.7% of total revenue, up
from $3.4 million, or 8.5%, a year earlier. Earnings from consolidated companies
were $4.8 million, more than double the $1.9 million reported for the first
quarter of fiscal 1997.
The Company's equity in the net earnings of its joint ventures was $729,000
for the first quarter, down from $2.2 million a year ago, as a result of
decreased net earnings of the Far East Joint Venture. The Far East Joint Venture
recently adopted an aggressive pricing strategy designed to gain market share
for its new automated disk polishing systems. Although the Far East Joint
Venture expects this gross margin pressure to continue to negatively impact the
Far East Joint Venture's earnings for at least the near term, the Far East Joint
Venture believes that this pricing strategy represents an important strategic
investment.
6
<PAGE> 8
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information included or incorporated by reference 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. Certain statements in this Prospectus, including without limitation
certain of those contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Industry
Background, -- The SpeedFam CMP Solution, -- SpeedFam Strategy" and -- Research,
Development and Engineering -- Product Development" 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. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below.
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. Factors that may influence
the Company's operating results in a given quarter include: (i) customer demand,
such as economic conditions in the semiconductor and memory disk 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) the quarterly operating results of the Company's joint ventures,
which the Company accounts for on the equity method; (iii) 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; (iv) competition,
such as competitive pressures on prices of the Company's products and the
introduction or announcement of new products by competitors; (v) manufacturing
and operations, such as fluctuations in availability and cost of raw materials
and production capacity; (vi) fluctuations in foreign currency exchange rates;
and (vii) sales and marketing, such as concentrations of customers, and
discounts that may be granted to certain customers; as well as other factors,
such as levels of expenses relative to revenue levels, personnel changes and
generally prevailing economic conditions.
The Company expects that sales of equipment to the thin film memory disk
market will be significantly lower for at least the next several quarters as
compared to prior fiscal years for a number of reasons, including a general
overcapacity in the memory disk industry and increased competition.
In addition, in fiscal 1997, the equity in net earnings of affiliates
attributable to the Company's joint ventures increased substantially, primarily
as a result of increased earnings of the Far East Joint Venture attributable to
strong demand for products sold to the thin film memory and semiconductor
industries. However, the Far East Joint Venture recently adopted an aggressive
pricing strategy designed to gain market share for its new automated disk
polishing systems. The Far East Joint Venture expects this gross margin pressure
to continue to negatively impact the Far East Joint Venture's earnings for at
least the near term. As a result of the foregoing and for other reasons, the
Company does not expect earnings of the Far East Joint Venture to grow in its
next fiscal year and expects that such earnings will be the same as or lower
than in fiscal 1997. Any decline in earnings of the Far East Joint Venture could
have a material adverse effect on the results of operations of the Company.
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
experienced 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 was primarily due to the seasonal buying patterns of its
customers. However, the Company anticipates that this historical pattern may be
moderated by increased sales of its CMP systems.
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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.
DEPENDENCE ON CMP SYSTEMS
The Company's CMP systems accounted for 7.9%, 34.7% and 50.2% of net sales
for fiscal 1995, 1996 and 1997, respectively. The Company believes that its
future growth, if any, depends in large part upon its ability to grow revenue
attributable to its CMP systems and technology. Revenue growth attributable to
the Company's CMP systems depends upon numerous factors, including cost of
ownership, throughput, process flexibility, performance and reliability and
availability of customer support. The Company intends to periodically develop
and introduce enhanced versions of its CMP system. Failure to continually
enhance the Company's CMP system may impact its ability to grow revenue
attributable to its CMP systems. In addition, the number of suppliers for
polishing pads used in the CMP process is limited and an insufficient supply of
such products could adversely impact or impede the Company's revenue growth from
its CMP systems. There can be no assurance that the Company will be successful
in growing revenue attributable to its current CMP systems, or any future
enhanced version of the systems. The failure of the Company to accomplish these
objectives would have a material adverse effect on the Company. See
" -- Competition," "-- Dependence on New Product Development; Rapid
Technological Change."
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE
The Company believes that its future success will depend, in part, on its
ability to enhance existing products and processes and develop and manufacture
new products and processes. The markets in which the Company and its customers
compete are characterized by evolving industry standards and frequent
improvements in products and services. To compete effectively in such markets,
the Company must continually improve its products and its process technologies
and develop new technologies and products that compete effectively on the basis
of price and performance. The Company expects to continue to make significant
investments in research, development and engineering. There can be no assurance
that the Company will be able to improve its existing products and its process
technologies or develop new products and technologies. The Company intends to
continually develop and introduce enhanced versions of its CMP system and post-
CMP cleaning system. The Company has recently introduced the Auriga-C, an
enhanced version of the Company's Auriga system, which integrates technology
from the Company's Capella, its post-CMP cleaning system, thereby providing a
dry-in/dry-out system. The Company has also recently introduced the Altair, an
in situ end-point detection system. There can be no assurance that the Company's
development of new or enhanced products, such as the Auriga-C, 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. The Company has had limited
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experience with the production of the Auriga-C and may encounter difficulties in
its production. Further, the Auriga-C has only recently begun testing in the
Company's laboratories and has not yet been shipped to customers for evaluation.
Deliveries of the Auriga-C for revenue are expected to begin in the second
quarter of fiscal 1998. As with any new product introduction, there are risks
that final customer acceptance may take longer than scheduled. The Company may
also incur substantial unanticipated costs to ensure the functionality and
reliability of its future product introductions early in the product's life
cycle, including with respect to the Auriga-C. If new products experience
reliability or quality problems, the Company could encounter a number of
problems, including delayed shipments, reduced orders, higher manufacturing
costs, delays in collection of accounts receivable and additional service and
warranty expenses, all of which 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
"-- Dependence on CMP Systems," "-- Dependence on Key Customers" and
"Business -- Research, Development and Engineering."
CYCLICAL NATURE OF THE COMPANY'S BUSINESS
The Company's business depends substantially on the capital expenditures of
semiconductor and thin film memory disk media manufacturers, which, in turn,
depend upon the current and anticipated market demand for memory disks and
semiconductor devices. Sales of capital equipment to these manufacturers are
expected to continue to represent a significant portion of the Company's total
revenue. These industries are highly cyclical and have historically experienced
periodic downturns characterized by oversupply and weak demand, which often have
a material adverse effect on the acquisition of capital equipment and other
products used in the manufacturing process, including products offered by the
Company. These downturns generally have materially adversely affected the
business and operating results of capital equipment suppliers, including the
Company. The semiconductor and thin film memory disk industries have recently or
are currently experiencing downturns which have led many semiconductor and
memory disk manufacturers to delay or cancel capital expenditures. To the extent
that downturns cause the Company's customers to postpone or cancel orders, the
Company's business and results of operations will be materially adversely
affected.
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. 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.
Further, the Company believes that its competitors vary by geographic region. In
the CMP market, the Company faces significant competition from current
competitors and any others that may enter this market in the future. IPEC
currently has the largest installed base of CMP equipment. Other companies in
this market are in various stages of development or sale of CMP machines.
Specifically, Applied Materials, a large semiconductor capital equipment
supplier with significant resources, has introduced a multiple head CMP machine
and IPEC has begun shipments of
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multiple head CMP systems. Ebara, a Japanese capital equipment manufacturer, has
begun shipments of a multiple head, dry-in/dry-out system, primarily in the Far
East. In addition, certain of the Company's competitors have longer-standing
relationships than the Company with particular customers, including
semiconductor device manufacturers. These longer-standing relationships may make
it more difficult for the Company to sell its CMP systems to such device
manufacturers. Consolidation among CMP equipment suppliers or the acquisition of
one or more CMP equipment suppliers by large, established suppliers of non-CMP
capital equipment to semiconductor device manufacturers or others could
materially adversely affect the Company's ability to compete and could have a
material adverse effect on the Company's results of operations. In the thin film
memory disk and semiconductor wafer equipment markets, the Company competes with
a relatively few significant competitors.
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 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 in fiscal 1995, 1996 and
1997, accounted for 43.1%, 19.7% and 13.5%, respectively, of total revenue. The
Company expects that competition in the slurry market will remain intense 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."
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 1995, 1996 and 1997, the
Company's share of the net earnings of the Far East Joint Venture was $1.1
million, $4.8 million and $5.5 million, respectively, representing 66.9%, 40.3%
and 27.3%, respectively, of the Company's net earnings. The Company accounts for
the Far East Joint Venture on the equity method. During fiscal 1995, 1996 and
1997, 4.6%, 5.2% and 7.2%, 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 paid dividends to the Company in the past and may continue to do so
in the foreseeable future, but is expected to reinvest substantially all of its
earnings back into its business. At May 31, 1997, the Company's equity interest
in the Far East Joint Venture was $20.4 million, representing 9.9% of the
Company's total assets and 13.0% 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
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<PAGE> 12
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 and automated polishing 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. In
addition, the Far East Joint Venture is subject to certain economic and
political risks associated with conducting international business, as most sales
by the Far East Joint Venture occur outside the U.S. and 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 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, could 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 Executive 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 of the Company, and Mr.
Kouzuma serve as directors of the Far East Joint Venture and have management
responsibilities in connection with affiliates of the Far East Joint Venture.
Mr. Kouzuma is compensated directly by the Far East Joint Venture for such
services. 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,
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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 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 "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Joint Ventures," "Joint Venture Arrangements -- Far
East Joint Venture" and the consolidated financial statements of SpeedFam Co.,
Ltd.
SOLE OR LIMITED SOURCES OF SUPPLY
The Company relies to a substantial extent on outside suppliers 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 suppliers
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 suppliers, sometimes resulting in delays in the
delivery of products by the Company. Such delays, or other significant supplier
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 suppliers 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."
MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid growth. The number
of employees of the Company has increased 163% from 195 at May 31, 1995 to 513
at May 31, 1997. 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 or lost to competitors. The Company currently plans to
hire a significant number of additional employees during fiscal 1998. 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. See "-- Dependence on Key
Personnel," "Business -- Properties" and "-- Employees."
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DEPENDENCE ON KEY CUSTOMERS
The Company's ten largest customers accounted for, in the aggregate, 66.9%,
64.4% and 59.8% of the Company's total revenue in fiscal years 1995, 1996 and
1997, 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. One of the Company's largest
customers, Komag (a manufacturer of thin film memory disks), accounted for
20.6%, 17.8% and 10.3% of the Company's total revenue in fiscal years 1995, 1996
and 1997, respectively. Although Komag has represented a significant portion of
the Company's sales of polishing machines to the thin film memory disk market in
the past, it is not anticipated that Komag will represent as significant a
portion of such sales in the future. AMD (a manufacturer of semiconductor
devices), accounted for 12.8% of the Company's total revenue for fiscal 1997. In
addition, during fiscal 1995, Akashic (a manufacturer of thin film memory disk
media), accounted for 10.9% of the Company's total revenue. See "-- Dependence
on New Product Development; Rapid Technological Change," "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 targets, such as the
CMP, thin film memory disk and semiconductor wafer 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 and results of
operations could be materially adversely affected. See "-- Fluctuations in
Quarterly Operating Results" and "Business -- Customers."
INTERNATIONAL BUSINESS
In fiscal 1995, 1996 and 1997, 17.3%, 21.7% and 31.2%, respectively, of the
Company's total revenue was attributable to sales outside the United States. 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.
The Company also purchases in yen certain equipment from the Far East Joint
Venture that the Company then sells in the U.S. and Europe. Moreover, slurries
marketed and distributed by both the Company and Fujimi Corporation, the
Company's joint venture with Fujimi Incorporated, a Japanese company (the
"Fujimi Joint Venture") are purchased in yen from Fujimi Incorporated, a
Japanese company. 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
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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
The Company currently holds numerous United States patents and additional
foreign patents in Japan and several Asian and European countries and has
numerous United States and foreign patent applications pending. In addition, the
Company believes that such factors as continued innovation, technical expertise
and know-how of its personnel and other factors are also important. 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.
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.
In the CMP market the Company serves, there are a number of patents relating to
the CMP process held by third parties. Accordingly, the Company, as a CMP
equipment manufacturer, may be required to attempt to obtain licenses from the
holders of one or more of such patents, which may impede the use of CMP
technology by the Company. 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 24.2% of the Company's outstanding
shares (approximately 23.7% assuming the full exercise of the Underwriters' over
allotment option). Further, following this offering, the Company's executive
officers, directors and Mr. Farley's spouse, a principal shareholder (exclusive
of shares beneficially owned by Mr. Farley's adult children) will, in the
aggregate, beneficially own approximately 22.8% of the Company's outstanding
shares of Common Stock (approximately 22.3% assuming the full exercise of the
Underwriters' over allotment option). As a result, these shareholders, if acting
together, would be able to significantly influence 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."
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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; significant changes in
management; 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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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 305
North 54th Street, Chandler, Arizona 85226 and its telephone number is (602)
705-2100.
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
$103.2 million ($120.1 million if the Underwriters' over-allotment option is
exercised in full), 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.
Approximately $30.5 million of net proceeds is estimated to be used for
capital expenditures. 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.
16
<PAGE> 18
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq Stock 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............................................... $ 20 1/8 $ 11 1/8
Second Quarter.............................................. 25 5/16 10 7/8
Third Quarter............................................... 39 3/4 20 7/8
Fourth Quarter.............................................. 39 1/2 24 1/4
Fiscal 1998
First Quarter............................................... $ 54 7/8 $ 31 1/2
Second Quarter (through September 16, 1997)................. 56 3/8 53
</TABLE>
On September 16, 1997, the last reported sale price of the Common Stock on
the Nasdaq Stock Market was $54 1/4 per share. As of September 2, 1997, there
were 102 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.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1997 and as adjusted to reflect the sale of the 2,000,000 shares of Common
Stock offered by the Company hereby (after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company).
<TABLE>
<CAPTION>
MAY 31, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion................................ $ 272 $ 272
-------- ---------
Stockholders' 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; 13,323,547
shares issued and outstanding, actual; 15,323,547 shares issued and
outstanding, as adjusted(1)......................................... 1 1
Additional paid-in capital............................................ 105,522 208,740
Retained earnings..................................................... 49,466 49,466
Foreign currency translation adjustment............................... 1,544 1,544
-------- ---------
Total stockholders' equity....................................... 156,533 259,751
-------- ---------
Total capitalization........................................ $156,805 $ 260,023
======== =========
</TABLE>
- ---------------
(1) Based on shares of Common Stock outstanding at May 31, 1997. Excludes an
aggregate of 2,412,164 shares of Common Stock reserved for issuance under
the Company's employee benefit plans, of which options to acquire 1,423,329
shares of Common Stock were outstanding at May 31, 1997.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of earnings data for the years ended May 31,
1995, 1996 and 1997 and the consolidated balance sheet data as of May 31, 1996
and 1997 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 statements of earnings data for the years ended May 31, 1993 and
1994 and the consolidated balance sheet data as of May 31, 1993, 1994 and 1995
are derived from the Company's consolidated financial statements which have been
audited by KPMG Peat Marwick LLP but are not included herein. The selected
consolidated financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
REVENUE:
Net sales........................................ $42,542 $49,247 $57,021 $113,880 $160,994
Commissions from affiliate....................... 772 2,134 2,757 6,290 12,430
------- ------- ------- -------- --------
Total revenue.................................... 43,314 51,381 59,778 120,170 173,424
Cost of sales.................................... 32,472 38,945 45,494 78,661 103,501
------- ------- ------- -------- --------
Gross margin................................... 10,842 12,436 14,284 41,509 69,923
OPERATING EXPENSES:
Research, development and engineering............ 1,778 2,267 2,740 11,496 19,766
Selling, general and administrative expenses..... 8,545 8,988 9,948 18,922 28,671
------- ------- ------- -------- --------
Operating profit................................. 519 1,181 1,596 11,091 21,486
Other income (expense)........................... (391)(2) 277 (953) (208) (298)
------- ------- ------- -------- --------
Earnings from consolidated companies before
income taxes................................... 128 1,458 643 10,883 21,188
Income tax expense (benefit)..................... 573 (160)(3) 186 4,266 8,037
------- ------- ------- -------- --------
Earnings (loss) from consolidated companies
before cumulative effect of change in
accounting principle........................... (445) 1,618 457 6,617 13,151
Equity in net earnings (loss) of affiliates(1)... (45) 655 1,187 5,204 7,068
Cumulative effect of change in accounting
principle for income taxes..................... -- 78 -- -- --
------- ------- ------- -------- --------
Net earnings (loss).............................. $ (490) $ 2,351 $ 1,644 $ 11,821 $ 20,219
======= ======= ======= ======== ========
Net earnings (loss) per share.................... $ (0.06) $ 0.31 $ 0.20 $ 1.16 $ 1.67
======= ======= ======= ======== ========
Weighted average common and common equivalent
shares......................................... 7,615 7,619 8,146 10,159 12,127
======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 5,944 $ 9,980 $11,072 $ 31,193 $106,822
Total assets..................................... 35,715 45,709 60,029 107,984 206,500
Long-term obligations, less current maturities... 8,133 9,716 10,362 2,593 272
Stockholders' equity............................. 15,669 18,576 23,037 60,039 156,533
</TABLE>
- ---------------
(1) Includes ($285,000), $450,000, $1,100,000, $4,759,000 and $5,513,000 for the
1993 through 1997 fiscal years, respectively, attributable to the Company's
share of net earnings (loss) from the Far East Joint Venture, accounted for
on the equity method. See "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 from the Fujimi
Joint Venture.
(2) Reflects charges of $300,000 related to the bankruptcy of a subsidiary
operating in Switzerland.
(3) Reflects an income tax benefit of $740,000 related to the bankruptcy of a
subsidiary operating in Switzerland.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SpeedFam designs, develops, manufactures, markets and services chemical
mechanical planarization, or "CMP," systems used in the fabrication of
semiconductor devices and other high throughput precision surface processing
systems used in the fabrication of thin film memory disk media, semiconductor
wafers and general industrial components. 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 manufactured by 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 related sale is
recorded.
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 1995, 1996 and 1997,
52.3%, 77.3% and 83.6%, 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. The Company began development of
its original CMP product, the CMP-V, in 1990. The Company initiated volume
shipments of the CMP-V in 1994. Shipments of the Auriga began in the second
quarter of fiscal 1997. Through May 31, 1997, the Company had shipped 26 Auriga
systems. The Company's CMP systems accounted for 7.9%, 34.7% and 50.2% of net
sales for fiscal 1995, 1996 and 1997, respectively. The Company's CMP systems
generally have gross margins higher than those of the Company's other capital
equipment products.
Slurries consist of polishing slurry and slurry components (including
vehicles and abrasives) used in surface processing. During fiscal year 1995,
1996 and 1997, 47.7%, 22.7% and 16.4%, 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.
Commissions from affiliate ("commissions") consist primarily of revenue
derived from the distribution by the Company in the U.S. and Europe of products
manufactured by 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, 1996 and 1997,
commissions accounted for 4.6%, 5.2% and 7.2%, respectively, of total revenue.
Commissions are subject to foreign exchange rate fluctuations which can
significantly impact operating profit margins.
In fiscal 1995, 1996 and 1997, 17.3%, 21.7% and 31.2%, respectively, of the
Company's total revenue was attributable to sales outside the United States. In
particular, in fiscal 1997, 14.2% of the Company's total revenue was
attributable to sales made to European markets and 17.0% was attributable to
sales to markets in the Far East.
The Company generally enters into foreign exchange contracts to hedge
certain firm commitments denominated in foreign currencies, principally in yen.
The terms of the contracts are rarely more than one year. Currency exchange rate
variations have had an immaterial effect on the Company's results of operations
for the periods presented. The results of operations of the Company's foreign
subsidiaries and its equity in the net earnings of the Far East Joint Venture
are translated for financial statement purposes based upon average exchange
rates during the period covered. As a result, fluctuations in exchange rates may
have an adverse
20
<PAGE> 22
effect on the Company's results of operations. Net assets of the Company's
foreign subsidiaries and 50% of the net assets of the Far East Joint Venture
were approximately $24.6 million at April 30, 1997 (the end of fiscal 1997 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 interest in each joint venture is
accounted for on the equity method. As a result, the Company's share of the net
earnings of the Far East Joint Venture and the Fujimi Joint Venture appear in
the "Equity in net earnings of affiliates" caption on the Company's consolidated
statements of earnings. The Far East Joint Venture and the Fujimi Joint Venture
have paid dividends in the past and may continue to do so in the foreseeable
future, but are expected to reinvest substantially all their earnings back into
their respective businesses. The Company's share of the net earnings of the Far
East Joint Venture has not in the past resulted and is not expected in the
future to result in a like effect on the cash flows of the Company. At May 31,
1997, the Company's equity interest in the Far East Joint Venture was $20.4
million, representing 9.9% of the Company's total assets and 13.0% 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.
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
experienced 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 was primarily due to the seasonal buying patterns of its
customers. However, the Company anticipates that this historical pattern may be
moderated by increased sales of its CMP systems. Sales of slurries tend to be
more consistent than equipment sales on a quarterly basis.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of earnings
data for the periods indicated as a percentage of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
REVENUE:
Net sales......................................................... 95.4% 94.8% 92.8%
Commissions from affiliate........................................ 4.6 5.2 7.2
----- ----- -----
Total revenue..................................................... 100.0 100.0 100.0
Cost of sales..................................................... 76.1 65.5 59.7
----- ----- -----
Gross margin...................................................... 23.9 34.5 40.3
OPERATING EXPENSES:
Research, development and engineering............................. 4.6 9.6 11.4
Selling, general and administrative expenses...................... 16.6 15.7 16.5
----- ----- -----
Operating profit.................................................. 2.7 9.2 12.4
Other income (expense)............................................ (1.6) (0.2) (0.2)
----- ----- -----
Earnings from consolidated companies before income taxes.......... 1.1 9.0 12.2
Income tax expense................................................ 0.3 3.5 4.6
----- ----- -----
Earnings from consolidated companies.............................. 0.8 5.5 7.6
Equity in net earnings of affiliates.............................. 2.0 4.3 4.1
----- ----- -----
Net earnings...................................................... 2.8% 9.8% 11.7%
===== ===== =====
</TABLE>
FISCAL 1997 COMPARED WITH FISCAL 1996
Net Sales. Net sales for the fiscal year ended May 31, 1997 were $161.0
million, up 41.4% over net sales of $113.9 million in fiscal 1996. Equipment,
parts and expendables accounted for 83.6% of net sales in fiscal 1997 compared
to 77.3% in fiscal 1996. The growth in this segment was attributable to higher
sales of the Company's CMP systems to the semiconductor industry. Sales of CMP
systems totaled $80.8 million, or 50.2% of net sales, more than double the $39.5
million of CMP system sales in fiscal 1996. In addition to the
21
<PAGE> 23
significant increase in CMP equipment sales to semiconductor manufacturers, net
sales for the fiscal year increased due to a higher level of sales of equipment,
parts and expendables to the thin film memory disk media market. Sales of
slurries increased to $26.3 million in fiscal 1997 from $25.8 million in fiscal
1996. However, as a percent of net sales, sales of slurries decreased to 16.4%
in fiscal 1997 from 22.7% in fiscal 1996. European sales decreased to $9.9
million in fiscal 1997 from $10.9 million in fiscal 1996.
Commissions from Affiliate. Commissions from affiliate increased to $12.4
million in the year ended May 31, 1997, compared to $6.3 million in the year
ended May 31, 1996. The increase in fiscal 1997, as compared to fiscal 1996, was
due primarily to increased demand in the silicon wafer industry for polishing
systems developed and manufactured by the Far East Joint Venture. In addition,
sales of cleaning and polishing systems, also produced by the Far East Joint
Venture, to customers in the thin film memory disk media market increased
significantly in fiscal 1997 over fiscal 1996. Commissions from affiliate also
improved over the prior year due to improved margins on import machines.
Gross Margin. In fiscal 1997, gross margin was $69.9 million, or 40.3% of
total revenue, compared to $41.5 million, or 34.5% of total revenue, in fiscal
1996. In addition to higher sales levels, gross margin has increased due to a
continuing increase in sales of higher margin equipment, particularly systems
for the planarization of semiconductor devices. In addition, higher commission
revenue contributed to the increased gross margins in fiscal 1997.
Research, Development and Engineering. In the year ended May 31, 1997,
research, development and engineering expense increased to $19.8 million, or
11.4% of total revenue, compared to $11.5 million, or 9.6% of total revenue, in
fiscal 1996. The increase in both the dollar amount and as a percent of total
revenue is a result of the continued investment in the development of the CMP
process and products for key markets, particularly for the semiconductor sector,
and the increase in the Company's field support organization throughout the
world. Such expenditures have resulted in the development and sale of the
Company's CMP systems, and the development of the Capella, the Company's
post-CMP cleaning system.
Selling, General and Administrative. In fiscal 1997, selling, general and
administrative expense increased to $28.7 million from $18.9 million in fiscal
1996. In fiscal 1997, selling, general and administrative expense increased as a
percent of total revenue to 16.5% from 15.7% in fiscal 1996. Higher levels of
spending were required to support the sales growth in fiscal 1997. This increase
in selling, general and administrative expense as a percentage of revenue
reflects continued investments in the sales and administrative infrastructure,
as well as increased commissions paid to the Far East Joint Venture as a result
of increased sales of CMP systems produced by the Company in the U.S. and
exported to Pacific Rim customers though its joint venture affiliate.
Other Income (Expense). Other expense increased to $298,000 in fiscal 1997
from $208,000 in fiscal 1996. Other income (expense) includes charges associated
with the Company's public common stock offering in the first quarter of fiscal
1997 which was subsequently canceled, interest expense, miscellaneous expenses
and interest income.
Provision for Income Taxes. The Company's effective tax rate in fiscal
1997 was 38%, compared to 39% in fiscal 1996. The Company's effective income tax
rate in fiscal 1997 differs from the Federal statutory rate primarily as a
result of state taxes, net of the U.S. federal benefit offset by the tax benefit
from a foreign sales corporation and research and development tax credits.
Equity in Net Earnings of Affiliates. For the year ended May 31, 1997,
equity in net earnings of affiliates increased to $7.1 million compared to $5.2
million in the year ended May 31, 1996. Demand continued to be strong for
products sold to the thin film memory and semiconductor wafer industries by the
Far East Joint Venture. However, due to recent competition in the sale of
equipment into the thin film memory disk market, the Company does not expect
that this historical rate of earnings growth will continue and expects that
earnings of the Far East Joint Venture during its fiscal 1998 will be the same
as or lower than in fiscal 1997. In addition, the Company's share of the net
earnings of the Fujimi Joint Venture was significantly higher than in fiscal
1996 due to increased sales and improved margins realized during fiscal 1997 on
slurry products sold by the Fujimi Joint Venture to the U.S. silicon wafer
market.
22
<PAGE> 24
FISCAL 1996 COMPARED WITH FISCAL 1995
Net Sales. Net sales for the fiscal year ended May 31, 1996 were $113.9
million, almost double the net sales of $57.0 million reported in fiscal 1995.
Equipment, parts and expendables accounted for 77.3% of net sales in fiscal 1996
compared to 52.3% in fiscal 1995. CMP-V sales were $39.5 million and accounted
for 34.7% of net sales in fiscal 1996, up from 7.9% in fiscal 1995. In addition
to the significant increase in CMP-V sales to semiconductor manufacturers, net
sales increased due to industry growth in the thin film memory disk media and
semiconductor wafer markets. As a result, sales of related equipment, parts and
expendables also increased in fiscal 1996 over fiscal 1995. Sales of slurries as
a percent of net sales decreased to 22.7% in fiscal 1996 from 47.7% in fiscal
1995.
Commissions from Affiliate. Commissions from affiliate more than doubled
to $6.3 million in the year ended May 31, 1996, compared to $2.8 million in the
year ended May 31, 1995. The increase in fiscal 1996, as compared to fiscal
1995, was due primarily to the increasing demand from the silicon wafer industry
to meet that industry's growing requirements, and increased demand for certain
technologies developed and manufactured by the Far East Joint Venture.
Gross Margin. In fiscal 1996, gross margin was $41.5 million or 34.5% of
total revenue compared to $14.3 million or 23.9% of total revenue in fiscal
1995. In addition to higher sales levels, gross margin increased due to a
considerable shift towards higher margin products in the equipment, parts and
expendables segment, particularly the CMP-V planarization system.
Research, Development and Engineering. In the year ended May 31, 1996,
research, development and engineering expense increased to $11.5 million or 9.6%
of total revenue compared to $2.7 million or 4.6% of total revenue in fiscal
1995. The Company has committed significant resources to the continued
development of the CMP process and other related technologies. The Company
believes that increased spending in research, development and engineering,
including providing required technical support services for needs of customers,
are all major factors to continued CMP sales growth.
Selling, General and Administrative. In fiscal 1996, selling general and
administrative expense increased to $18.9 million from $9.9 million in fiscal
1995. In fiscal 1996, selling, general and administrative expense decreased as a
percent of total revenue compared to 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.
Other Income (Expense). Other expense decreased to $208,000 in fiscal 1996
from $953,000 in fiscal 1995. In fiscal 1995, the Company incurred a $350,000
foreign exchange loss on several import equipment orders. In addition, interest
expense decreased from fiscal 1995 to fiscal 1996 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. The remaining decrease in other
expense is due primarily to additional interest income earned on the investment
of proceeds received upon completion of the Company's initial public offering of
Common Stock in October 1995.
Provision for Income Taxes. The Company's effective tax rate in fiscal
1996 was 39%, compared to 29% in fiscal 1995. The Company's effective income tax
rate in fiscal 1996 differs from the Federal statutory rate primarily as a
result of state taxes, net of the U.S. federal benefit. The fiscal 1995
effective tax rate differs from the statutory rate primarily as a result of the
tax benefit from a foreign sales corporation.
Equity in Net Earnings of Affiliates. For the year ended May 31, 1996,
equity in net earnings of affiliates increased to $5.2 million compared to $1.2
million in the year ended May 31, 1995. The increase is primarily attributable
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.
23
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited consolidated quarterly
financial information for the eight quarters ended May 31, 1997 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 1996 FISCAL 1997
------------------------------------- ---------------------------------------
AUG. 31 NOV. 30 FEB. 29 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31
------- ------- ------- ------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Net sales.................................. $17,633 $24,637 $30,083 $41,527 $38,059 $36,227 $40,918 $45,790
Commissions from affiliate................. 183 801 3,057 2,249 1,669 2,892 4,362 3,507
------- ------- ------- ------- ------- ------- ------- -------
Total revenue................................ 17,816 25,438 33,140 43,776 39,728 39,119 45,280 49,297
Cost of sales.............................. 12,766 18,420 20,295 27,180 25,782 24,092 25,591 28,036
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............................... 5,050 7,018 12,845 16,596 13,946 15,027 19,689 21,261
Research, development and engineering...... 1,195 2,302 3,496 4,503 3,781 4,114 4,884 6,987
Selling, general and administrative........ 3,482 3,380 5,183 6,877 6,805 6,675 9,003 6,188
------- ------- ------- ------- ------- ------- ------- -------
Operating profit............................. 373 1,336 4,166 5,216 3,360 4,238 5,802 8,086
Other income (expense)....................... (496) (333) 82 539 (445) (21) 64 104
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from consolidated companies
before income taxes........................ (123) 1,003 4,248 5,755 2,915 4,217 5,866 8,190
Income tax expense (benefit)................. (27) 413 1,616 2,264 1,063 1,703 2,286 2,985
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from consolidated
companies.................................. (96) 590 2,632 3,491 1,852 2,514 3,580 5,205
Equity in net earnings of affiliates......... 800 1,035 1,728 1,641 2,186 2,269 1,329 1,284
------- ------- ------- ------- ------- ------- ------- -------
Net earnings................................. $ 704 $1,625 $ 4,360 $5,132 $ 4,038 $4,783 $ 4,909 $6,489
======= ======= ======= ======= ======= ======= ======= =======
Net earnings per share....................... $ .09 $ .16 $ .39 $ .46 $ .36 $ .42 $ .42 $ .46
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common and common equivalent
shares..................................... 8,248 9,937 11,211 11,258 11,277 11,315 11,801 14,100
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUE:
Net sales.................................. 99.0% 96.9% 90.8% 94.9% 95.8% 92.6% 90.4 92.9%
Commissions from affiliate................. 1.0 3.1 9.2 5.1 4.2 7.4 9.6 7.1
------- ------- ------- ------- ------- ------- ------- -------
Total revenue................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0 100.0
Cost of sales.............................. 71.7 72.4 61.2 62.1 64.9 61.6 56.5 56.9
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............................... 28.3 27.6 38.8 37.9 35.1 38.4 43.5 43.1
Research, development and engineering...... 6.7 9.0 10.5 10.3 9.5 10.5 10.8 14.2
Selling, general and administrative........ 19.5 13.3 15.7 15.7 17.1 17.1 19.9 12.5
------- ------- ------- ------- ------- ------- ------- -------
Operating profit............................. 2.1 5.3 12.6 11.9 8.5 10.8 12.8 16.4
Other income (expense)....................... (2.8) (1.3) 0.2 1.2 (1.1) 0.0 0.2 0.2
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from consolidated companies
before income taxes........................ (0.7) 4.0 12.8 13.1 7.4 10.8 13.0 16.6
Income tax expense (benefit)................. (0.2) 1.6 4.9 5.1 2.7 4.4 5.1 6.0
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from consolidated
companies.................................. (0.5) 2.4 7.9 8.0 4.7 6.4 7.9 10.6
Equity in net earnings of affiliates......... 4.5 4.1 5.3 3.7 5.5 5.8 2.9 2.6
------- ------- ------- ------- ------- ------- ------- -------
Net earnings................................. 4.0% 6.5% 13.2% 11.7% 10.2% 12.2% 10.8 13.2%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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 semiconductor device, thin film memory disk and semiconductor
wafer industries, customer delivery schedules, timing of orders, the
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<PAGE> 26
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
For the year ended, May 31, 1997, $6.9 million in cash was provided by
operating activities primarily from net earnings. Cash from operating activities
was also provided by an increase in accounts payable and accrued expense
liabilities since the beginning of the fiscal year. Cash was used in operating
activities primarily to reduce the due to affiliates liability, income taxes
payable and to support growth in accounts receivable and inventories.
The Company recently completed construction of its new corporate
headquarters and manufacturing facility in Chandler, Arizona. Total costs
incurred for the project were approximately $18.9 million.
On October 26, 1995, the Company completed its initial public offering of
Common Stock. The Company issued 2,927,500 shares of Common Stock and received
proceeds of $28.3 million, net of underwriters' discounts and commissions and
offering expenses. On February 20, 1997, the Company completed a second public
offering of Common Stock. In connection therewith, the Company issued 2,500,000
shares of Common Stock and received proceeds of $77.7 million, net of
underwriters' discounts and commissions and offerings expenses. In addition, for
the year ended May 31, 1997, $1.5 million was provided by the sale of stock to
employees through the Company's Employee Stock Purchase Plan and through the
exercise of stock options.
Using proceeds from the February 1997 stock offering, the Company paid off
the entire $2.8 million outstanding balance under a $22.5 million unsecured
revolving line of credit maturing April 14, 1999. As of May 31, 1997, no amounts
were outstanding on this line of credit.
On August 29, 1997, the Company successfully negotiated a new unsecured
credit facility with its U.S. bank group which replaced the $22.5 million credit
facility and a $14 million term loan commitment. The new credit agreement
provides for a revolving loan facility in the amount of $60 million with a term
of three years. At August 31, 1997, no amounts were outstanding on this loan
facility.
On October 31, 1996, SpeedFam U.K., the Company's wholly-owned subsidiary
in the United Kingdom, entered into a L950,000 ($1.5 million) Multi-Currency
Revolving Line of Credit. The credit facility was provided to support the
operating and working capital needs of the Company's British subsidiary. At
August 31, 1997, no amounts were outstanding on this loan.
The Company currently anticipates capital expenditures of approximately
$30.5 million for fiscal 1998. The Company believes that cash generated from
operations, together with the proceeds from this offering and the revolving loan
facilities will be sufficient to meet the Company's capital requirements during
at least the next 12 months.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces Accounting Principles Board Opinion
("APB") No. 15 and simplifies the computation of earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company, similar to fully diluted EPS under
APB No. 15. The Statement requires dual presentation of basic and diluted EPS by
entities with complex capital structures. The Company will adopt SFAS No. 128
for the financial statements for the year ended May 31, 1998.
SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards for
the reporting and display of comprehensive
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<PAGE> 27
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. The Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company is evaluating the
Statement's provisions to conclude how it will present comprehensive income in
its financial statements, and has not yet determined the amounts to be
disclosed. The Company will adopt SFAS No. 130 effective June 1, 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to stockholders. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. The Company is
evaluating the new Statement's provisions to determine the additional
disclosures required in its financial statements, if any. The Company will adopt
SFAS No. 131 effective June 1, 1998.
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BUSINESS
SpeedFam designs, develops, manufactures, markets and services chemical
mechanical planarization, or "CMP," systems used in the fabrication of
semiconductor devices and other high throughput precision surface processing
systems used in the fabrication of thin film memory disk media, semiconductor
wafers and general industrial components. 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 advanced semiconductors, thin
film memory disk media and semiconductor wafers. 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 in over 35 years enables it to provide
precision surface processing solutions to leading-edge electronics manufacturers
who require increasingly smaller device geometries and tighter process
tolerances. Major customers of the Company include AMD, Akashic,
Hewlett-Packard, IBM, Komag, MEMC, Mitsubishi Siltec, Motorola, Rockwell
International, Seagate, Siemens 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 0.35 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 2,200
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 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. The combination of chemical action from the
acidic or alkaline slurry and mechanical action from the abrasive slurry is used
to process silicon wafers, thin film memory disk media and advanced
semiconductor devices.
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EMERGENCE OF CMP PROCESS
The objective of CMP in the manufacture of semiconductor devices 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
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 $316 million in 1996 and
it currently projects the market to be approximately $1.2 billion in the year
2001.
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, or "footprint."
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 repeatedly 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.
Emerging Requirements. Emerging requirements of semiconductor device
manufacturers include CMP systems with integrated post-CMP cleaning capability
that enable reduced handling of wet product wafers and more efficient
utilization of clean room space. Device manufacturers are also seeking systems
that incorporate in situ end-point detection capability to measure the remaining
thickness of oxide or metal layers in order to determine precisely when the
desired film thickness has been achieved during the CMP process.
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
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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 one of the earliest
manufacturers to develop and ship commercial quantities of a multiple head CMP
system. A number of CMP equipment manufacturers have introduced 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 of experience in precision surface
processing, polishing, wet processing and high-throughput production equipment
to develop its CMP system. The Company began developing the CMP-V in 1990 and
initiated commercial shipments during 1994. The Company introduced its "second
generation" CMP system, the Auriga, in 1996 and shipments of that system began
in the second quarter of fiscal 1997. The Company recently introduced the
Auriga-C, which integrates technology from the Company's Capella, its post-CMP
cleaning system, thereby providing a dry-in/dry-out system. The Company has also
recently introduced the Altair, an in situ end-point detection system.
Deliveries of the Auriga-C for revenue are expected to begin in the second
quarter of fiscal 1998. Each of the Company's CMP systems utilize 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 Auriga is designed to provide a favorable
combination of capital equipment and consumables costs, throughput, yield and
space utilization. For example, the Company's CMP systems' 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 Auriga 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 Auriga 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 Auriga system incorporates certain modifications from the CMP-V in the
control and automation system in order to decrease the time interval between
processes, thereby increasing the number of wafers processed.
Process Flexibility, Performance and Reliability. The Auriga 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 Auriga 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 performance of the Auriga 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
and process performance.
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
manufacturers. 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.
Emerging Requirements. The Company's recently introduced Auriga-C system
has been designed to address the market's demand for an integrated post-CMP
cleaning capability. The Auriga-C maintains the
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<PAGE> 31
high throughput design of the original Auriga platform while integrating the
Company's post-CMP cleaning technology to provide a dry-in/dry-out system in
substantially the same system footprint as the Auriga. The Company has also
recently introduced an in situ end-point detection system, the Altair, which is
designed to measure precisely the film thickness of oxide or metal layers.
SPEEDFAM STRATEGY
The Company's goal is to establish and maintain market leadership in
systems which provide high throughput precision surface processing of advanced
semiconductors, thin film disk media and other high value-added products. Key
elements of the Company's strategy include:
- Maintain a leading position in the CMP market. The Company seeks to
leverage its expertise in precision surface processing systems to maintain
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 has recently introduced the Auriga-C, which
integrates technology from the Company's Capella, its post-CMP cleaning
system, thereby providing a dry-in/dry-out system. The Company has also
recently introduced the Altair, an in situ end-point detection system.
Deliveries of the Auriga-C for revenue are expected to begin in the second
quarter of fiscal 1998.
- 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 industry, 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 semiconductor and thin
film memory disk media 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
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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 publicly-traded Japanese manufacturer of slurries. The Fujimi Joint Venture
sells slurries manufactured by Fujimi Incorporated, primarily to silicon wafer
manufacturers and general industrial manufacturers in North America. See
"-- Manufacturing and Suppliers" and "Joint Venture Arrangements -- Fujimi Joint
Venture."
PRODUCTS
SpeedFam's products include polishing, grinding and lapping equipment;
pre-deposition cleaning machines; other high precision surface processing
systems; and certain other products used in its customers' manufacturing
process, including slurries. During fiscal years 1995, 1996 and 1997, 54.5%,
78.5% and 84.8%, respectively, of the Company's total revenue (including
commissions) was attributable to the sale of capital equipment, parts and
expendables and 45.5%, 21.5% and 15.2%, 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 Process & Applications Chart
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 which is
applied to a cast-iron lapping wheel) and free abrasive machining ("FAM", a
process similar to lapping except that instead of 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 rougher surface finishes.
Grinding is a conventional machining process in which abrasive particles are
contained within a fixed medium (grinding stones), rather than a liquid.
Grinding produces significantly higher removal rates than lapping but produces a
coarser surface finish. Dimensional tolerance, surface finish, quantity of
material to be removed along with production rates required and cost of
operation 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.
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Equipment
Semiconductor Chemical Mechanical Polishing (CMP). The Company currently
offers the Auriga, a five head, two polishing table CMP system capable of
processing 65-90 wafers per hour based on commonly used polishing cycles. The
Auriga system, which began shipping commercially in November 1996, incorporates
certain modifications from the Company's original system for chemical mechanical
planarization of semiconductor devices, the CMP-V, in the control and automation
system in order to decrease the time interval between processes, thereby
increasing the number of wafers processed. The Company's CMP process is
currently characterized and in production 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. Each of the Company's CMP systems offers compatibility
with all commonly used slurry chemistries and are produced solely by the
Company. Depending on specifications, the selling price of the Auriga in the
U.S. ranges from $1.9 million to $2.3 million.
SPEEDFAM CMP PLANARIZATION SYSTEM
[SPEEDFAM PLANARIZATION SYSTEM PHOTO]
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In addition, the Company has recently introduced the Auriga-C, which
integrates technology from the Company's Capella, its post-CMP cleaning system,
thereby providing a dry-in/dry-out system. The design of the Auriga-C is based
upon the replacement of the automation module on the Auriga with a new
automation module which incorporates the Capella cleaning technology. The
Company has also recently introduced the Altair, an in situ end-point detection
system. The Company has had limited experience with the production of the
Auriga-C and may encounter difficulties in its production. Further, the Auriga-C
has only recently begun testing in the Company's laboratories and has not yet
been shipped to customers for evaluation. Deliveries of the Auriga-C for revenue
are expected to begin in the second quarter of fiscal 1998. As with any new
product introduction, there are risks that final customer acceptance may take
longer than scheduled.
Thin Film Memory Disk Media. The Company sells polishing machines,
pre-deposition cleaning machines and grinding machines for producing aluminum,
nickel-plated and glass substrates for the thin film memory disk media market.
The following chart describes the major steps in the typical aluminum thin
film memory disk media manufacturing process:
[THIN FILM MEMORY DISK MEDIA MANUFACTURING PROCESS CHART]
The DSM line of manual and automated machines are used in the manufacture
of thin film memory disk media for grinding the aluminum substrate as well as
polishing after deposition of the nickel plating. The DSM line of machines
simultaneously processes both sides of a disk substrate and is available in
various sizes. The automated machines in the DSM line are currently manufactured
solely by the Far East Joint Venture. Typical U.S. selling prices for the DSM
line range from $90,000 to $850,000.
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The MD line of cleaning systems are 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 solely by the Far East Joint Venture. Typical U.S.
selling prices for the MD line of cleaning systems range from $200,000 to
$900,000.
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 CHART]
The Company's DSM line of double-sided lapping systems is available in
various sizes and is used to create the initial flatness and thickness of the
silicon wafer after it is sliced from an ingot. The lapping process also removes
saw marks remaining after slicing and provides a surface finish suitable for
subsequent polishing processes. DSM double-sided polishers for silicon wafer
polishing are also available. Typical U.S. selling prices for the DSM line range
from $300,000 to $1.5 million.
The SPAW 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 sell for up to $4.9 million.
The Company began distributing the EP line of edge polishing systems during
fiscal 1995. Edge polishing has emerged as a new technology that is being
incorporated into high volume silicon wafer manufacturing. This technology was
developed and 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.
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General Industrial. The Company offers a broad line of lapping, grinding
and polishing systems for the general industrial market. The line includes
approximately 35 models of single-side processing machines, double-side
processing machines, in-line grinding systems and optics polishing 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.
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 maintains spare parts
inventories at six 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 $1,000 to $1,500 per 55-gallon drum.
The Company has entered into the Fujimi Joint Venture with Fujimi
Incorporated to sell certain products in North and South American markets,
including slurry and slurry components. The Company distributes thin film memory
disk polishing slurry and related products supplied by Fujimi Incorporated,
while the Fujimi Joint Venture distributes other products supplied by Fujimi
Incorporated. To date, no material sales of products have been made to South
American markets by the Fujimi Joint Venture. See "Joint Venture
Arrangements -- Fujimi Joint Venture."
The slurry for thin film memory disk media polishing applications is
available in different varieties to address the varying needs of each specific
process. Some formulations allow higher stock removal rates and others emphasize
surface finish results. There are also a variety of slurry formulations
available for silicon wafer processing. Slurry is an essential process component
in chemical mechanical polishing. The chemical action of this process is
implemented by designing the slurry to be chemically active with the surface to
be polished, typically by adjusting the pH of the slurry vehicle. The mechanical
portion of the process is accomplished by abrasive particles in the slurry.
The Company believes that meeting the evolving slurry requirements of each
customer is vital to providing a total process solution. The Company intends to
continue to maintain an emphasis on slurry distribution and to work closely with
Fujimi Incorporated in developing, designing and formulating customized slurries
that address specific customer needs.
CUSTOMERS
The Company sells its products to leading manufacturers of semiconductor
devices, thin film memory disks, semiconductor wafers and for various industrial
applications. Certain of the Company's top customers in fiscal 1995, 1996 and
1997 in the semiconductor device, thin film memory disk media, semiconductor
wafer, and general industrial application markets are listed below.
35
<PAGE> 37
<TABLE>
<S> <C> <C>
SEMICONDUCTOR DEVICE THIN FILM
----------------------------------
AMD National Semiconductor MEMORY DISK MEDIA
------------------
Hewlett-Packard Promos Technology Akashic
Lucent Rockwell International Komag
MASCA Siemens HMT
Mosel UICC IBM
Seagate
SEMICONDUCTOR WAFER GENERAL INDUSTRIAL APPLICATIONS
-------------------- --------------------------------
MEMC Hayward Quartz
Mitsubishi Siltec Heraeus Amersil
Sumitomo Sitix IBM
Wacker Siltronic Manufacturing Technology
Motorola
</TABLE>
The Company's ten largest customers accounted for 66.9%, 64.4% and 59.8% of
the Company's total revenue in fiscal years 1995, 1996 and 1997, respectively.
One customer, Komag, accounted for 20.6%, 17.8% and 10.3% of the Company's total
revenue in fiscal years 1995, 1996 and 1997, respectively. Although Komag has
represented a significant portion of the Company's sales of polishing machines
to the thin film memory disk market in the past, it is not anticipated that
Komag will represent as significant a portion of such sales in the future. AMD
accounted for 12.8% of the Company's total revenue for 1997. In addition, during
fiscal 1995, Akashic accounted for 10.9% of the Company's total revenue.
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 semiconductor and thin film memory disk media industries and
uses a network of 14 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 markets and sells its products in the
Far East through the sales and marketing arm of the Far East Joint Venture.
The Company's sales strategy emphasizes direct interaction with customers,
particularly in the semiconductor and memory disk industries, where ongoing
customer support and service are critical. The Company's direct sales force is
divided into focused units for each of the semiconductor devices, thin film
memory disk media and semiconductor wafer industries.
At May 31, 1997, the U.S. direct sales organization had a total of 23 sales
personnel. The Company's main sales offices are in Chandler, Arizona, Austin,
Texas and Elk Grove Village, Illinois. The Company also had an aggregate of nine
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 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 worldwide and the
sponsorship of technical conferences, which include the presentation of
technical papers written 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
semiconductor, thin film memory disk and other industries.
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<PAGE> 38
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 semiconductor device, thin film memory disk media, semiconductor
wafer 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, 1997, the
Company had 137 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 world, 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 $68.3 million at August 31, 1997, from approximately
$41.4 million at August 31, 1996. Approximately $58.3 million, or 85.5% of the
total backlog at August 31, 1997, 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 1995, 1996 and 1997, were
approximately $2.7 million, $11.5 million and $19.8 million, respectively.
At May 31, 1997, the Company had an engineering staff of 55 employees and a
research and development staff of 62 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.
37
<PAGE> 39
Product Development
The Company began shipments of the Auriga, an enhanced version of the
CMP-V, its original system, in the second quarter of fiscal 1997. The Company
intends to periodically develop and introduce enhanced versions of its CMP
system. The Company has also recently introduced the Capella, a post-CMP
cleaning system. In addition, the Company has also recently introduced the
Auriga-C, which integrates technology from this cleaning system to provide a
dry-in/dry-out system. The Company is also developing additional products and
product enhancements for the thin film memory disk and silicon wafer markets.
Typically, the Company works with either a "user-group" of current and
potential customers or a key customer to act as technical advisors during the
conceptualization of a new product. The Company's CMP 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.
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 continuing to develop new processing capability in the CMP area for
improved planarity, higher removal rates and emerging film applications, such as
copper. The Company has also developed and recently introduced an end-point
detection system, the Altair, for the purpose of measuring the film thickness of
oxide and metal layers of advanced semiconductor devices. The Company is
currently in the preliminary stage of its development program for 300mm CMP
products. In the thin film memory disk area, the Company also continues to
pursue the development of automated machines and enhanced processes, as well as
machine refinements providing improved process performance.
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 Illinois facilities. The Company's CMP
system 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 43.4%, 19.7% and 14.4% of the Company's total revenue in
fiscal 1995, 1996 and 1997, respectively, was derived from the sale of slurries
and other products 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."
38
<PAGE> 40
COMPETITION
The Company competes in several distinct markets. These markets include the
semiconductor device equipment market, the thin film memory disk media equipment
market, the semiconductor wafer equipment market, the general industrial
applications 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.
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 the semiconductor device equipment market, the Company faces significant
competition from current competitors and any others that may enter this market
in the future. IPEC currently has the largest installed base of CMP equipment.
Other companies in this market are in various stages of development of CMP
machines. Specifically, Applied Materials, a large semiconductor capital
equipment supplier with significant resources, has introduced a multiple head
CMP machine and IPEC has begun shipments of multiple head CMP systems. Ebara, a
Japanese capital equipment manufacturer, has begun shipments of a multiple head,
dry-in/dry-out system, primarily in the Far East. In addition, certain of the
Company's competitors have longer-standing relationships than the Company with
particular customers, including semiconductor device manufacturers. These
longer-standing relationships may make it more difficult for the Company to sell
its CMP system to such device manufacturers. Consolidation among CMP equipment
suppliers or the acquisition of CMP equipment suppliers by large, established
suppliers of non-CMP capital equipment to semiconductor device manufacturers or
others could materially adversely affect the Company's ability to compete and
would have a material adverse effect on the Company's results of operations. In
the thin film memory disk and semiconductor wafer equipment markets, the Company
competes with a relatively few significant competitors.
Competition in the general industrial products markets is fragmented; no
one competitor currently holds a dominant position. The Company faces
significant competitive pressure in the sale of slurries, particularly with
regard to pricing, resulting in decreased margins for certain products of 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
The Company currently holds numerous United States patents and additional
foreign patents in Japan and several Asian and European countries and has
numerous United States and foreign patent applications pending. The Company has
recently become increasingly aggressive with respect to patent applications,
especially in the CMP area. In addition, the Company believes that such factors
as continued innovation, technical expertise and know-how of its personnel and
other factors are also important. The Company owns eight U.S. trademark
registrations. 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
39
<PAGE> 41
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 and the SPEEDFAM logo are registered trademarks of
the Company.
PROPERTY
The Company currently owns or leases buildings containing a total of
approximately 258,000 square feet of space in the U.S. and Europe, including
approximately 133,000 square feet of factory/assembly area and approximately
125,000 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 247,000 square feet of the total, of which
approximately 176,000 square feet is owned (including the recently completed
135,000 square foot corporate headquarters and manufacturing facility in
Chandler, Arizona). The balance of approximately 71,000 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 leased office space in Inglefingin,
Germany.
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, 1997, the Company had 513 full time employees in the U.S. and
Europe, including 142 in manufacturing, 45 in marketing and sales, 137 in field
service, 55 in engineering, 62 in research and development and 72 in general
administration. In addition, the Company had 32 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, Thailand,
and Malaysia and owns a majority interest in a Japanese
40
<PAGE> 42
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 Taiwan and India also include manufacturing facilities where certain of the
equipment sold by the subsidiaries is produced. Through a joint venture with
Met-Coil Systems Corporation (a U.S. company), the Far East Joint Venture
manufactures and markets in the Far East sheet metal forming equipment developed
by Met-Coil Systems Corporation.
Background. During the late 1960's, the Company marketed its products in
Japan through Japanese trading companies. At that time, the Company believed
that a presence in the Japanese market would enhance its competitive position in
the U.S. as well as provide additional sources of income and access to
technology. For numerous business and cultural reasons, the Company believed it
could most effectively penetrate the Japanese market with the aid of a Japanese
partner. In 1970 the Company entered into a joint venture with a Japanese
company, Obara Corporation ("Obara"), pursuant to which the Far East Joint
Venture was formed. The Company and Obara each own a 50% interest in the Far
East Joint Venture. Obara, a privately-owned company, principally supplies
welding guns and tips 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
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<PAGE> 43
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 nine directors serving on its
Board of Directors, including Messrs. Farley and Kouzuma, the Chairman and Chief
Executive Officer of the Company, respectively, as well as Hiroshi Obara,
Suminori Suzuki, Ryosuke Tojo, Shinya Iida, Hatsuyuki Arai, Isao Nagahashi and
Akitoshi Yoshida. 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 Managing
Director of the Far East Joint Venture and assists in the overall management of
operations. Dr. Iida is the chief technical officer and is responsible for all
research, development and engineering operations. Mr. Yoshida is Chief of the
Makuhari Techno Garden Laboratory and reports to Mr. Iida. Messrs. Arai and
Nagahashi are the directors of CMP and thin film memory disk technology,
respectively, and report to Mr. Tojo. Mr. Kunihiko Watanabe is director of sales
for the silicon wafer market and reports to Mr. Kouzuma.
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 1995, 1996 and 1997 fiscal
years, the Company's share of the net earnings of the Far East Joint Venture was
$1.1 million, $4.8 million and $5.5 million, respectively, representing 66.9%,
40.3% and 27.3%, respectively, of the Company's net earnings. The Far East Joint
Venture has not paid significant dividends in the past and is expected to retain
substantially all of its earnings in the foreseeable future to support the
growth of its business. As a result, the Company's share of the net earnings of
the Far East Joint Venture has not in the past resulted and is not expected in
the future to result in a like effect on the cash flows of the Company. In
addition, in recent periods the equity in net earnings of affiliates has
increased substantially, primarily as a result of an increase in net earnings of
the Far East Joint Venture. This increase has been primarily attributable to a
strong demand for equipment, systems and other products supplied by the Far East
Joint Venture to the thin film memory disk and semiconductor wafer industries.
However, due to recent competition in the sale of equipment into the thin film
memory disk market and for other reasons, the Company does not expect that this
historical rate of earnings growth will continue and expects that earnings of
the Far East Joint Venture during its fiscal 1998 will be the same as or lower
than in fiscal 1997. During fiscal 1995, 1996 and 1997, 4.5%, 5.2% and 7.2%
respectively, of the Company's total revenue was attributable to commissions
earned on products produced by the Far East Joint Venture and which were sold by
the Company. At May 31, 1997, the Company's equity interest in the Far East
Joint Venture was $20.4 million, representing 9.9% of the Company's total assets
and 13.0% 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 three months ended July 31, 1996 and 1997 which is unaudited. In the
opinion of management, this information has been presented on the same basis as
the audited consolidated financial statements of the Far East Joint Venture
appearing elsewhere in this Prospectus, and all necessary adjustments have been
included in the amounts stated below to present fairly the unaudited quarterly
results when read in conjunction with the consolidated financial statements.
Such information should be read in conjunction with the consolidated financial
statements and notes thereto of the Far East Joint Venture appearing elsewhere
herein.
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<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED APRIL 30, ENDED JULY 31,
------------------------------ -------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Net sales................................... $108,664 $161,169 $220,281 $ 56,750 $ 60,114
Gross profit................................ 31,576 54,257 66,773 17,696 14,055
Operating profit............................ 6,467 19,959 20,958 7,774 1,196
Net earnings(1)............................. 2,169 9,637 11,013 3,821 526
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD
END):
Working capital............................. $ 23,779 $ 23,526 $ 19,637 $ 24,579 $ 17,815
Total assets................................ 110,813 126,551 153,700 144,482 174,876
Long-term debt, less current portion........ 12,528 9,106 10,786 10,648 10,736
Stockholders' equity........................ 34,215 37,091 40,726 39,435 41,644
</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 the Far East Joint Venture sells
substantially fewer CMP planarization systems to semiconductor device
manufacturers 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 certain of
these machines in the U.S. and Europe. New products recently introduced and
manufactured solely by the Far East Joint Venture include the RCPM-95, a
multiple-head radial/circumferential polisher, manufactured exclusively for
high-end thin film memory disk processing, which creates programmable polish
patterns on the disk surface allowing higher density media and improved yields.
The Far East Joint Venture also markets parts, expendables and slurries
(primarily to thin film memory disk and silicon wafer manufacturers).
The Far East Joint Venture has developed and is currently manufacturing and
marketing a two head CMP system. This system is marketed primarily as a tool for
low volume production or research and development. The Company's Auriga five
head system and other CMP products are marketed and sold through the Far East
Joint Venture. The Far East Joint Venture receives a commission from the Company
for such sales in the Far East.
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 have included: Niigata Toshiba Ceramics Co., Ltd.
(silicon wafer manufacturer), LG Siltron, Inc. (silicon wafer manufacturer),
Toyo Kohan Co., Ltd. (thin film memory disk manufacturer), Wacker Siltron
(silicon wafer manufacturer), Kaifa Magnetics (H.K.), Ltd. (thin film memory
disk manufacturer). During the Far East Joint Venture's fiscal years 1995, 1996
and 1997, sales to certain customers through Fujimi Incorporated, acting as a
distributor, accounted for approximately 11%, 12% and 15% 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, 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
43
<PAGE> 45
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.
The Far East Joint Venture recently adopted an aggressive pricing strategy
designed to gain market share for its new automated disk polishing systems.
Although the Far East Joint Venture expects this gross margin pressure to
continue to negatively impact the Far East Joint Venture's earnings for at least
the near term, the Far East Joint Venture believes that this pricing strategy
represents an important strategic investment. 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 75 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 67 persons. Research and
development efforts of the Far East Joint Venture 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 April 30, 1997, the Far East Joint Venture had 492 full-time
employees, including 388 in Japan, 4 in Thailand, 22 in Korea, 40 in Taiwan, 17
in India, 14 in Singapore, 2 in Shanghai, 3 in Hong Kong and 2 in Malaysia. Of
these employees, 87 are engaged in manufacturing, 67 in marketing and sales, 75
in field service, 85 in engineering, 67 in research and development, 52 in
management and 59 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, 1996 and 1997, commissions paid to the Company relating to such
distribution amounted to approximately $2.8 million, $6.3 million and $12.4
million, respectively. Further, the Company purchases certain components used in
its machines from the Far East Joint Venture. During fiscal 1995, 1996 and 1997,
purchases of components from the Far East Joint Venture totaled approximately
$3.0 million, $5.6 million and $4.9 million, respectively.
Mr. Kouzuma receives certain amounts from the Far East Joint Venture
consisting of directors' fees, bonuses and salary. In addition, both Messrs.
Farley and Kouzuma receive dividends on their individual holdings of stock in
certain of SpeedFam Co., Ltd.'s subsidiaries. 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 MetCoil Ltd., 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.
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<PAGE> 46
Ltd., namely SpeedFam Korea Ltd., SpeedFam Incorporated in Taiwan, SpeedFam
India (Pvt.) Ltd. and SpeedFam Malaysia SDN., BHD.
FUJIMI JOINT VENTURE
Pursuant to a joint venture agreement dated September 7, 1984, the Company
and Fujimi Incorporated formed the Fujimi Joint Venture, an Illinois
corporation. Each of Fujimi 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, diamond slurries and other products to the
semiconductor wafer, thin film memory disk 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 $15.8 million in fiscal 1995, $19.7 million in fiscal 1996 and
$36.6 million in fiscal 1997. For a description of other business relationships
between the Company and Fujimi Incorporated, see "Business -- Manufacturing and
Suppliers." The Fujimi Joint Venture imports a portion of the products it sells
and purchases such products in non-U.S. dollar denominated transactions. This
business is subject to foreign exchange rate fluctuations and has recently
experienced increased competition which can significantly impact operating
earnings.
The Fujimi Joint Venture currently has six directors serving on its Board
of Directors, including Mr. Farley, Chairman of the Company, Mr. Kouzuma, Chief
Executive Officer of the Company, and Mr. Augur, President of SpeedFam U.S. The
other three directors, Messrs. Isamu Koshiyama, Hidetaka Niinomi and Stuart
Sawai, 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> 47
MANAGEMENT
The executive officers, key employees and directors of SpeedFam
International, Inc. and their ages as of September 16, 1997 are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, KEY EMPLOYEES
AND DIRECTORS AGE POSITION WITH THE COMPANY
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
James N. Farley(1)................. 68 Chairman of the Board and Director
Makoto Kouzuma(1).................. 57 President, Chief Executive Officer and
Director
Roger K. Marach(1)................. 52 Treasurer, Chief Financial Officer and
Assistant Secretary
Christopher E. Augur(1)............ 37 President of SpeedFam Corporation
Robert R. Smith(1)................. 54 Managing Director of SpeedFam Limited
Mukesh Desai....................... 43 Senior Vice President of SpeedFam
Corporation -- Technology, Semiconductor
Group
Russell E. Douglass................ 54 Vice President of Operations for
Semiconductor Group, SpeedFam Corporation
Gary F. Emmons..................... 46 Vice President of Sales and Marketing for
Semiconductor Group, SpeedFam Corporation
Mark A. Hredzak.................... 39 Vice President of SpeedFam Corporation --
General Manager of Clean Systems Group
Ellis E. Ponton.................... 35 Senior Vice President of SpeedFam
Corporation -- General Manager of
Semiconductor Group
Philbin L. Scott................... 38 Vice President of SpeedFam Corporation --
General Manager of Disk Technology Group
Byron L. Sheets.................... 42 Vice President of SpeedFam Corporation --
General Manager of Industrial Applications
Group
Tommy Thomason..................... 42 Vice President of SpeedFam Corporation --
Customer Support, Semiconductor Group
Neil R. Bonke(2)................... 55 Director
Richard S. Hill.................... 45 Director-nominee
Thomas J. McCook(2)(3)............. 73 Director
Dr. Stuart Meyer(3)................ 60 Director
Robert M. Miller(2)................ 70 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 and served in both capacities until May 1997, when Mr. Kouzuma was
appointed Chief Executive Officer. 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 Chief Executive Officer by the Board of Directors in May 1997.
In 1993, he was appointed President of SpeedFam International, Inc. He was
Executive Vice President of SpeedFam International, Inc. and had the additional
46
<PAGE> 48
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.
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
and promoted to Senior Vice President in December 1996. 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. Douglass was appointed Vice President of Operations for Semiconductor
Group, SpeedFam Corporation in January 1997. He joined SpeedFam Corporation as
Director of Operations for the Semiconductor Group in April 1995. Previously,
Mr. Douglass was Vice President of Operations for Plasma & Materials
Technologies, Inc. (since November 1992). From 1981 to 1984, he was Director of
Operations of the Etch Division of Applied Materials. Mr. Douglass has a BA from
Ohio State University and a Masters in Human Relations and Organizational
Development from the University of San Francisco.
Mr. Emmons was appointed Vice President of Sales and Marketing for
Semiconductor Group, SpeedFam Corporation in January 1997. He joined SpeedFam
Corporation in 1995 as Director of Sales and Marketing in the Semiconductor
Group. Previously, Mr. Emmons was Director of Sales for ASM America from 1989 to
February 1995. He has a BS in Business Administration from Texas A & M
University.
Mr. Hredzak was appointed Vice President of SpeedFam Corporation in June
1995 and is currently General Manager of the Clean Systems Group. From 1993 to
1996, he was General Manager of the Electronics Equipment Group. 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 and promoted to Senior Vice President in December 1996. 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.
47
<PAGE> 49
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 Vice President of SpeedFam Corporation in July 1996
and General Manager of the Disk Technology Group in December 1996. Previously,
he was General Manager of the Consumable Products Group of SpeedFam Corporation
(from June 1995) and was 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.
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.
Mr. Thomason was appointed Vice President of SpeedFam Corporation in June
1997. He joined SpeedFam Corporation in 1995 as Director of Customer Support for
the Semiconductor Group. Previously, Mr. Thomason held various customer service
positions with Applied Materials in their Installed Base Systems Support
organization from 1983 to November 1995. He has an Associates Degree from
Western International University.
Mr. Bonke has been a director of SpeedFam International, Inc. since August
1996. Mr. Bonke has been Chairman of the Board of Electroglas, Inc. since April
1993, and its Chief Executive Officer from April 1993 through April 1996. He
also serves on the Board of Directors of Sanmina Corp. and FSI International
Inc. Electroglas, Inc., Sanmina Corp. and FSI International Inc., each a public
company, are subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended. Mr. Bonke was a Group Vice President of General Signal
and President of General Signal's Semiconductor Equipment Operations from
September 1991 to July 1993.
Mr. Hill was nominated as a director of SpeedFam International, Inc. by the
Board of Directors in August 1997. If elected by the shareholders at the Annual
Meeting of Shareholders of the Company on October 10, 1997, Mr. Hill will serve
as director beginning October 1997. Mr. Hill has been the Chief Executive
Officer and a director of Novellus Systems, Inc., a capital equipment supplier
to the semiconductor device market, since 1993. In May 1996, he was appointed
Chairman of the Board of Novellus Systems, Inc. From 1981, Mr. Hill was employed
by Tektronix, Inc., an electronics company, where he held such positions as
President of the Tektronix Development Company, Vice President of the Test &
Measurement Group, and President of Tektronix Components Corporation.
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. Dr. Meyer was
also a physics professor at Northwestern University and Program Director at the
National Science Foundation.
Mr. Miller has been a director of SpeedFam International, Inc. since 1990.
He is currently Chairman of Okuma Technology Institute in Charlotte, North
Carolina. 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. Mr. Pedersen has announced his intention to retire from the
Board
48
<PAGE> 50
of Directors effective as of October 10, 1997, the date of the Annual Meeting of
Shareholders of the Company.
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 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.
49
<PAGE> 51
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
September 2, 1997, 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) the
nominee for director, (iv) each Executive Officer, (v) all directors and
executive officers of the Company as a group, and (vi) 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. Information with respect to FMR Corp.
is based solely on public filings made by FMR Corp. with the Commission.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- SHARES ---------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------ --------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
James N. Farley(1)(2)..................... 1,373,170 10.2% 48,000 1,325,170 8.6%
Nancy J. Farley(1)(3)..................... 1,069,695 7.9 15,000 1,054,695 6.8
James N. and Nancy J. Farley
Foundation(4)........................... 184,720 1.4 85,000 99,750 *
Makoto Kouzuma(1)(5)...................... 738,999 5.5 -- 738,999 4.8
SpeedFam Employees Profit Sharing
Trust(1)(6)............................. 184,380 1.4 -- 184,380 1.2
Roger K. Marach(7)........................ 41,574 * -- 41,574 *
Christopher E. Augur...................... 57,632 * -- 57,632 *
Robert R. Smith(8)........................ 81,854 * -- 81,854 *
Neil R. Bonke............................. 5,500 * -- 5,500 *
Richard S. Hill........................... 0 * -- 0 *
Thomas J. McCook.......................... 12,400 * -- 12,400 *
Dr. Stuart Meyer.......................... 62,360 * 17,000 45,360 *
Robert M. Miller.......................... 2,180 * -- 2,180 *
Carl S. Pedersen(9)....................... 69,520 * 5,000 64,520 *
All directors and executive officers as a
group (10 persons)...................... 2,445,190 18.1 70,000 2,375,190 15.3
FMR Corp. ................................ 806,300 6.0 -- 806,300 5.2
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
* Less than one percent.
(1) The business address of Messrs. Farley and Kouzuma, Mrs. Farley, the
SpeedFam Employees Profit Sharing Trust and the James N. and Nancy J.
Farley Foundation is 305 North 54th Street, 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 J. Farley (Mr. Farley's spouse), (ii) an
aggregate of 1,272,966 shares beneficially owned by Mr. Farley's adult
children, (iii) 691,380 shares held in the Makoto Kouzuma Trust, a
revocable trust, of which Mr. Farley serves as co-trustee, and (iv) 184,380
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. Also excludes 184,720 shares
held by the James N. and Nancy J. Farley Foundation.
(3) Of such shares, 642,070 are held in the Nancy J. 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 J. Farley). Pursuant to the
trust agreement, Mr. Kelly has sole voting and dispositive power over
shares held in the trust. The Nancy J. Farley Trust may be voluntarily
terminated by Mrs. Farley at any time.
50
<PAGE> 52
Includes 427,625 shares of Common Stock over which Mrs. Farley has sole
voting and dispositive power as Custodian for eleven minor grandchildren.
Mrs. Farley disclaims beneficial ownership as to such shares. Excludes
shares beneficially owned by Mr. Farley and an aggregate of 1,272,966
shares beneficially owned by Mrs. Farley's adult children, as to all of
which Mrs. Farley disclaims beneficial ownership. Also excludes 184,720
shares held by the James N. and Nancy J. Farley Foundation.
(4) The James N. and Nancy J. Farley Foundation is a trust, of which Mr. Farley
acts as sole trustee.
(5) Of such shares, 691,380 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 47,619 shares are subject to issuance to Mr. Kouzuma upon the
exercise of certain stock options.
(6) Messrs. Farley, Marach and Kelly act as co-trustees of the Plan and share
voting and dispositive power over shares held by the Plan.
(7) Excludes 184,380 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.
(8) Includes 11,120 shares beneficially owned by Mr. Smith's spouse.
(9) Of such shares, 37,000 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 owns 33% of its outstanding stock. The 5,000
shares of Common Stock offered by Mr. Pedersen in this offering are being
offered by the Pedersen Family Limited Partnership. The remaining 35,520
shares are subject to issuance to Mr. Pedersen upon the exercise of certain
stock options.
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 13,475,036 were currently issued and outstanding as of September
2, 1997. At the Company's Annual Meeting of Shareholders scheduled for October
10, 1997, the shareholders of the Company will consider and act upon a proposed
amendment to the Articles of Incorporation of the Company which would increase
the number of shares of Common Stock the Company is authorized to issue from
20,000,000 shares to 60,000,000 shares.
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
51
<PAGE> 53
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
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 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.
52
<PAGE> 54
UNDERWRITING
Lehman Brothers Inc., BT Alex. Brown Incorporated, Montgomery Securities
and Needham & Company, Inc. have severally agreed, subject to the terms and
conditions contained in the Underwriting Agreement, 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..........................................
BT Alex. Brown Incorporated..................................
Montgomery Securities........................................
Needham & Company, Inc.......................................
---------
Total.............................................. 2,170,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to various conditions. The nature of the
Underwriters' obligations are such that they are committed to take and pay for
all of the shares offered hereby if any are 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 325,500 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 4,818,158 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 the prior written consent of Lehman
Brothers Inc., which 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.
In connection with the offering, the rules of the Commission permit the
Underwriters to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions may consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the Common Stock. In addition, if
the
53
<PAGE> 55
Underwriters over-allot (i.e., if they sell more shares of Common Stock than are
set forth on the cover page of this Prospectus), and thereby create a short
position in the Common Stock in connection with the offering, the Underwriters
may reduce that short position by purchasing Common Stock in the open market. In
general, purchases of a security for the purpose of stabilization or to reduce a
syndicate short position could cause the price of the security to be higher than
it might otherwise be in the absence of such purchases. Neither the Company nor
any of the Underwriters makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Common Stock. In addition, neither the Company nor any
of the Underwriters makes any representation that the Underwriters will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Chapman and Cutler, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger & Harrison
LLP, San Diego, California. Mr. Charles A. Kelly, a partner of Chapman and
Cutler, serves as Secretary of the Company and owns 20,000 shares of the
Company's Common Stock. In addition, Mr. Kelly has sole voting and dispositive
power over 642,070 shares of Common Stock held in the Nancy J. Farley Trust, a
revocable trust, of which he serves as co-trustee. Mr. Kelly also shares voting
and dispositive power over 691,380 shares of Common Stock held in the Makoto
Kouzuma Trust, a revocable trust, of which he serves as co-trustee and over
184,380 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 as of
May 31, 1996 and 1997, and for each of the years in the three-year period ended
May 31, 1997 and the consolidated financial statements of the Far East Joint
Venture as of April 30, 1996 and 1997, and for each of the years in the
three-year period ended April 30, 1997, included or incorporated by reference 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 or incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing.
54
<PAGE> 56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets -- at the end of fiscal years 1996 and 1997............... F-3
Consolidated Statements of Earnings -- for the fiscal years 1995, 1996 and 1997....... F-4
Consolidated Statements of Stockholders' Equity -- for the fiscal years 1995, 1996 and
1997................................................................................ F-5
Consolidated Statements of Cash Flows -- for the fiscal years 1995, 1996 and 1997..... F-6
Notes to Consolidated Financial Statements............................................ F-7
SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Independent Auditors' Report.......................................................... F-22
Consolidated Balance Sheets -- at the end of fiscal years 1996 and 1997............... F-23
Consolidated Statements of Earnings -- for the fiscal years 1995, 1996 and 1997....... F-24
Consolidated Statements of Shareholders' Equity -- for the fiscal years 1995, 1996 and
1997................................................................................ F-25
Consolidated Statements of Cash Flows -- for the fiscal years 1995, 1996 and 1997..... F-26
Notes to Consolidated Financial Statements............................................ F-27
</TABLE>
The above consolidated financial statements of SpeedFam Co., Ltd. and
consolidated subsidiaries are included herein pursuant to Rule 3-09 of
Regulation S-X.
F-1
<PAGE> 57
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
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, 1996 and 1997,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1997.
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, 1996 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended May 31, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
June 27, 1997
Chicago, Illinois
F-2
<PAGE> 58
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 10,871 $ 76,895
Trade accounts receivable, less allowance for doubtful accounts of
$495 in 1996 and $1,144 in 1997................................... 34,693 38,021
Inventories.......................................................... 27,931 35,849
Deferred income taxes................................................ 1,229 2,912
Prepaid expenses and other current assets............................ 1,241 2,038
-------- --------
Total current assets................................................... 75,965 155,715
Investments in affiliates.............................................. 20,450 23,956
Property, plant, and equipment, net.................................... 9,969 24,582
Other assets........................................................... 1,600 2,247
-------- --------
Total assets........................................................... $107,984 $206,500
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 727 $ 250
Accounts payable..................................................... 14,704 20,923
Customer deposits.................................................... 4,814 4,165
Due to affiliates.................................................... 11,756 4,824
Accrued expenses..................................................... 8,005 14,870
Income taxes payable................................................. 4,766 3,861
-------- --------
Total current liabilities.............................................. 44,772 48,893
-------- --------
Long-term liabilities:
Long-term debt....................................................... 2,593 272
Deferred income taxes................................................ 580 802
-------- --------
Total long-term liabilities............................................ 3,173 1,074
-------- --------
Stockholders' equity:
Common stock, no par value, 20,000,000 shares authorized, 10,514,868
and 13,323,547 shares issued and outstanding at May 31, 1996 and
1997, respectively................................................ 1 1
Additional paid-in capital........................................... 26,174 105,522
Retained earnings.................................................... 29,247 49,466
Foreign currency translation adjustment.............................. 4,617 1,544
-------- --------
Total stockholders' equity............................................. 60,039 156,533
-------- --------
Total liabilities and stockholders' equity............................. $107,984 $206,500
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED MAY 31, 1995, 1996, AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Revenue:
Net sales................................................. $57,021 $113,880 $160,994
Commissions from affiliate................................ 2,757 6,290 12,430
------- -------- --------
Total revenue............................................... 59,778 120,170 173,424
Cost of sales............................................... 45,494 78,661 103,501
------- -------- --------
Gross margin................................................ 14,284 41,509 69,923
------- -------- --------
Operating expenses:
Research, development, and engineering.................... 2,740 11,496 19,766
Selling, general, and administrative expenses............. 9,948 18,922 28,671
------- -------- --------
Total operating expenses.................................... 12,688 30,418 48,437
------- -------- --------
Operating profit............................................ 1,596 11,091 21,486
------- -------- --------
Other income (expense)...................................... (953) (208) (298)
------- -------- --------
Earnings from consolidated companies before income taxes.... 643 10,883 21,188
Income tax expense.......................................... 186 4,266 8,037
------- -------- --------
Earnings from consolidated companies........................ 457 6,617 13,151
Equity in net earnings of affiliates........................ 1,187 5,204 7,068
------- -------- --------
Net earnings................................................ $ 1,644 $ 11,821 $ 20,219
======= ======== ========
Net earnings per share...................................... $ 0.20 $ 1.16 $ 1.67
======= ======== ========
Weighted average common and common equivalent shares........ 8,146 10,159 12,127
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1995, 1996, AND 1997
(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, 1994............... $1 $ 828 $ 15,782 $ 5,139 $ (3,174) $ 18,576
Net earnings.......................... -- -- 1,644 -- -- 1,644
Foreign currency translation
adjustment.......................... -- -- -- 2,852 -- 2,852
Purchase of treasury stock............ -- -- -- -- (35) (35)
--- --------- -------- -------- -------- --------
Balance at May 31, 1995............... 1 828 17,426 7,991 (3,209) 23,037
Net earnings.......................... -- -- 11,821 -- -- 11,821
Foreign currency translation
adjustment.......................... -- -- -- (3,374) -- (3,374)
Sale of treasury stock................ -- 16 -- -- 1 17
Retirement of treasury stock.......... -- (3,208) -- -- 3,208 --
Issuance of common stock.............. -- 28,284 -- -- -- 28,284
Exercise of stock options............. -- 254 -- -- -- 254
--- --------- -------- -------- -------- --------
Balance at May 31, 1996............... 1 26,174 29,247 4,617 -- 60,039
Net earnings.......................... -- 20,219 -- -- 20,219
Foreign currency translation
adjustment.......................... -- -- -- (3,073) -- (3,073)
Income tax benefit from exercise of
stock options....................... -- 194 -- -- -- 194
Issuance of common stock.............. -- 77,673 -- -- -- 77,673
Employee stock purchases.............. -- 887 -- -- -- 887
Exercise of stock options............. -- 594 -- -- -- 594
--- --------- -------- -------- -------- --------
Balance at May 31, 1997............... $1 $ 105,522 $ 49,466 $ 1,544 $ -- $156,533
=== ========= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 1,644 $ 11,821 $ 20,219
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Equity in net earnings of affiliates................... (1,187) (5,204) (7,068)
Depreciation and amortization.......................... 635 1,326 2,846
Provision for losses on accounts receivable............ 3 316 817
Provision for deferred income taxes.................... (120) (922) (1,557)
Gains on sales of assets............................... (246) (10) (32)
Increase in cash surrender value of life insurance..... (138) (142) (144)
(Increase) decrease in assets:
Trade accounts receivable............................ (2,271) (18,226) (4,050)
Inventories.......................................... (7,067) (10,078) (7,898)
Prepaid expenses and other current assets............ (452) 23 (749)
Increase (decrease) in liabilities:
Accounts payable and due to affiliates............... 4,149 10,621 (709)
Accrued expenses and customer deposits............... 4,474 4,102 6,183
Income taxes payable................................. 566 4,290 (942)
------- -------- --------
Net cash provided by (used in) operating activities......... (10) (2,083) 6,916
------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (744) (8,121) (17,431)
Proceeds from sales of assets............................. 431 24 75
Dividends from affiliates................................. 90 163 554
Other investing activities................................ (83) (542) (456)
------- -------- --------
Net cash used in investing activities....................... (306) (8,476) (17,258)
------- -------- --------
Cash flows from financing activities:
Treasury stock transactions............................... (35) 17 --
Net proceeds from issuance of common stock................ -- 28,284 77,673
Proceeds from exercise of stock options and employee stock
purchases.............................................. -- 254 1,481
Proceeds from long-term debt.............................. 1,500 3,999 414
Principal payments on long-term debt...................... (899) (12,025) (3,221)
------- -------- --------
Net cash provided by financing activities................... 566 20,529 76,347
------- -------- --------
Effect of foreign currency rate changes on cash............. 36 (194) 19
------- -------- --------
Net increase in cash and cash equivalents................... 286 9,776 66,024
Cash and cash equivalents at beginning of year.............. 809 1,095 10,871
------- -------- --------
Cash and cash equivalents at end of year.................... $ 1,095 $ 10,871 $ 76,895
======= ======== ========
Supplemental cash flow information -- cash paid during the
year for:
Interest............................................... $ 866 $ 810 $ 226
Income taxes........................................... 125 860 10,463
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 62
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SpeedFam International, Inc. (the Company), an Illinois corporation,
designs, develops, manufactures, markets, and services chemical mechanical
planarization, or "CMP," systems used in the fabrication of semiconductor
devices and other high throughput, precision surface processing systems used in
the fabrication of thin film memory disk media, semiconductor wafers, and
general industrial components. In addition, the Company markets and distributes
slurries, parts, and expendables used in its customers' manufacturing processes.
The Company's customers are primarily located in the United States, Europe, and
the Far East.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and the following wholly owned subsidiaries:
<TABLE>
<CAPTION>
SUBSIDIARIES INCORPORATED
------------------------------------------- ----------------
<S> <C>
SpeedFam Corporation United States
SpeedFam Limited United Kingdom
SpeedFam GmbH Germany
</TABLE>
All significant intercompany balances and transactions have been
eliminated. Non-U.S. subsidiaries are included in the consolidated financial
statements based upon fiscal years ended April 30. The Company's fiscal year
ends on May 31.
The Company's investments in the common stock of affiliates SpeedFam Co.,
Ltd. (a Japanese corporation, 50% owned) and Fujimi Corporation (an Illinois
corporation, 50% owned) are accounted for by the equity method using fiscal
years that end April 30 and May 31, respectively.
(b) Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks and highly liquid
short-term investments with original maturities of three months or less.
Short-term investments are carried at cost which approximates market.
(c) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets.
Depreciation expense was $538, $1,172, and $2,795 in fiscal years 1995, 1996,
and 1997, 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
Income taxes are accounted for under the asset and liability method. 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
F-7
<PAGE> 63
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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. 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) Revenue Recognition
Sales of the Company's products are recorded upon shipment or when the
product is accepted by the customer. Commission revenue from affiliates is
recorded upon shipment of product.
(g) Installation and Warranty Costs
Costs to be incurred by the Company related to product installation and
warranty fulfillment are accrued at the date of shipment, and are estimated by
the Company based on past experience. The accrual for product installation and
warranty fulfillment, included in accrued expenses in the consolidated balance
sheets, was $2,485 and $5,510 at the end of fiscal years 1996 and 1997,
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
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Rates at balance sheet date:
Pound sterling (L)...................................... .62 .66 .62
Deutsche mark (DM)...................................... 1.39 1.53 1.73
Japanese yen (Y)........................................ 84.20 105.07 127.09
</TABLE>
(i) Treasury Stock
The Company accounts for treasury stock using the cost method. All of the
Company's treasury stock was retired upon completion of the Company's initial
public offering of common stock on October 26, 1995 (see note 14).
(j) Net Earnings Per Share
Net earnings per share data has been computed using the weighted average
number of shares of common stock and common equivalent shares from stock
options. Stock options issued during the 12-month period prior to the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods presented.
F-8
<PAGE> 64
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(k) Significant Customers and Concentration of Credit Risk
Presented below is a summary of net sales to and commissions earned from
significant customers as a percentage of total revenue. Net sales to and
commissions earned from these customers are from both of the Company's segments.
<TABLE>
<CAPTION>
CUSTOMER 1995 1996 1997
---------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
A............................................................... 21% 18% 10%
B............................................................... * * 13
C............................................................... 11 * *
</TABLE>
- ---------------
* Less than 10%.
Amounts due from these significant customers represented 6.7% of total
trade accounts receivable at May 31, 1997.
(l) Patents and Trademarks
Patents and trademarks included in other assets, in the net amount of $463
and $769 at the end of fiscal years 1996 and 1997, respectively, are amortized
on a straight-line basis over 17 years for patents and five years for
trademarks.
(m) Research, Development, and Engineering
Expenditures for research, development, and engineering of products and
processes are expensed as incurred.
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(o) Employee Stock Plans
Effective June 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Company applies
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its employee stock
option and stock purchase plans and, accordingly, does not recognize
compensation cost. As prescribed by SFAS No. 123, note 10 contains a summary of
the pro forma effects on reported net earnings and earnings per share for 1996
and 1997 as if the Company had elected to recognize compensation cost based on
the fair value of the options granted at grant date.
F-9
<PAGE> 65
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) INVENTORIES
Inventories at the end of fiscal years 1996 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials.................................................... $14,626 $16,323
Work-in-process.................................................. 10,777 16,030
Finished goods................................................... 2,528 3,496
------- -------
Total inventories...................................... $27,931 $35,849
======= =======
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at the end of fiscal years 1996 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Land............................................................. $ 2,275 $ 2,280
Buildings........................................................ 2,054 2,156
Machinery and equipment.......................................... 7,667 11,321
Furniture and fixtures........................................... 1,039 1,446
Leasehold improvements........................................... 767 643
Construction in progress......................................... 495 13,832
------- -------
14,297 31,678
Less accumulated depreciation.................................... (4,328) (7,096)
------- -------
Net property, plant, and equipment............................... $ 9,969 $24,582
======= =======
</TABLE>
(4) INVESTMENTS IN AFFILIATES
The Company owns a 50% interest in SpeedFam Co., Ltd. The Company's equity
investment in SpeedFam Co., Ltd. was $18,545 and $20,363 in 1996 and 1997,
respectively. SpeedFam Co., Ltd.'s consolidated financial statements include the
accounts of the following subsidiaries:
<TABLE>
<CAPTION>
COMPANY LOCATION
----------------------------------------------------------------------- ------------
<S> <C>
SpeedFam Clean System Co., Ltd......................................... Japan
Saku Seiki Co., Ltd.................................................... Japan
SpeedFam Incorporated.................................................. Taiwan
SpeedFam Korea Ltd..................................................... South Korea
SpeedFam India (Pvt.) Ltd.............................................. India
</TABLE>
Significant intercompany balances and transactions have been eliminated.
SpeedFam Co., Ltd.'s investments in three affiliated Japanese companies,
Met-Coil Ltd.; CRT K.K.; and Xevios Corporation are accounted for by the equity
method.
F-10
<PAGE> 66
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Condensed consolidated financial statements of SpeedFam Co. Ltd., are as
follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments...................................... $ 14,323 $ 9,794
Trade accounts receivable, net and due from affiliates............... 61,344 77,380
Inventories.......................................................... 19,961 25,063
Prepaid expenses and other current assets............................ 2,864 3,434
-------- --------
Total current assets................................................... 98,492 115,671
Property, plant and equipment, net..................................... 20,161 30,327
Other assets........................................................... 7,898 7,702
-------- --------
Total assets........................................................... $126,551 $153,700
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt.......... $ 10,340 $ 15,841
Accounts payable..................................................... 48,326 64,523
Accrued expenses..................................................... 7,122 9,969
Income taxes payable................................................. 9,178 5,701
-------- --------
Total current liabilities.............................................. 74,966 96,034
-------- --------
Long-term debt......................................................... 9,106 10,786
Other long-term liabilities............................................ 5,388 6,154
-------- --------
Total long-term liabilities............................................ 14,494 16,940
-------- --------
Stockholders' equity................................................... 37,091 40,726
-------- --------
Total liabilities and stockholders' equity............................. $126,551 $153,700
======== ========
</TABLE>
F-11
<PAGE> 67
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................... $ 108,664 $ 161,169 $ 220,281
Costs and operating expenses............................ (103,574) (141,752) (198,449)
--------- --------- ---------
Earnings before income taxes............................ 5,090 19,417 21,832
Income taxes............................................ (2,755) (9,479) (10,250)
--------- --------- ---------
Net earnings before minority interest................... 2,335 9,938 11,582
Minority interest....................................... (166) (301) (569)
--------- --------- ---------
Net earnings............................................ 2,169 9,637 11,013
Retained earnings at beginning of year.................. 15,987 18,036 26,943
Common stock dividend................................... -- (454) --
Dividends............................................... (120) (276) (907)
--------- --------- ---------
Retained earnings at end of year........................ $ 18,036 $ 26,943 $ 37,049
========= ========= =========
</TABLE>
The following is a summary of SpeedFam International, Inc. and consolidated
subsidiaries' transactions with SpeedFam Co., Ltd. and its subsidiaries.
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Sales to SpeedFam Co., Ltd. ............................ $ 259 $ 1,737 $ 1,520
========= ========= =========
Purchases from SpeedFam Co., Ltd. ...................... $ 3,046 $ 7,612 $ 6,146
========= ========= =========
Commission revenue...................................... $ 2,757 $ 6,290 $ 12,430
========= ========= =========
Commission expense...................................... $ 196 $ 582 $ 2,707
========= ========= =========
</TABLE>
Net amounts due to SpeedFam Co., Ltd. included in the consolidated balance
sheets at the end of fiscal years 1996 and 1997 are $11,591 and $4,360,
respectively.
The Company owns a 50% interest in Fujimi Corporation. The Company's equity
investment in Fujimi Corporation was $1,905 and $3,593 in 1996 and 1997,
respectively. Summary financial information relating to Fujimi Corporation is as
follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
ASSETS
Current assets.................................................. $7,965 $13,346
Other assets.................................................... 32 16
------ -------
Total assets.................................................... $7,997 $13,362
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities..................................................... $4,188 $ 6,177
Stockholders' equity............................................ 3,809 7,185
------ -------
Total liabilities and stockholders' equity...................... $7,997 $13,362
====== =======
</TABLE>
F-12
<PAGE> 68
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net sales............................................. $15,783 $19,734 $36,556
Costs and operating expenses.......................... (15,536) (18,235) (30,775)
------- ------- -------
Earnings before income taxes.......................... 247 1,499 5,781
Income taxes.......................................... (72) (589) (2,205)
------- ------- -------
Net earnings.......................................... $ 175 $ 910 $ 3,576
======= ======= =======
</TABLE>
The Company received dividends from Fujimi Corporation of $30, $25, and
$100 in 1995, 1996, and 1997, respectively. Purchases from Fujimi Corporation
approximated $1,301, $952, and $1,725 in 1995, 1996, and 1997, respectively.
Amounts due to Fujimi Corporation included in the consolidated balance sheets at
the end of fiscal years 1996 and 1997 are $165 and $464, respectively.
(5) INCOME TAXES
The Company files consolidated U.S. Federal income tax returns with its
domestic subsidiary. Operations in the United Kingdom and Germany file local
income tax returns. Earnings from consolidated companies before income taxes are
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ------- -------
<S> <C> <C> <C>
U.S. .................................................... $183 $ 9,380 $18,608
Non-U.S. ................................................ 460 1,503 2,580
---- ------- -------
Total.................................................... $643 $10,883 $21,188
==== ======= =======
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ -------
<S> <C> <C> <C>
Current:
U.S. Federal........................................... $ 112 $3,693 $ 6,673
State.................................................. 12 965 1,800
Non-U.S................................................ 182 537 1,025
----- ------ -------
306 5,195 9,498
----- ------ -------
Deferred:
U.S. Federal and state................................. (92) (915) (1,311)
Non-U.S................................................ (28) (14) (150)
----- ------ -------
(120) (929) (1,461)
----- ------ -------
Income tax expense....................................... $ 186 $4,266 $ 8,037
===== ====== =======
</TABLE>
F-13
<PAGE> 69
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The tax effects of temporary differences that give rise to the deferred tax
assets (liabilities) at the end of fiscal years 1996 and 1997 are attributable
to:
<TABLE>
<CAPTION>
1996 1997
----- ------
<S> <C> <C>
Property, plant, and equipment..................................... $(616) $ (789)
Inventory.......................................................... 166 352
Allowance for doubtful accounts.................................... 164 469
Trademark amortization............................................. 80 98
Warranty reserve................................................... 984 2,201
Alternative minimum tax credit carryforward........................ 47 --
Other.............................................................. (176) (221)
----- ------
Net deferred tax asset............................................. $ 649 $2,110
===== ======
</TABLE>
The net deferred tax asset has been recorded on the balance sheet as
follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Current deferred tax asset......................................... $1,229 $2,912
Long-term deferred tax liability................................... (580) (802)
------ ------
$ 649 $2,110
====== ======
</TABLE>
There is no valuation allowance for deferred tax assets at the end of
fiscal years 1996 or 1997. Deferred tax assets are considered realizable due to
the expectation of future taxable income.
A reconciliation between the Company's effective tax rate and the expected
tax rate of 34% for 1995 and 1996 and 35% for 1997 on earnings before income
taxes is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Expected income tax rate........................................ 34% 34% 35%
Officers' life insurance........................................ 4 -- --
Dividend income from non-U.S. affiliates........................ 3 -- 1
State taxes, net of U.S. Federal benefit........................ -- 4 6
Foreign sales corporation....................................... (13) -- (1)
Research and development tax credits............................ -- -- (1)
Other........................................................... 1 1 (2)
-- --
---
Effective income tax rate....................................... 29% 39% 38%
=== == ==
</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 1997, there was approximately $22,700 of
accumulated undistributed earnings of those operations. It is not practical for
the Company to compute the amount of unrecognized deferred tax liability on the
undistributed earnings.
F-14
<PAGE> 70
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ ----
<S> <C> <C>
Loans under revolving line of credit due April 14, 1999; interest
rate at bank's prime rate (8.25% at May 31, 1996) or LIBOR plus
1.25% (6.75% at May 31, 1996)..................................... $2,400 $ --
Term loan payable in monthly installments of $26 (including
interest) beginning April 1, 1994 for five years; interest rate
fixed at 9.25%.................................................... 772 522
Term loan, payable in monthly installments of L4.7 ($8) for 15 years
beginning in November 1987, interest rate of 2.25% over the bank's
base rate (8.25% at April 30, 1996)............................... 148 --
------ ----
Total long-term debt................................................ 3,320 522
Less current portion of long-term debt.............................. 727 250
------ ----
Net long-term debt.................................................. $2,593 $272
====== ====
</TABLE>
In fiscal year 1996 the Company entered into an unsecured credit agreement
with two U.S. banks. The credit agreement is for a $22,500 revolving line of
credit maturing April 14, 1999. The Company must meet certain financial
objectives each year as defined in the credit agreement. During fiscal 1997, the
Company paid off the outstanding balance on the unsecured revolving line of
credit.
On September 13, 1996, the Company negotiated an amendment to the $22,500
credit facility, providing for an additional $14,000 in a five-year unsecured
term loan to fund the construction of a new corporate headquarters and
manufacturing facility in Chandler, Arizona. As of May 31, 1997, no amounts were
outstanding on the term loan. Should the loan be utilized, terms of the loan
provide that principal will be repaid in fifteen (15) quarterly installments of
$350 each beginning in October 1997. The remaining outstanding balance will be
repaid at the end of the loan's term. Interest on the term loan will accrue and
be paid monthly on the outstanding balance based on a 90-day LIBOR rate plus 140
basis points. Unless drawn upon, the term loan will expire September 29, 1997.
The term loan payable in monthly installments of $26 is secured by certain
machinery of SpeedFam Corporation.
On October 31, 1996, SpeedFam Limited in the United Kingdom, a wholly owned
subsidiary of SpeedFam International, Inc., entered into a L950 ($1,543)
Multi-Currency Revolving Line of Credit with the London branch of a U.S. bank.
The revolving line of credit is secured by property and equipment of the
subsidiary and is payable on demand. Interest accrues on the outstanding balance
at 2.0% above the bank's base rate (6.0% at April 30, 1997) and is payable
monthly. As of April 30, 1997, no amounts were outstanding on this credit
facility.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
------------------------------------------------------------ ------
<S> <C>
1998........................................................ $250
1999........................................................ 272
----
$522
====
</TABLE>
F-15
<PAGE> 71
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) COMMITMENTS AND CONTINGENCIES
During fiscal year 1996, the Company entered into a technology license
agreement related to the development of a new product introduced during fiscal
year 1997. The agreement required the payment of $400 upon signing and a final
payment of $300 was made in September 1996. The agreement also obligates the
Company to make annual royalty payments of 5.5% of the Company's net sales of
products using the licensed technology for ten years. The annual royalty
payments are subject to a minimum payment of $150 beginning in fiscal year 1998
and $200 for fiscal years 1999 to 2006.
The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2001. Rental expense aggregated
approximately $611, $917, and $1,235 in 1995, 1996, and 1997, 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 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------------------ ------
<S> <C>
1998........................................................ $ 951
1999........................................................ 774
2000........................................................ 405
2001........................................................ 12
2002 and thereafter......................................... --
------
Total....................................................... $2,142
======
</TABLE>
(8) FORWARD EXCHANGE CONTRACTS
The notional amounts of foreign exchange contracts as of May 31, 1996 and
May 31, 1997 were as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Forward exchange contracts to buy foreign currency............... $17,980 $16,670
======= =======
Forward exchange contracts to sell foreign currency.............. $ 1,224 $ 3,379
======= =======
</TABLE>
All currency forward contracts outstanding at May 31, 1997 have maturities
of less than one year and are primarily to buy or sell Japanese yen in exchange
for U.S. dollars. Management believes that these contracts should not subject
the Company to undue risk from foreign exchange movements, because gains and
losses on these contracts generally offset gains and losses on the assets,
liabilities, and transactions being hedged. The fair value of these contracts
and the related deferred gains are insignificant.
(9) SAVINGS AND PROFIT-SHARING PLANS
The Company maintains savings and profit-sharing plans for its employees.
The plans cover certain employees who meet length of service requirements.
Expense under the plans, determined by the Company's Board of Directors,
aggregated $60, $1,443, and $2,414 in 1995, 1996, and 1997, respectively.
(10) STOCK OPTION PLANS
The Company grants options to employees under the 1991 Employee Incentive
Stock Option Plan and the 1995 Stock Plan for Employees and Directors of the
Company. Under the plans, options to purchase up to 2,500,000 shares of the
Company's authorized but unissued common stock may be granted. Prior to fiscal
year 1995, stock options were granted at 100% to 110% of the value of the
Company's common stock as determined by an established formula. In fiscal year
1995, stock options were granted at 100% to 110% of the fair value of
F-16
<PAGE> 72
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
the Company's common stock as determined by an independent appraiser. Subsequent
to fiscal year 1995 stock options are granted at a price not less than the fair
market value on the date of grant. The stock options vest over five years (i.e.,
20% each year) with the exception of 163,800 stock options issued in 1992, which
vested immediately. The stock options expire 10 years after the grant date,
except for 71,100 stock options which expire five years after the grant date.
The following table summarizes option activity and related information:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS PRICE PER SHARE EXERCISE PRICE
--------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1994.................... 822,000 $ 2.04 - $ 2.26 $ 2.04
Granted.................................. 281,660 2.41 - 6.41 5.38
Exercised................................ -- - -- --
Canceled or expired...................... -- -- - -- --
--------- ------ ------ ------
Balance at May 31, 1995.................... 1,103,660 2.04 - 6.41 2.87
Granted.................................. 330,976 10.75 - 20.50 20.07
Exercised................................ 127,668 2.04 - 5.83 2.12
Canceled or expired...................... 33,900 2.04 - 5.83 2.25
--------- ------ ------ ------
Balance at May 31, 1996.................... 1,273,068 2.04 - 20.50 7.43
Granted.................................. 496,200 15.75 - 37.75 36.16
Exercised................................ 234,976 2.04 - 18.25 2.53
Canceled or expired...................... 12,360 5.83 - 20.50 14.72
--------- ------ ------ ------
Balance at May 31, 1997.................... 1,521,932 $ 2.04 - $37.75 $17.17
========= ====== ====== ======
</TABLE>
The following table summarizes information about stock options outstanding
at May 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS REMAINING WEIGHTED OPTIONS WEIGHTED
RANGE OF OUTSTANDING AT CONTRACTUAL LIFE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES MAY 31, 1997 (YEARS) EXERCISE PRICE MAY 31, 1997 EXERCISE PRICE
- ---------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.04 - $ 2.41 508,532 6.5 $ 2.08 215,480 $ 2.07
$ 5.83 - $ 6.41 194,912 7.4 5.89 63,236 5.91
$10.75 - $15.78 38,800 9.0 14.11 2,600 10.90
$18.25 - $26.63 318,488 9.0 20.59 58,778 20.50
$36.44 - $37.75 461,200 10.0 36.45 -- --
--------------- --------- --- ------ ------- ------
$ 2.04 - $37.75 1,521,932 8.3 $17.17 340,094 $ 6.04
=============== ========= === ====== ======= ======
</TABLE>
As permitted under SFAS No. 123, the Company has elected to follow APB No.
25 in accounting for stock-based awards to employees. Accordingly, no
compensation cost has been recognized for the stock option and stock purchase
plans. Had compensation cost for the Company's stock option and stock purchase
plans been determined based on the fair value at the grant date for awards in
1996 and 1997 consistent with the
F-17
<PAGE> 73
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Net earnings as reported......................................... $11,821 $20,219
Pro forma net earnings........................................... $11,763 $19,537
Earnings per share as reported................................... $1.16 $1.67
Pro forma earnings per share..................................... $1.16 $1.61
</TABLE>
In accordance with the provisions of SFAS No. 123, pro forma net earnings
reflects only options granted in 1996 and 1997. Therefore, the full impact of
calculating compensation cost of options under SFAS No. 123 is not reflected in
the pro forma net income amounts presented above because compensation cost is
reflected over the options vesting period of five years, and compensation cost
for options granted prior to June 1, 1995 is not considered.
In calculating pro forma compensation, the fair value of each option is
estimated on the date of grant using the Black-Scholes option-pricing model,
with the following weighted average assumptions for grants made in 1996 and
1997.
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Dividend yield.................................................... None None
Expected volatility............................................... 56% 56%
Risk-free interest rate........................................... 6.35% 6.38%
Expected lives.................................................... 3 years 3 years
</TABLE>
The weighted average fair value of options granted during the year was
$8.68 per share and $15.21 per share for 1996 and 1997, respectively.
The pro forma net earnings and earnings per share listed above includes
expense related to the Company's 1995 Employee Stock Purchase Plan. The fair
value of grants under the employee stock purchase plan is estimated on the grant
date using the Black-Scholes model with the following weighted average
assumptions for grants made in 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Dividend yield.................................................... None None
Expected volatility............................................... 56% 56%
Risk-free interest rate........................................... 5.33% 5.41%
Expected lives.................................................... 1/2 1/2
year year
</TABLE>
The weighted average fair value of purchase rights granted during the year
was $3.30 per share and $6.48 per share for 1996 and 1997, respectively.
(11) EMPLOYEE STOCK PURCHASE PLAN
The Company's 1995 Employee Stock Purchase Plan qualifies under Section 423
of the Internal Revenue Code and reserves 500,000 shares of common stock for
issuance under the plan. The plan provides that eligible employees may purchase
stock at 85% of its fair value on specified dates. Under the plan, the Company
sold 70,803 shares in fiscal 1997.
F-18
<PAGE> 74
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(12) BUSINESS SEGMENT INFORMATION
The Company classifies its products into two core business segments: (i)
equipment, parts, and expendables, which represents the Company's operations in
designing, developing, manufacturing, marketing, and servicing high throughput,
precision surface processing systems; and (ii) slurries, which represents the
distribution and sale of materials used in the customers' manufacturing
processes. Information concerning the Company's business segments in fiscal
years 1995, 1996, and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Revenue:
Sales to unaffiliated customers:
Equipment, parts, and expendables...................... $29,846 $ 88,050 $134,658
Slurries............................................... 27,175 25,830 26,336
------- -------- --------
Total sales to unaffiliated customers....................... 57,021 113,880 160,994
Commissions from affiliate -- equipment, parts, and
expendables............................................... 2,757 6,290 12,430
------- -------- --------
Total revenue............................................... $59,778 $120,170 $173,424
======= ======== ========
Segment operating profit:
Equipment, parts, and expendables...................... $ 2,475 $ 14,585 $ 24,328
Slurries............................................... 1,759 572 2,363
------- -------- --------
Total segment operating profit.............................. 4,234 15,157 26,691
General corporate expense................................... (2,632) (3,583) (5,300)
Interest expense............................................ (959) (691) (203)
------- -------- --------
Earnings from consolidated companies before income taxes.... $ 643 $ 10,883 $ 21,188
======= ======== ========
Identifiable assets:
Equipment, parts, and expendables...................... $30,538 $ 62,177 $ 87,357
Slurries............................................... 7,828 8,836 8,460
Investments in affiliates.............................. 18,582 20,450 23,956
Corporate assets....................................... 3,081 16,521 86,727
------- -------- --------
Total identifiable assets................................... $60,029 $107,984 $206,500
======= ======== ========
Capital expenditures:
Equipment, parts, and expendables...................... $ 470 $ 5,197 $ 15,162
Slurries............................................... 12 35 94
Corporate.............................................. 262 2,889 2,175
------- -------- --------
Total capital expenditures.................................. $ 744 $ 8,121 $ 17,431
======= ======== ========
Depreciation expense:
Equipment, parts, and expendables...................... $ 437 $ 1,044 $ 2,467
Slurries............................................... 28 29 31
Corporate.............................................. 73 99 297
------- -------- --------
Total depreciation expense.................................. $ 538 $ 1,172 $ 2,795
======= ======== ========
</TABLE>
Intersegment sales are not material. Segment operating profit represents
total revenue less cost of sales and operating expenses, and excludes equity in
net earnings of affiliates, general corporate expenses, interest
F-19
<PAGE> 75
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
expense, and income taxes. Segment 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 is presented below:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net sales:
United States.......................................... $47,587 $103,698 $152,216
Europe................................................. 10,355 10,855 9,856
Intercompany sales..................................... (921) (673) (1,078)
------- -------- --------
Consolidated net sales...................................... $57,021 $113,880 $160,994
======= ======== ========
Operating profit:
United States.......................................... $ 1,478 $ 10,184 $ 20,736
Europe................................................. 165 917 780
Eliminations........................................... (47) (10) (30)
------- -------- --------
Operating profit............................................ $ 1,596 $ 11,091 $ 21,486
======= ======== ========
Identifiable assets:
United States.......................................... $33,408 $ 66,059 $ 88,762
Europe................................................. 4,958 4,954 7,055
Corporate.............................................. 21,663 36,971 110,683
------- -------- --------
Consolidated identifiable assets............................ $60,029 $107,984 $206,500
======= ======== ========
</TABLE>
(13) 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, 1996:
Total revenue.................................. $17,816 $25,438 $33,140 $43,776
======= ======= ======= =======
Gross margin................................... $ 5,050 $ 7,018 $12,845 $16,596
======= ======= ======= =======
Net earnings................................... $ 704 $ 1,625 $ 4,359 $ 5,133
======= ======= ======= =======
Earnings per share............................. $ .09 $ .16 $ .39 $ .46
======= ======= ======= =======
Year ended May 31, 1997:
Total revenue.................................. $39,728 $39,119 $45,280 $49,297
======= ======= ======= =======
Gross margin................................... $13,946 $15,027 $19,689 $21,261
======= ======= ======= =======
Net earnings................................... $ 4,038 $ 4,783 $ 4,909 $ 6,489
======= ======= ======= =======
Earnings per share............................. $ .36 $ .42 $ .42 $ .46
======= ======= ======= =======
</TABLE>
F-20
<PAGE> 76
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(14) OFFERINGS OF COMMON STOCK
On October 26, 1995, the Company completed its initial public offering of
common stock. The Company issued 2,927,500 shares of common stock and received
proceeds of $28,284, net of underwriters' discounts and commissions and offering
expenses.
On February 20, 1997, the Company completed an additional public offering
of common stock. The Company issued 2,500,000 shares of common stock and
received proceeds of $77,673, net of underwriters' discounts and commissions and
offering expenses.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments at May 31, 1996 and 1997 include cash
equivalents, trade receivables, trade payables, noncurrent receivables, foreign
exchange contracts, and long-term debt. The carrying value of cash equivalents,
trade receivables, and trade payables approximates fair value because of the
short maturity of these instruments. The fair value of the Company's noncurrent
receivables and long-term debt is not materially different from their financial
statement carrying values.
(16) OTHER INCOME (EXPENSE)
Other income (expense) consisted of for fiscal years 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Net gain (loss) on sales of assets........................ $ 246 $ 9 $ (43)
Expenses of canceled public offering...................... -- -- (493)
Royalty income............................................ 264 -- --
Interest income........................................... 52 454 1,079
Interest expense.......................................... (959) (691) (203)
Miscellaneous, net........................................ (556) 20 (638)
----- ----- -----
$(953) $(208) $ (298)
===== ===== =====
</TABLE>
F-21
<PAGE> 77
SPEEDFAM CO., LTD. AND SUBSIDIARIES
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, 1996 and 1997, 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, 1997. 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, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
June 27, 1997
Chicago, Illinois
F-22
<PAGE> 78
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 10,993 $ 7,097
Short-term investments............................................... 3,330 2,697
Trade accounts and notes receivable, less allowance for doubtful
accounts of $676 and $854 in 1996 and 1997, respectively.......... 50,420 71,383
Inventories.......................................................... 19,961 25,063
Due from affiliated companies........................................ 10,924 5,997
Income taxes receivable.............................................. 42 25
Deferred income taxes................................................ 1,089 1,141
Prepaid expenses and other current assets............................ 1,733 2,268
-------- -------
Total current assets................................................... 98,492 115,671
Investments in affiliates.............................................. 891 780
Property, plant, and equipment, net.................................... 20,161 30,327
Deferred income taxes.................................................. 640 961
Other assets........................................................... 6,367 5,961
-------- -------
$126,551 $153,700
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................................ 8,088 12,002
Current portion of long-term debt.................................... 2,252 3,677
Current portion of obligations under capital leases.................. -- 162
Accounts payable..................................................... 48,326 64,523
Accrued expenses..................................................... 7,122 9,969
Income taxes payable................................................. 9,178 5,701
-------- -------
Total current liabilities.............................................. 74,966 96,034
-------- -------
Long-term liabilities:
Long-term debt....................................................... 9,106 10,128
Obligations under capital leases..................................... -- 658
Liability for employee benefits...................................... 3,421 4,049
Minority interest.................................................... 1,967 2,105
-------- -------
Total long-term liabilities............................................ 14,494 16,940
-------- -------
Stockholders' equity:
Common stock, $6 par value, 240,000 shares authorized, 198,000 shares
issued and outstanding at April 30, 1996 and 1997................. 664 664
Retained earnings.................................................... 26,943 37,049
Foreign currency translation adjustment.............................. 9,346 2,817
Unrealized gains on marketable securities............................ 138 196
-------- -------
Total stockholders' equity............................................. 37,091 40,726
-------- -------
Total liabilities and stockholders' equity............................. $126,551 $153,700
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 79
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED APRIL 30, 1995, 1996, AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $108,664 $161,169 $220,281
Cost of sales.............................................. 77,088 106,912 153,508
-------- -------- --------
Gross margin............................................... 31,576 54,257 66,773
Selling, general, and administrative expenses.............. 25,109 34,298 45,815
-------- -------- --------
Operating profit........................................... 6,467 19,959 20,958
-------- -------- --------
Other income (expense):
Losses on sales of assets................................ (293) (710) (222)
Equity in net earnings (loss) of affiliates.............. 89 (203) 48
Interest income.......................................... 317 407 401
Interest expense......................................... (1,056) (851) (751)
Miscellaneous, net....................................... (434) 815 1,398
-------- -------- --------
(1,377) (542) 874
-------- -------- --------
Earnings before income taxes and minority interest......... 5,090 19,417 21,832
Income tax expense......................................... 2,755 9,479 10,250
-------- -------- --------
Earnings before minority interest.......................... 2,335 9,938 11,582
Minority interest.......................................... (166) (301) (569)
-------- -------- --------
Net earnings............................................... $ 2,169 $ 9,637 $ 11,013
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 80
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1995, 1996, AND 1997
(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, 1994....................... $210 $ 15,987 $ 10,444 $ -- $26,641
Net earnings.................................... -- 2,169 -- -- 2,169
Foreign currency translation adjustment......... -- -- 5,510 -- 5,510
Cash dividends.................................. -- (120) -- -- (120)
Unrealized gains on securities.................. -- -- -- 15 15
---- -------- -------- ---- -------
Balance at April 30, 1995....................... 210 18,036 15,954 15 34,215
Net earnings.................................... -- 9,637 -- -- 9,637
Common stock dividend........................... 454 (454) -- -- --
Foreign currency translation adjustment......... -- -- (6,608) -- (6,608)
Cash dividends.................................. -- (276) -- -- (276)
Unrealized gains on securities.................. -- -- -- 123 123
---- -------- -------- ---- -------
Balance at April 30, 1996....................... 664 26,943 9,346 138 37,091
Net earnings.................................... -- 11,013 -- -- 11,013
Foreign currency translation adjustment......... -- -- (6,529) -- (6,529)
Cash dividends.................................. -- (907) -- -- (907)
Unrealized gains on securities.................. -- -- -- 58 58
---- -------- -------- ---- -------
Balance at April 30, 1997....................... $664 $ 37,049 $ 2,817 $196 $40,726
==== ======== ======== ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 81
SPEEDFAM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1995, 1996, AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.................................................. $ 2,169 $ 9,637 $ 11,013
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Equity in net earnings (loss) of affiliates................ (89) 203 (48)
Depreciation and amortization.............................. 2,531 2,267 3,699
Provision (benefit) for deferred income taxes.............. 76 (1,368) (810)
Losses on sales of assets.................................. 293 710 222
Other, net................................................. 375 364 291
Changes in net assets and liabilities:
Trade accounts and notes receivable and due from
affiliates............................................ (1,729) (18,608) (29,579)
Inventories.............................................. 608 (11,661) (9,288)
Prepaid expenses and other assets........................ (316) (2,462) (1,679)
Accounts payable......................................... 4,028 22,102 27,212
Accrued expenses and other liabilities................... 717 5,482 6,441
Income taxes, net........................................ 862 7,509 (2,053)
------- -------- --------
Net cash provided by operating activities....................... 9,525 14,175 5,421
------- -------- --------
Cash flows from investing activities:
Capital expenditures.......................................... (1,214) (7,129) (18,135)
Proceeds from sales of assets................................. 354 283 454
Other investing activities.................................... (5,676) 3,435 303
------- -------- --------
Net cash used in investing activities........................... (6,536) (3,411) (17,378)
------- -------- --------
Cash flows from financing activities:
Dividends paid................................................ (120) (276) (860)
Short-term borrowings, net.................................... (155) (4,824) 5,876
Principal payments under capital lease obligations............ -- -- (128)
Proceeds from long-term debt.................................. 247 2,528 8,226
Principal payments on long-term borrowings.................... (2,165) (3,176) (3,350)
------- -------- --------
Net cash provided by (used in) financing activities............. (2,193) (5,748) 9,764
------- -------- --------
Effect of foreign currency rate changes on cash................. 915 (1,257) (1,703)
------- -------- --------
Net increase (decrease) in cash and cash equivalents............ 1,711 3,759 (3,896)
Cash and cash equivalents at beginning of year.................. 5,523 7,234 10,993
------- -------- --------
Cash and cash equivalents at end of year........................ $ 7,234 $ 10,993 $ 7,097
======= ======== ========
Supplemental cash flow information:
Cash paid during the year for:
Interest................................................... $ 1,487 $ 720 $ 813
======= ======== ========
Income taxes............................................... $ 1,783 $ 3,389 $ 12,794
======= ======== ========
Capital lease obligation increase during the period........... $ -- $ -- $ 1,034
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 82
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SpeedFam Co., Ltd. (the Company) was incorporated in 1971 as a joint
venture owned equally by two corporate shareholders, Obara Corporation, a
Japanese company; and SpeedFam International, Inc., a U.S. company.
The Company and its domestic subsidiaries and affiliated companies conduct
operations primarily in Japan, but have subsidiaries and branches in Taiwan,
South Korea, India, Singapore, Hong Kong, Malaysia, and China.
The Company and its subsidiaries and affiliates are engaged in the design,
engineering, manufacture, and distribution mainly of lapping and polishing
equipment and consumables, through-feed grinders, cleaning machines, and
measuring equipment used in high technology industries.
(a) Basis of Presentation
The Company and its consolidated Japanese subsidiaries maintain their books
of account in conformity with the financial accounting standards of Japan. The
Company's non-Japanese 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 U.S. generally accepted accounting
principles.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and the following subsidiaries:
<TABLE>
<CAPTION>
PERCENTAGE OF FISCAL
SUBSIDIARIES OWNERSHIP LOCATION YEAR END
--------------------------------------------- ------------- ----------- --------
<S> <C> <C> <C>
SpeedFam Clean System Co., Ltd............... 61.25% Japan March 31
Saku Seiki Co., Ltd.......................... 53.54 Japan March 31
SpeedFam Incorporated........................ 100.00 Taiwan March 31
SpeedFam Korea Ltd........................... 100.00 South Korea March 31
SpeedFam India (Pvt.) Ltd.................... 82.00 India March 31
</TABLE>
All significant intercompany balances and transactions have been
eliminated. The Company's fiscal year ends on April 30.
The Company's investments in the common stock of affiliates, Met Coil Ltd.
(50% owned); CRT K.K. (23.08% owned); and Xevios Corporation (50% owned,
acquired in fiscal year 1996) are accounted for by the equity method.
The investment in Clean Technology K.K., a 27.5% owned affiliate of
SpeedFam Clean System Co., Ltd., and 22.5% owned by the Company, is accounted
for by the equity method.
(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.
Short-term investments are carried at cost which approximates market.
F-27
<PAGE> 83
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(d) Short-term Investments
The Company classifies its debt and equity securities into one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities in which the Company has
the ability and intent to hold the security until maturity. All other securities
not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established. Premiums and
discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
(e) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
on the declining balance method over the estimated useful lives of the assets.
Depreciation expense was $2,312, $2,148, and $3,542 in fiscal years 1995, 1996,
and 1997, respectively. The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements............................................. 3 to 65 years
Machinery and equipment................................................ 3 to 12 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
Income taxes are accounted for under the asset and liability method. 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. 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.
(h) Revenue Recognition
Sales of the Company's products are recorded upon shipment.
F-28
<PAGE> 84
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(i) Warranty Costs
Generally, the Company provides a one-year warranty against manufacturer's
defects on all machines sold. Provision for warranty expense is provided based
upon an estimate derived from experience factors.
(j) Foreign Currency Translation
Assets and liabilities of the Company's non-Japanese operations have been
translated using the exchange rates in effect at the balance sheet dates or
balance sheet date of the subsidiary, if different. Results of operations are
translated using the average exchange rates prevailing throughout the period.
Local currencies are considered the functional currencies of the Company's
non-Japanese entities. Foreign currency exchange rates used to translate the
financial statements are summarized below:
<TABLE>
<CAPTION>
FOREIGN CURRENCY PER JAPANESE YEN
-------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Rates at balance sheet date:
South Korean Won (March)................... 11.67/100 13.78/100 13.91/100
Taiwan Dollar (NT$) (March)................ 3.41 3.91 4.49
India Rupee (RPS) (March).................. 2.80 3.06 3.39
Singapore Dollar (S$)...................... 60.21 74.09 87.36
Thailand Baht.............................. 3.41 4.15 4.56
Japanese Yen (Y) per U.S. $................ 84.20 105.07 127.09
</TABLE>
(k) Significant Customer
The Company had sales to a Japanese company that amounted to approximately
10.5%, 11.2%, and 12.5% of net sales in fiscal years 1995, 1996, and 1997,
respectively.
(l) Research and Development
Research and development expense amounted to approximately $1,748, $6,651,
and $11,488 in fiscal years 1995, 1996, and 1997, respectively. Such
expenditures are expensed as incurred.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(n) Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform with the 1997 financial statement presentation.
F-29
<PAGE> 85
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) INVENTORIES
Inventories at the end of fiscal years 1996 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials.................................................... $ 723 $ 732
Work-in-process.................................................. 16,340 20,760
Finished goods................................................... 2,898 3,571
------- -------
Total inventories................................................ $19,961 $25,063
======= =======
</TABLE>
(3) INVESTMENTS
Investments at the end of fiscal years 1996 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Held-to-maturity debt securities, at amortized cost................ $ 133 $ 115
Time deposits...................................................... 3,197 2,582
------ ------
Total short-term investments....................................... 3,330 2,697
Available-for-sale equity securities, at fair value, included in
other assets..................................................... 779 762
------ ------
Total investments.................................................. $4,109 $3,459
====== ======
</TABLE>
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value of available-for-sale and held-to-maturity
securities at the end of fiscal years 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
1996:
Available-for-sale equity securities......... $ 515 $265 $ (1) $ 779
Held-to-maturity debt securities............. $ 133 $ -- $ -- $ 133
1997:
Available-for-sale equity securities......... $ 436 $351 $(25) $ 762
Held-to-maturity debt securities............. $ 115 $ -- $ -- $ 115
</TABLE>
No investments classified as available-for-sale were sold during fiscal
years 1996 and 1997. The Company does not hold securities for trading purposes.
(4) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at the end of fiscal years 1996 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Land............................................................. $ 4,560 $ 6,548
Buildings and improvements....................................... 11,361 14,864
Machinery and equipment.......................................... 13,615 18,870
Furniture and fixtures........................................... 2,486 3,592
Leasehold improvements........................................... 13 --
Construction in progress......................................... 3,468 1,344
------- -------
35,503 45,218
Less accumulated depreciation.................................... 15,342 14,892
------- -------
Net property, plant, and equipment............................... $20,161 $30,327
======= =======
</TABLE>
F-30
<PAGE> 86
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) INCOME TAXES
Earnings before income taxes and minority interest are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Japan.................................................. $3,216 $15,135 $16,592
Non-Japan.............................................. 1,874 4,282 5,240
------ ------- -------
Total.................................................. $5,090 $19,417 $21,832
====== ======= =======
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Current:
Japan............................................. $2,159 $ 9,546 $ 9,699
Non-Japan......................................... 520 1,301 1,361
------ ------- -------
2,679 10,847 11,060
Deferred:
Japan............................................. 76 (1,360) (810)
Non-Japan......................................... -- (8) --
------ ------- -------
Total.................................................. $2,755 $ 9,479 $10,250
====== ======= =======
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets at the end of fiscal years 1996 and 1997 are attributable to:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Property, plant, and equipment..................................... $ (333) $ (397)
Inventory.......................................................... 74 104
Allowance for doubtful accounts.................................... (60) (50)
Accrued employee benefits.......................................... 1,093 1,515
Accrued vacation................................................... 166 167
Business tax....................................................... 890 599
Other.............................................................. (101) 164
------ ------
$1,729 $2,102
====== ======
</TABLE>
There is no valuation allowance for deferred tax assets at the end of
fiscal years 1996 and 1997. Deferred tax assets are considered realizable due to
the expectation of future taxable income. Deferred income tax benefits as a
component of stockholders' equity related to unrealized gains and losses on
marketable securities aggregated $15 and $184 at the end of fiscal years 1996
and 1997, respectively.
F-31
<PAGE> 87
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
A reconciliation between the Company's effective tax rate and the
"expected" tax rate of 51% in Japan on earnings before income taxes and minority
interest is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate...................................... 51% 51% 51%
Expenses not deductible for tax purposes........................ 14 4 4
Equity in earnings of affiliates................................ (1) 1 --
Differences of non-Japan and "expected" tax rates............... (5) (5) (6)
Utilization of tax loss carryforward............................ (3) -- --
Tax credit for research and development......................... (2) (3) (3)
Other, net...................................................... -- 1 1
-- -- --
Effective income tax rate....................................... 54% 49% 47%
== == ==
</TABLE>
No provision is made for income taxes on 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, 1994 have been
examined by the Japanese tax authorities.
(6) SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Bank borrowings, including overdraft.............................. $ 926 $ 7,312
Trade notes discounted at banks with recourse..................... 7,162 4,690
------ -------
$8,088 $12,002
====== =======
</TABLE>
Short-term borrowings are secured by trade notes receivable with a net book
value of $4,690 at the end of fiscal year 1997. The short-term borrowings had
weighted average interest rates of 3.28%, 2.34%, and 1.89% in fiscal years 1995,
1996, and 1997, respectively.
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Mortgage debentures:
1st Series, due November 1997, fixed interest rate of 7.7%...... $ 952 $ --
2nd Series, due September 1999, fixed interest rate of 5.7%..... 2,855 2,360
3rd Series, due December 2000, fixed interest rate of 1.7%...... -- 787
Loans from banks and other financial institutions, maturing 1995
to 2004, with weighted average interest rates of 3.46% and 2.23%
in 1996 and 1997, respectively.................................. 7,551 10,658
------ -------
Total long-term debt.............................................. 11,358 13,805
Less current portion of long-term debt............................ 2,252 3,677
------ -------
Net long-term debt................................................ $9,106 $10,128
====== =======
</TABLE>
F-32
<PAGE> 88
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The mortgage debentures are secured by land and buildings with a net book
value of $7,292 at the end of fiscal year 1997.
At the end of fiscal year 1997, the Company has provided guarantees for up
to $52 of bank borrowings by SpeedFam India (Pvt.) Ltd., a subsidiary of the
Company. The Company does not anticipate any loss from these arrangements.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
------------------------------------------------------------------- -------
<S> <C>
1998............................................................... $ 3,677
1999............................................................... 3,402
2000............................................................... 3,855
2001............................................................... 1,713
2002 and thereafter................................................ 1,158
-------
$13,805
=======
</TABLE>
(8) CAPITAL LEASE
The Company is obligated under various capital leases for certain equipment
which expire at various dates during the next five years. At April 30, 1997, the
gross amount of equipment and related accumulated amortization recorded under
capital leases was as follows:
<TABLE>
<S> <C>
Equipment............................................................ $ 936
Less accumulated amortization...................................... (108)
-----
$ 828
=====
</TABLE>
Amortization of assets held under capital leases is included within
depreciation expense. Future minimum capital lease payments as of April 30, 1997
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
---------------------------------------------------------------------------- ------
<S> <C>
1998........................................................................ $ 188
1999........................................................................ 205
2000........................................................................ 205
2001........................................................................ 205
2002........................................................................ 87
-----
Total minimum lease payments................................................ 890
Less amount representing interest (at rate of 2.04%)........................ (70)
-----
Present value of net minimum capital lease payments......................... 820
Less current installments of obligations under capital leases............... (162)
-----
Obligation under capital leases, excluding current installments............. $ 658
=====
</TABLE>
(9) 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 2002. Rental expense aggregated
approximately $1,500, $1,635, and $1,728 in fiscal years 1995, 1996, and 1997,
respectively.
F-33
<PAGE> 89
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
-------------------------------------------------------------------- ------
<S> <C>
1998................................................................ $ 696
1999................................................................ 538
2000................................................................ 356
2001................................................................ 133
2002 and thereafter................................................. 29
------
Total............................................................... $1,752
======
</TABLE>
At the end of fiscal year 1997, outstanding commitments for the purchase of
property, plant, and equipment were approximately $468.
At April 30, 1997, the Singapore branch of the Company has an outstanding
claim amounting to $285 against the branch for losses and damages suffered by a
plaintiff as a result of the branch's alleged failure to meet certain
specifications for a machine sold to the plaintiff. The branch is contesting the
claim and has filed a defense in respect thereof. Based on legal advice
obtained, Company management is of the opinion that no ultimate liability will
arise. Accordingly, no provision has been made in the financial statements with
respect to this claim.
(10) PENSION AND SEVERANCE BENEFITS
The Company maintains pension and severance benefit plans for its
employees. Employees who leave the Company upon retirement because of age or
sever their connection with the Company for reasons other than dismissal for
cause are entitled to lump-sum payments based on their current rate of pay and
length of service.
Effective June 1, 1984 the Company adopted an insured pension plan which
also covers employees of SpeedFam Clean Systems Co., Ltd., the terms of which
provide for the ultimate funding of retirement benefits when due. Premiums paid
under the insured plan constitute the funding of the current costs of the
liability under the plan and the funding of the related past service costs over
a 15-year period.
The funded status of the insured pension plan at the end of fiscal years
1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................................ $(1,205) $(1,197)
Nonvested benefits............................................. (26) (53)
------- -------
Accumulated benefit obligation................................... $(1,231) $(1,250)
======= =======
Projected benefit obligation..................................... $(1,775) $(1,662)
Plan assets at fair value........................................ 1,656 1,579
------- -------
Projected benefit obligation in excess of plan assets............ (119) (83)
Unrecognized net loss............................................ 19 25
Unrecognized net obligation at transition........................ 185 140
------- -------
Prepaid pension cost............................................. $ 85 $ 82
======= =======
</TABLE>
F-34
<PAGE> 90
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The components of net periodic pension cost for the insured pension plan
are shown below:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year.............. $204 $176 $150
Interest cost on projected benefit obligation................. 89 87 79
Actual return on plan assets.................................. (46) (39) (14)
Net amortization and deferral................................. 19 10 (16)
---- ---- ----
$266 $234 $199
==== ==== ====
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.
A separate retirement benefits program for directors and statutory auditors
is not covered by the pension plan described above. The program provides that
directors and statutory auditors who retire or sever their connection with the
Company are entitled to lump-sum payments based on current rates of pay,
determined according to their title and the length of service. Directors and
statutory auditors may also be granted, at the discretion of the Company,
additional lump-sum payments for meritorious service. It is not the policy of
the Company to fund these retirement and severance benefits, but provision has
been made in the financial statements for the estimated accrued liabilities
under the plan. The liability related to these retirement benefits included in
the accompanying consolidated balance sheets at the end of fiscal years 1996 and
1997 amounted to $3,150 and $3,820, respectively. The plan was amended during
fiscal year 1996 and the resulting past service costs of $1,008 are being
amortized over a period of five years. Unamortized past service cost at the end
of fiscal years 1996 and 1997 amounting to $883 and $548 is classified as other
assets in the accompanying consolidated balance sheets. The retirement benefit
expenses amounted to $181, $520, and $1,545 in fiscal years 1995, 1996, and
1997, respectively.
Two subsidiaries of the Company have separate employee retirement and
severance plan arrangements. Payments with respect to voluntary severance are
less in amount than payments for involuntary severance and retirement. The
subsidiaries have recorded estimated liabilities in the accompanying
consolidated balance sheets at the end of fiscal years 1996 and 1997 of $272 and
$228, respectively, based upon the amount, net of the benefits to be paid by a
government-sponsored small enterprise mutual aid retirement fund, which would be
payable if all employees had to retire voluntarily. Plan assets plus the accrued
liability approximate vested benefits. The expense related to these employee
retirement and severance plans amounted to $20, $222, and $67 in fiscal years
1995, 1996, and 1997, respectively. The Company believes that the effect of not
adopting SFAS No. 87, "Employers' Accounting for Pensions," for these plans is
not material to the consolidated financial statements.
(11) 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 non-Japanese subsidiaries are also required to
appropriate their earnings to legal reserves under the laws of the respective
countries. The legal reserve included as a component of retained earnings at the
end of fiscal years 1996 and 1997 amounted to $513 and $523, respectively.
F-35
<PAGE> 91
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The accompanying consolidated financial statements do not reflect dividends
of $1,558 ($7.87 per share) declared subsequent to fiscal year 1997 by the Board
of Directors related to fiscal year 1997.
(12) RELATED-PARTY TRANSACTIONS
The following is a summary of SpeedFam Co., Ltd. and consolidated
subsidiaries' transactions with SpeedFam International, Inc.:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Sales to SpeedFam International, Inc. .................. $ 2,984 $ 7,140 $ 42,531
Purchases from SpeedFam International, Inc. ............ $ 251 $ 1,696 $ 2,127
Commission income....................................... $ 125 $ 355 $ 3,044
Commission expense...................................... $ 2,952 $ 6,458 $ 107
</TABLE>
The following is summary of SpeedFam Co., Ltd. transactions with Met-Coil
Ltd., a 50% owned affiliate, accounted for by the equity method:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Sales to Met-Coil Ltd. .................................... $ 148 $ 865 $ 275
Purchases from Met-Coil Ltd. .............................. $ 836 $ 1,026 $ 2,125
Interest income............................................ $ 14 $ 28 $ 5
Interest expense........................................... $ 5 $ -- $ --
</TABLE>
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments at April 30, 1996 and 1997 include cash
equivalents, trade receivables, short-term investments, short-term loans, trade
payables, noncurrent receivables, long-term debt, and obligations under capital
leases. The carrying amount of cash equivalents, trade receivables, short-term
loans, and trade payables approximates fair value because of the short maturity
of these instruments. The fair value of short-term investments has been
determined based on quoted market prices and approximates their financial
statement carrying values. The fair value of the Company's noncurrent
receivables and long-term debt has been determined based on discounted cash
flows using current interest rates of similar instruments, and is not materially
different from their financial statement carrying values.
F-36
<PAGE> 92
======================================================
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 CREATE 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>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Recent Developments................... 5
Risk Factors.......................... 7
The Company........................... 16
Use of Proceeds....................... 16
Price Range of Common Stock and
Dividend Policy..................... 17
Capitalization........................ 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 27
Joint Venture Arrangements............ 40
Management............................ 46
Principal and Selling Shareholders.... 50
Description of Capital Stock.......... 51
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
2,170,000 SHARES
[SPEEDFAM LOGO]
[LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
, 1997
---------------------------
LEHMAN BROTHERS
BT ALEX. BROWN
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
======================================================
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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.............................................. $ 41,639
NASD Filing Fee................................................... 14,241
Blue Sky Expenses................................................. 7,500
Transfer Agent Fees............................................... 5,000
Accounting Fees and Expenses...................................... 40,000
Legal Fees and Expenses........................................... 85,000
Printing and Engraving............................................ 150,000
Miscellaneous..................................................... 56,620
----------
-
Total................................................... $400,000
===========
</TABLE>
Incremental expenses relating to the sale of shares by the Selling
Shareholders will be borne by the Selling Shareholders.
ITEM 15. 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 16. EXHIBITS.
Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
5.1 -- Opinion of Chapman and Cutler.
10.1 -- Amended and Restated Credit Agreement, dated as of August 29, 1997, between the
Registrant and Firstar Bank Milwaukee, N.A., The First National Bank of Chicago,
Bank of America National Trust and Savings Association and Norwest Bank Arizona,
N.A.
23.1 -- Consent of Chapman and Cutler (included in Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
*23.3 -- Consent of Director-nominee.
24.1 -- Power of Attorney (included on page II-3 of the Registration Statement).
</TABLE>
- ---------------
*To be filed by amendment.
II-1
<PAGE> 94
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
so that time shall be deemed to be the initial bona fide offering thereof.
(b) 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
15 -- 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.
(c) 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.
II-2
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and 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 September
16, 1997.
SPEEDFAM INTERNATIONAL, INC.
By /s/ JAMES N. FARLEY
------------------------------------
James N. Farley
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, James N. Farley
and Roger K. Marach, and each of them, as his true and lawful attorney-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to sign any registration statement and amendments thereto for the same
offering filed pursuant to Rule 462(b), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying, and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
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
- ----------------------------- ------------------------------------------ -------------------
<C> <S> <C>
/s/ JAMES N. FARLEY Chairman of the Board and Director September 16, 1997
- -----------------------------
James N. Farley
/s/ MAKOTO KOUZUMA President, Chief Executive Officer and September 16, 1997
- ----------------------------- Director
Makoto Kouzuma
/s/ ROGER K. MARACH Treasurer, Assistant Secretary and Chief September 16, 1997
- ----------------------------- Financial Officer (Principal financial and
Roger K. Marach accounting officer)
/s/ NEIL R. BONKE Director September 16, 1997
- -----------------------------
Neil R. Bonke
/s/ THOMAS J. MCCOOK Director September 16, 1997
- -----------------------------
Thomas J. McCook
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------- ------------------------------------------ -------------------
<C> <S> <C>
/s/ STUART MEYER Director September 16, 1997
- -----------------------------
Dr. Stuart Meyer
/s/ ROBERT MILLER Director September 16, 1997
- -----------------------------
Robert Miller
/s/ CARL S. PEDERSEN Director September 16, 1997
- -----------------------------
Carl S. Pedersen
</TABLE>
II-4
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Chapman and Cutler.
10.1 Amended and Restated Credit Agreement, dated as of August 29, 1997, between the
Registrant and Firstar Bank Milwaukee, N.A., The First National Bank of Chicago, Bank
of America National Trust and Savings Association and Norwest Bank Arizona, N.A.
23.1 Consent of Chapman and Cutler (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of Director-nominee.
24.1 Power of Attorney (included on page II-3 of the Registration Statement).
</TABLE>
- ---------------
* To be filed by amendment.
II-5
<PAGE> 1
EXHIBIT 1.1
2,170,000 Shares
SPEEDFAM INTERNATIONAL, INC.
Common Stock
UNDERWRITING AGREEMENT
SEPTEMBER _, 1997
LEHMAN BROTHERS INC.
BT ALEX. BROWN INCORPORATED
MONTGOMERY SECURITIES
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 2,170,000 shares
(the "Firm Stock") of the Company's Common Stock (the "Common Stock"). Of the
2,170,000 shares of the Firm Stock, 2,000,000 are being sold by the Company and
170,000 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 325,500 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-3, 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), or
1.
<PAGE> 2
Rule 434(a) of the Rules and Regulations. Any reference herein to the
Registration Statement, any preliminary prospectus or the Prospectus
shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 which were filed
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") on or before the effective date of the Registration Statement,
the date of such preliminary prospectus or the date of the Prospectus,
as the case may be, and any reference herein to the terms "amend,"
"amendment" or "supplement" with respect to the Registration Statement,
any preliminary prospectus or the Prospectus shall be deemed to refer
to and include (i) the filing of any document under the Exchange Act
after the effective date of the Registration Statement, the date of
such preliminary prospectus or the date of the Prospectus, as the case
may be, which is incorporated therein by reference and (ii) any such
document so filed. 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, and when any
document filed under the Exchange Act is filed will conform in all
respects to the requirements of the Securities Act and the Exchange Act
and the applicable Rules and Regulations thereunder 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, an 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.
(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
2.
<PAGE> 3
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 Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters and clearance of such offering of the Stock with the
National Association of Securities Dealers, Inc. ("NASD"), 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.
(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, are 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
3.
<PAGE> 4
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.
(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
4.
<PAGE> 5
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 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
5.
<PAGE> 6
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.
(aa) The conditions for use of Form S-3 as set forth in the
General Instructions thereto, have been satisfied.
(bb) The documents incorporated or deemed to be incorporated
by reference in the Prospectus, at the time they were or hereafter are
filed with the Commission, complied and will comply in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission under the Exchange Act, and, when read
together with the other information in the Prospectus, at the time the
Registration Statement and any amendments thereto become effective and
at the First Delivery Date and the Second Delivery Date, if any, will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
are made, not misleading.
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) Upon delivery of shares of Stock to be sold by the Selling
Shareholder hereunder 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 Firstar Trust Company 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 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 James N.
Farley and Roger K. Marach 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 or on
behalf of 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
6.
<PAGE> 7
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 or Blue Sky laws of the various states in connection with
the offer and sale of the shares of stock and clearance of such
offering of the Stock with the NASD.
(e) Such 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 (the "Key Selling Shareholder") represents
and warrants 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 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 herein or necessary to make the statements therein not
misleading, but only with reference to information relating to the Key
Selling Shareholder furnished in writing by or on behalf of the Key
Selling Shareholder expressly for use in the Registration Statement or
Prospectus, and 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 Shareholder has 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
affected or may adversely affect the business of the Company and the
Subsidiaries, taken as a whole, 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.
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 by 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 pursuant to this Agreement. The respective purchase obligations of
the Underwriters with respect to the Firm Stock shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.
7.
<PAGE> 8
In addition, the Company grants to the Underwriters an option
to purchase up to 325,500 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 Underwriters in proportion to
that number of shares of the Option Stock which represents the same proportion
of the number of shares of the Firm Stock to be sold by the Company as 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.
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 immediately available
(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
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 immediately available (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.
8.
<PAGE> 9
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 Agreement, the computation
of per share earnings and any exhibits incorporated by reference to the
Company's Registration Statement on Form S-3, SEC File No.
333-_____), (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 and, in case any
Underwriter is required to deliver a Prospectus nine months or more
after the effective date of the Registration Statement, the Company
upon request, but at the expense of such Underwriter, will prepare
promptly such Prospectus or Prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Securities
Act;
(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
9.
<PAGE> 10
of the Company or the Representatives, be required by the Securities
Act or the Exchange 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 or
file any document under the Exchange Act if such document would be
deemed to be incorporated by reference into the Prospectus, 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 in connection with an
acquisition of assets or other business combination), 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) That the Company's common stock currently outstanding is
listed on the Nasdaq National Market System and 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;
(k) To apply the net proceeds from the sale of the Stock being
sold by the Company substantially as set forth in the Prospectus;
(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;
and
10.
<PAGE> 11
(m) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act will file all
documents required to be filed with the Commission pursuant to Section
13, 14 or 15 of the Exchange Act within the time periods required by
the Exchange Act and the rules and regulations 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 incapacity of any
individual Selling Shareholder or, in the case of a trust, by the death
or incapacity of any executor or trustee or the termination of such
trust, or the occurrence of any other event;
(c) To deliver to the Representatives prior to the First
Delivery Date a properly completed and executed United States Treasury
Department Form W-8 (if such Selling Shareholder is a non-United States
person or Form W-9 (if such Selling Shareholder is a United States
person).
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); and (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 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.
11.
<PAGE> 12
(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 so 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;
(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
12.
<PAGE> 13
knowledge of such counsel, no proceeding for that purpose is
pending or threatened by the Commission;
(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
13.
<PAGE> 14
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 (other than the financial statements, the notes
thereto and other financial and statistical data included
therein or omitted therefrom, as to which such counsel need
express no view), 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 (other than the financial statements, the notes
thereto and other financial and statistical data included
therein or omitted therefrom, as to which such counsel need
express no view) 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.
(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, except as enforcement
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to
or affecting creditor's rights generally or by general
equitable principles; and
(iv) Each Selling Shareholder has full right, power
and authority to sell, transfer and deliver the shares of
Stock to be sold by such Selling Shareholder hereunder and
good and marketable title to such shares of Stock so sold,
free and clear of all voting trust arrangements, liens,
encumbrances, equities, claims and community property rights
whatsoever,
14.
<PAGE> 15
has been transferred to the Underwriters (who such counsel may
assume to be bona fide purchasers) who have purchased such
shares of Stock 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 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
15.
<PAGE> 16
(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.
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.
(h) Doser Amereller Noack 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:
(i) SpeedFam GmbH has been duly incorporated and is
validly existing as a limited liability corporation in good
standing under the laws of its jurisdiction of incorporation;
(ii) SpeedFam GmbH has the corporate power to own,
lease and operate its properties and to conduct its business
as described in the Prospectus;
(iii) SpeedFam GmbH 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 GmbH, 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.
(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:
(i) 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;
(ii) 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),
16.
<PAGE> 17
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;
(iii) Each branch of 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;
(iv) 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;
(v) 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;
(vi) 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;
(vii) 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
(viii) 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 Misono 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:
(i) 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
17.
<PAGE> 18
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 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:
(i) 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
(ii) 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
18.
<PAGE> 19
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 November 30, 1996 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.
(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 and
the Exchange 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, the Exchange 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
19.
<PAGE> 20
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, or (iii) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based
upon matters covered by clause (i) or (ii) above (provided that the
Company shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct) 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
or if such statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus and (1) any such
loss, claim, damage or liability suffered or incurred by an Underwriter
(or any person who controls any Underwriter) resulted from an action,
claim or suit by any person who purchased Stock which are the subject
thereof from such Underwriter in the offering and (2) such Underwriter
failed to deliver or provide a copy of the Prospectus to such person at
or prior to the confirmation of the sale of such Stock in any case
where such delivery is required by the Securities Act. 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) The Key Selling Shareholder 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 and the Exchange 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 the Exchange 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, but only with reference to information relating to
the Key Selling Shareholder furnished in writing by or on behalf of the
Key Selling Shareholder expressly for use in the Registration Statement
or Prospectus, 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 the Key
Selling Shareholder furnished in writing by or on behalf of the 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 the Key Selling Shareholders shall in no event be liable for
losses or claims exceeding the proceeds received by the Key Selling
Shareholder from the sale of their respective Stock upon the
consummation of the sale contemplated hereunder. The foregoing
indemnity agreement is in addition to
20.
<PAGE> 21
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 and the Exchange 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, the Exchange 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 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
21.
<PAGE> 22
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 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 and no Selling Shareholder shall be
required to contribute any amount in excess of the amount by which the
proceeds received by such Selling Shareholder from the sale of the
shares of Stock hereunder exceeds the amount of any damages which such
Selling Shareholder has otherwise been required to pay by reason of
such 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 or the Exchange 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
legends concerning over-allotments and passive market making on the
inside front cover page of and the section "Underwriting" in, the
Prospectus are correct and constitute the only information
22.
<PAGE> 23
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 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 9(o) or
9(p) or 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.
23.
<PAGE> 24
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, Chairman of
the Board (Fax: (602) 705-2122), 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) if to 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 the Exchange 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
and the Exchange 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 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.
24.
<PAGE> 25
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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
25.
<PAGE> 26
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, SEPTEMBER ___, 1997:
LEHMAN BROTHERS INC.
BT ALEX. BROWN
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By:
-------------------------------
Authorized Representative
<PAGE> 27
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- --------------------------------------------------- -------------
<S> <C>
Lehman Brothers Inc................................ _______
BT Alex. Brown Incorporated........................ _______
Montgomery Securities.............................. _______
Needham & Company, Inc............................. _______
---------
Total 2,170,000
=========
</TABLE>
<PAGE> 28
SCHEDULE 2
Name and Address of Number of Shares
Selling Shareholder of Firm Stock
------------------- ----------------
James N. Farley 48,000
Nancy J. Farley 15,000
James N. and Nancy J. Farley Foundation 85,000
Dr. Stuart Meyer 17,000
Carl S. Pedersen 5,000
=======
Total 170,000
<PAGE> 1
EXHIBIT 5.1
September 16, 1997
SpeedFam International, Inc.
305 North 54th Street
Chandler, Arizona 85226
Ladies/Gentlemen:
You have requested our opinion as counsel for SpeedFam International,
Inc., an Illinois corporation (the "Company"), in connection with the
registration under the Securities Act of 1933, as amended, and the Rules and
Regulations promulgated thereunder, and the public offering as contemplated
thereby of 2,170,000 shares of the Company's common stock, no par value
(together with up to 325,500 shares of such stock to cover over-allotments, the
"Common Stock"). Of such shares of Common Stock, up to 170,000 are currently
outstanding and are proposed to be sold by certain shareholders of the Company
(the "Selling Shareholders").
We have examined the Company's Registration Statement on Form S-3 to be
filed with the Securities and Exchange Commission on September 17, 1997 (the
"Registration Statement"). We have further examined the originals or certified,
conformed or reproduced copies of the Articles of Incorporation of the Company,
the by-laws and minute books of the Company, the form of the Underwriting
Agreement between the Company, the Selling Shareholders and the Underwriters
("Underwriting Agreement'"), the form of stock certificate to be issued
representing the Common Stock, and such other documents as we deem necessary or
appropriate as the basis for the opinion hereinafter expressed. In connection
with this opinion, we have examined the originals, or certified, conformed or
reproduction copies, of all records, agreements, instruments and documents as we
have deemed relevant. In stating our opinion, we have assumed the genuineness of
all signatures on original or certified copies, the authenticity of documents
submitted to us as originals and the conformity to originals or certified copies
of all copies submitted to us as certified or reproduction copies.
Based on the foregoing, it is our opinion that the shares of Common Stock
to be sold by the Selling Shareholders are, and all of the shares of Common
Stock to be sold by the Company will be, when issued and sold in accordance with
the final Prospectus which is a part of the Registration Statement and the
Underwriting Agreement, legally and validly issued, fully paid and
nonassessable.
<PAGE> 2
SpeedFam International, Inc.
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement and consent to the use of our name under the caption "Legal Matters"
in the Prospectus which is part thereof.
CHAPMAN AND CUTLER
<PAGE> 1
Ex. 10.1
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
DATED AS OF AUGUST 29, 1997
BY AND AMONG
SPEEDFAM INTERNATIONAL, INC.,
AS THE COMPANY
AND
FIRSTAR BANK MILWAUKEE, N.A.,
THE FIRST NATIONAL BANK OF CHICAGO,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION AND
NORWEST BANK ARIZONA, N.A.
AS THE BANKS
AND
FIRSTAR BANK MILWAUKEE, N.A.
AS THE AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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......................................................................... 15
2.6 Payments............................................................................. 15
2.7 Prepayments.......................................................................... 15
2.8 Effect of Regulatory Change.......................................................... 16
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............................................................................... 18
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......................................................................... 20
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
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
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...................................................................... 25
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 [Intentionally Omitted].............................................................. 28
5.12 SEC Reports.......................................................................... 28
SECTION 6 NEGATIVE COVENANTS......................................................................... 28
6.1 Sale of Assets, Consolidation, Merger, Etc........................................... 28
6.2 Indebtedness......................................................................... 29
6.3 Liens................................................................................ 29
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............................................................. 31
6.11 Funded Debt to Capitalization........................................................ 31
6.12 Operating Leases..................................................................... 31
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.............................................................. 36
8.6 General Immunity..................................................................... 37
8.7 No Responsibility for Loans, Recitals, Etc........................................... 37
8.8 Employment of Agents and Counsel..................................................... 37
8.9 Reliance on Documents, Counsel....................................................... 37
8.10 Inspections.......................................................................... 38
8.11 Agent's Reimbursement and Indemnification............................................ 38
8.12 Rights as a Lender................................................................... 38
8.13 Bank Credit Decision................................................................. 38
8.14 Successor Agent...................................................................... 39
8.15 Noteholders.......................................................................... 39
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
SECTION 9 MISCELLANEOUS........................................................................ 39
9.1 Assignability; Successors............................................................ 39
9.2 Survival............................................................................. 39
9.3 Governing Law........................................................................ 40
9.4 Counterparts; Headings............................................................... 40
9.5 Entire Agreement; Amendments......................................................... 40
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
</TABLE>
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<PAGE> 5
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A-1 - Amended and Restated Revolving Credit
Note from Company to Firstar
Exhibit A-2 - Amended and Restated Revolving Credit
Note from Company to First Chicago
Exhibit A-3 - Revolving Credit Note from Company to BA
Exhibit A-4 - Revolving Credit Note from Company to
Norwest
Exhibit B - Amended and Restated Guaranty of SpeedFam
Corporation
Exhibit C - Opinion Letter
</TABLE>
LIST OF SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 1 - Approved Investments
Schedule 2 - Subsidiaries, Securities Disclosures
Schedule 3 - Real Estate
Schedule 4 - Liens/Capital Leases
</TABLE>
iv
<PAGE> 6
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made
and entered into as of this 29th day of August, 1997, by and among SPEEDFAM
INTERNATIONAL, INC., an Illinois corporation (f/k/a FamTec International, Inc.)
(the "Company"), which has its principal office at 305 N. 54th Street, Chandler,
Arizona 85226- 2416, 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, 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, BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("BA"), a national banking association, which has its principal
office at 555 California Street, San Francisco, California, 94104 and NORWEST
BANK ARIZONA, N.A. ("Norwest"), a national banking association, which has its
principal office at 3300 North Central Avenue, Phoenix, Arizona, 85012-2501
(First Chicago, Firstar in its capacity as a bank, BA and Norwest 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 $60,000,000 in the form of Revolving Loans (including Letters of
Credit in an aggregate principal amount not to exceed $10,000,000). 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
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<PAGE> 7
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.
"Agreement" shall mean this Amended and Restated
Revolving 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
accrued; (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.
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<PAGE> 8
"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 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.
"Foreign 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 Amended and Restated
Guaranty of the Guarantor to First Chicago, BA, Norwest and to Firstar, dated
the date hereof in the form of EXHIBIT B, as amended, supplemented, modified, or
extended from time to time.
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<PAGE> 9
"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, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9061 et seq., Hazardous Materials Transportation Act, 49 U.S.C. Section 1802,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C. Section 2601 et seq.,
the Solid Waste Disposal Act, 42 U.S.C. Section 3251 et seq., the Clean Air Act,
42 U.S.C. Section 1857 et seq., the Clean Water Act, 33 U.S.C. Section 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
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<PAGE> 10
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 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 0.50% 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.
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<PAGE> 11
"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 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:
<TABLE>
<CAPTION>
<S> <C>
Firstar $25,000,000
First Chicago $16,000,000
BA $10,000,000
Norwest $ 9,000,000
</TABLE>
"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)
6
<PAGE> 12
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
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, excluding (a) any goodwill, patents,
trademarks, trade names, copyrights, operating rights, organizational or
developmental expenses, unamortized debt discount or expense, unamortized
deferred charges, and other assets properly classified as intangible assets, (b)
any write-ups of assets subsequent to the date of this Agreement, and (c) any
treasury stock.
"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.
"Operating Profit" 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 Operating Profit.
"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,
7
<PAGE> 13
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.
"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 at least 66% of the aggregate Maximum Credits.
8
<PAGE> 14
"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, First Chicago, BA and Norwest in the form of
EXHIBIT A-1 , EXHIBIT A-2, EXHIBIT A-3 AND EXHIBIT A-4, respectively, evidencing
the Revolving Loans, each as amended, supplemented, modified or extended from
time to time.
"Revolving Loan Commitment" shall mean an aggregate
principal amount not to exceed $60,000,000.
"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 August 31, 2000 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
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<PAGE> 15
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 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.
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<PAGE> 16
SECTION 2 AMOUNTS AND TERMS OF OBLIGATIONS
2.1 Revolving 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 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 0.50%
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 0.50% 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 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 1.00%
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
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<PAGE> 17
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 0.75% 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 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 authorized 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) $100,000 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.
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(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.
(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
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<PAGE> 19
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 and any outstanding Letters of
Credit 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 $10,000,000. Drafts
drawn upon Letters of Credit shall be treated as Revolving Loans and shall bear
interest at the rate of interest payable upon the Revolving Loans which are not
LIBOR Rate Loans.
2.3 Funding 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
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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 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.
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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 $100,000 or a multiple thereof, together with accrued interest to
the date of prepayment 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 Regulatory 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 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
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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.
3.2 Financial Statements. The Company has furnished to the
Banks year-end consolidated and consolidating financial statements for the
Company for its fiscal years ended May 31, 1997 and May 31, 1996, audited by
KPMG Peat, Marwick. 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.
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
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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 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, 1994 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
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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.
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.
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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 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:
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(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 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 30 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); and
(g) 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
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representations, warranties and acknowledgements are then true and
accurate;
(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 $3,000,000,
(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. Except as set forth in Sections 6.6(h)
and (i) hereof, 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; provided, however, that the Company may maintain
investment accounts as permitted under Section 6.6 with non-bank financial
institutions.
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
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Company's expense if (i) a Government Authority or a firm or firms of
geotechnical engineers and/or environmental 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
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adjusted from time to time in the Agent's sole and absolute discretion.
(d) 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.
(e) Except as otherwise provided in clause (f) 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.
(f) 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.
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 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
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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 [INTENTIONALLY OMITTED]
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, 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.
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 $3,000,000, 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
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SCHEDULE 4 and the Company may enter into additional sale/leaseback transactions
having an aggregate value at any one time not exceeding $10,000,000); or (d)
except in connection with the purchase of securities or assets permitted under
Section 6.6(i), 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, provided
that such Indebtedness shall not be increased; (f) operating lease or rental
obligations as permitted under Section 6.12 and (g) Indebtedness in an aggregate
amount of not more than $3,000,000 in excess of the amounts permitted by
Sections 6.2(a), (b), (c), (d), (e)and (f).
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.
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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 $5,000,000 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: (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
$20,000,000), 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; (f) investments
outstanding on May 31, 1997 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); (g) approved investments as set forth on SCHEDULE 1 attached
hereto; (h) so long as no Default has occurred or will occur as a result of
making such loan, proceeds of the Revolving Loans of up to $5,000,000 in the
aggregate at any time outstanding
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may be used to make intercompany loans to non-U.S. Subsidiaries; and (i) so long
as no Default has occurred or will occur as a result of making such purchase and
provided that the acquiring entity will execute or shall have previously
executed a guaranty in favor of the Banks of all the Obligations in
substantially the same form as the Guaranty, proceeds of the Revolving Loans of
up to $20,000,000 in the aggregate at any time outstanding may be used to
purchase securities in, or assets of, any Person in connection with the purchase
of a business which is consistent with and similar to the existing business of
the Company, the Guarantor or any other Subsidiary; 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) $125,000,000 plus (b) all net proceeds from the issuance of
shares of all capital stock of the Company after the date hereof on a cumulative
basis plus (c) 50% of the Company's Net Income (but not Net Loss) for each
fiscal year of the Company ending after May 31, 1997 on a cumulative basis.
6.9 Interest Coverage Ratio. Permit the ratio of Operating
Profit plus depreciation expense to the interest on the Indebtedness to be less
than 3.0 to 1.0 for any fiscal quarter. For purposes of this calculation,
interest expense shall never be less than $1.00.
6.10 Funded Debt to Cash Flow. 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 3.0 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 percent (40%) of Capitalization at any time.
6.12 Operating 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 $5,000,000.
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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 $1,000,000 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;
(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 $1,000,000 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
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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 against the Company or
Guarantor 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;
(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 $3,000,000 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 100% of the
Guarantor or a majority of each class of voting stock of each other
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.
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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 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
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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 (or all Banks, if required by Section 8.4 hereof), and
such 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 (or all Banks, if
required by Section 8.4 hereof); provided, however, that the Agent
shall not in any event be required to comply with any instructions
given it by the Required Banks (or all Banks, if required by Section
8.4 hereof) 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
35
<PAGE> 41
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 (or all Banks, if required by Section 8.4 hereof), 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; provided, however, that no such waiver or amendment shall, unless in
writing and signed by all of the Banks and the Company and acknowledged by the
Agent, do any of the following:
(a) increase or extend the Maximum Credit of any Bank (or
reinstate any Maximum Credit terminated pursuant to Section
2.1(g);
(b) postpone or delay any date fixed by this Agreement or any
Related Document for any payment of principal, interest, fees
or other amounts due to the Banks (or any of them) hereunder
or under any other Related Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Revolving Loan, or any fees or other amounts
payable hereunder or under any other Related Document;
(d) change the percentage of the Maximum Credits or the aggregate
unpaid principal amount of the Revolving Loans
36
<PAGE> 42
which is required for the Banks or any of them to take any
action hereunder;
(e) release or terminate the Guaranty; or
(f) amend this Section, the definition of "Required Banks" in
Section 1.1 or any provision herein providing for consent or
other action by all Banks;
and, provided, further, that no amendment of any provision of this Agreement
relating to the Agent shall be effective without the prior written consent of
the Agent.
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. 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.
37
<PAGE> 43
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.
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
38
<PAGE> 44
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.
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 Banks 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
39
<PAGE> 45
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 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 all 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
40
<PAGE> 46
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 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.
305 N. 54th Street
Chandler, Arizona 85226-2416
ATTN: Mr. Roger K. Marach,
Chief Financial Officer
FAX: 602-705-2122
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
41
<PAGE> 47
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
ATTN: *Mr. Brian K. Chin,
Assistant Vice President
FAX: 415-622-2514
Norwest Bank Arizona, N.A.
3300 N. Central Avenue,
Mail Suite 9004
Phoenix, Arizona 85012-2501
ATTN: Ms. Mae G. DelaBarre,
Assistant Vice President
FAX: 602-248-2333
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
* All notices to BA related to Borrowing, Continuation or Conversion
should be sent to Bank of America NT & SA, Account Administration
#5693, 1850 Gateway Boulevard - 3rd Floor, Concord, California 94520,
FAX: (510) 675-7531.
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
42
<PAGE> 48
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 action or
proceeding shall be tried before a court and not before a jury.
43
<PAGE> 49
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
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Michael Dasher
------------------------------------------
Michael Dasher, Managing Director
NORWEST BANK ARIZONA, N.A.
By: /s/ Mae G. DelaBarre
------------------------------------------
Mae G. DelaBarre, Assistant Vice President
FIRSTAR BANK MILWAUKEE, N.A., AS AGENT
By: /s/ James A. Meyer
------------------------------------------
James A. Meyer, Vice President
44
<PAGE> 50
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 it 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/ Roger K. Marach
--------------------------------
Roger K. Marach, Treasurer and
Assistant Secretary
45
<PAGE> 51
EXHIBIT A-1
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$25,000,000 Milwaukee, Wisconsin
Revolving Loans August 29, 1997
FOR VALUE RECEIVED, SPEEDFAM 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 Twenty-Five Million
Dollars ($25,000,000.00), or so much thereof as has been advanced and remains
outstanding pursuant to Section 2.1 of the Amended and Restated Revolving Credit
Agreement by and among the Borrower, the Bank, in its capacity as lender and
agent, Bank of America National Trust and Savings Association, Norwest Bank
Arizona, N.A. 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 an 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.
This Note shall not constitute a novation of indebtedness but rather a
continuation of existing indebtedness.
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
<PAGE> 52
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> 53
EXHIBIT A-2
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$16,000,000 Milwaukee, Wisconsin
Revolving Loans August 29, 1997
FOR VALUE RECEIVED, SPEEDFAM INTERNATIONAL, INC., an Illinois corporation
(the "Borrower"), promises to pay to the order of THE FIRST NATIONAL BANK OF
CHICAGO (the "Bank") at the office of the Agent 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
Sixteen Million Dollars ($16,000,000.00), or so much thereof as has been
advanced and remains outstanding pursuant to Section 2.1 of the Amended and
Restated Revolving Credit Agreement by and among the Borrower, the Bank, Firstar
Bank Milwaukee, N.A., in its capacity as lender and agent, Bank of America
National Trust and Savings Association and Norwest Bank Arizona, N.A., 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.
This Note shall not constitute a novation of indebtedness but rather a
continuation of existing indebtedness.
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
<PAGE> 54
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> 55
EXHIBIT A-3
REVOLVING CREDIT NOTE
$10,000,000 Milwaukee, Wisconsin
Revolving Loans August 29, 1997
FOR VALUE RECEIVED, SPEEDFAM INTERNATIONAL, INC, an Illinois
corporation (the "Borrower"), promises to pay to the order of BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") at the office of Agent 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 Ten Million Dollars ($10,000,000.00), or so much thereof
as has been advanced and remains outstanding pursuant to Section 2.1 of the
Amended and Restated Revolving Credit Agreement by and among the Borrower, the
Bank, Firstar Bank Milwaukee, N.A., in its capacity as lender and as agent,
Norwest Bank Arizona, N.A., 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> 56
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> 57
EXHIBIT A-4
REVOLVING CREDIT NOTE
$9,000,000 MILWAUKEE, WISCONSIN
REVOLVING LOANS AUGUST 29, 1997
FOR VALUE RECEIVED, SPEEDFAM INTERNATIONAL, INC, an Illinois
corporation (the "Borrower"), promises to pay to the order of NORWEST BANK
ARIZONA, N.A. (the "Bank") at the office of Agent 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 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 Amended and Restated
Revolving Credit Agreement by and among the Borrower, the Bank, Firstar Bank
Milwaukee, N.A., in its capacity as lender and as agent, Bank of America
National Trust and Savings Association 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> 58
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> 59
SCHEDULE 1
SPEEDFAM INTERNATIONAL, INC.
CORPORATE CASH INVESTMENT POLICY
I. POLICY
Invest SpeedFam International, Inc. ("SFI") cash at the highest possible rate
of return while maintaining safety of principal and adequate liquidity to meet
SFI's ongoing capital needs.
II. PURPOSE
Institute proper guidelines for the ongoing management of SFI's corporate cash.
III. RESPONSIBILITY
The Treasurer and Chief Financial Officer of the Company is authorized to
invest or direct members in the SFI Treasury Department to invest surplus funds
of the Company. The Treasurer may also engage external cash managers to perform
this function.
The Chief Financial Officer will have the authority to; 1) open accounts with
banks, brokerage or similar financial institutions; 2) establish safekeeping
accounts or other arrangements for the custody of the securities; 3) execute
documents as necessary; 4) select or change external cash managers with
concurrence of the Audit Committee of the Board of Directors; 5) monitor
investment results of all cash managers engaged, as well as results of
investment activities done by SFI's Treasury Department personnel; and 6)
execute the investment policy as well as designate those who can execute it.
Any exceptions to this policy must be approved, in writing, by the Chief
Executive Officer and the Chief Financial Officer.
IV. INVESTMENT OBJECTIVES
A. To assure safety and preservation of principal;
B. To structure portfolio maturities to conform with capital needs as
indicated in SFI's current cash forecast;
C. To maximize rate of return within constraints of risk parameters and
liquidity requirements.
<PAGE> 60
V. APPROVED INVESTMENTS, MATURITIES & ALLOCATIONS
A. United States Government Securities:
-Maximum maturity: 14 months
-Maximum Percentage of Portfolio: 100%
-Maximum Percentage Per Issuer: 100%
B. U.S. Government Agency Securities:
-Maximum maturity: 14 months
-Maximum Percentage of Portfolio: 100%
-Maximum Percentage Per Issuer: 100%
C. Obligations issued or guaranteed by member countries of the
European Community or Japan, or any agency thereof:
-Maximum maturity: 14 months
-Maximum Percentage of Portfolio: 100%
-Maximum Percentage Per Issuer: 100%
D. Commercial Paper limited to:
Maximum Maximum
S&P Moody Ratings Percentage Per Issuer Percentage of Portfolio
----------------- --------------------- -----------------------
A1/P1 10% 50%
A1 or P1 only 10% 25%
A2/P2 5% 10%
-Maximum maturity: 9 months for A1 &/or P1;
3 months for A2/P2;
E. Municipal Securities, with a minimum rating of SP-1 (S&P) or MIG-1 (Moody's)
for short-term securities and/or AA (S&P) or Aa2 (Moody's) for medium and
longer term securities (or equivalent ratings).
Non-rated issues may be purchased if they are of equivalent investment
quality and meet one or more of the following criteria: 1) Collateralized by
U.S. Treasuries or agencies to cover principal and interest payments.
<PAGE> 61
2) Backed by an irrevocable bank letter of credit which meets
the requisite quality standards
3) Guaranteed by an investment contract from a bank corporation
or insurance company which meets the requisite quality standards
Pre-refunded municipal securities which are collateralized by U.S. Treasuries or
agencies to cover principal and interest payments are eligible investments.
- Maximum maturity: 14 months for SP-1, MIG-1 or AAA
9 months for AA or Aa2
- Maximum Percentage of Portfolio: 100%
- Maximum Percentage Per Issuer: 10%
F. Eurodollar Time Deposits, with a minimum A-1 S&P or P-1 Moody's or
equivalent rating
- Maximum maturity: 6 months
- Maximum Percentage of Portfolio: 30%
- Maximum Percentage Per Issuer: 10%
G. Auction rate securities, must be rated at least AA by S&P or Aa2 by Moody's
or equivalent.
- Maximum maturity: 6 months
- Maximum Percentage of Portfolio: 30%
- Maximum Percentage Per Issuer: 10%
H. Money Market Funds, rated AA or greater, with an average weighted maturity
that does not exceed 90 days.
- Maximum maturity: 6 months
- Maximum Percentage of Portfolio: 30%
- Maximum Percentage Per Issuer: 10%
I. Floating Rate Notes and Floating Rate Demand Notes, rated AA or greater:
- Maximum maturity: 6 months
- Maximum Percentage of Portfolio: 25%
- Maximum Percentage Per Issuer: 10%
<PAGE> 62
VI. CURRENCIES
All eligible investments will be U.S. dollar-denominated or in the functional
currency of the subsidiary making the investment.
VII. QUALIFICATIONS OF COMMERCIAL AND INVESTMENT BANKS
A. Commercial banks - Commercial banks authorized to conduct investment
transactions with the Company will meet all of these qualifications:
- have a long-term rating of at least "A-" by Moody's or 3A by S&P or a
comparable rating agency;
- be a member of the Federal Deposit Insurance Corporation ("FDIC"), if
U.S. Based;
B. Investment banks - Investment banks authorized to conduct investment
transactions with the Company will meet all of these qualifications:
- have total capital in excess of $350 million;
- be a member of the Securities Investor Protection Corporation
("SIPC").
VIII. INVESTMENT SAFEKEEPING
All of the commercial and investment banks that are qualified to perform
investment services for SFI are authorized to hold investments in safekeeping
on behalf of SFI. SFI will not take physical possession of investment
securities.
IX. INVESTMENT POLICY REVIEW
This Investment Policy will be reviewed by the Treasurer and Chief Financial
Officer, and the Audit Committee of the Board of Directors on an annual basis
to ensure that it remains consistent with the overall objectives of SFI and
with current financial trends.
<PAGE> 63
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 (USA)
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> 64
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> 65
SCHEDULE 4
LIENS AND CAPITAL LEASES
1. UCC Liens
A. Illinois Secretary of State
Secured Party Financing Statement No.
------------- -----------------------
Bank One LaGrange 3016811,3721982
Vanguard Financial Service Corp. 3181543, 3597124, 3672628
Vanguard Financial Service Corp. 2882519, 3672629
The CIT Group* 3242648, 3258964
AT&T Capital Corp. 3267956
NBD Bank, N.A. 3280646
Vanguard Financial Leasing Corp. 3304736
Copelco Capital 3450194
The CIT Group/Equipment Financing, Inc. 3358143
Inter-Tel Leasing, Inc. 3672628, 3672629
LaSalle Equipment Limited Partnership 3505401, 3516526
*-Capital Lease
B. Arizona Secretary of State
Secured Party Financing Statement No.
------------- -----------------------
The CIT Group* 781807
NBD Equipment Finance 708583
Advanced Copy Systems, Inc. 853589
The CIT Group 816702
TIE National Leasing Corporation 831214
Yale Financial Services, Inc. 890429, 976711
Computer Sales International, Inc. 959485, 959486,964894
970516, 980359
Inter-Tel Leasing, Inc. 965245
American Business Credit Corp. 971274
LaSalle Systems Leasing 866502
Clean Rooms West, Inc. 934999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
SpeedFam International, Inc.
We consent to the use of our reports dated June 27, 1997, included or
incorporated by reference in this registration statement on Form S-3 of SpeedFam
International, Inc. on the consolidated financial statements and schedules of
SpeedFam International, Inc. as of May 31, 1996 and 1997, and for each of the
years in the three-year period ended May 31, 1997, and the consolidated
financial statements of SpeedFam, Co., Ltd. as of April 30, 1996 and 1997, and
for each of the years in the three-year period ended April 30, 1997, 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
September 16, 1997
