SPEEDFAM INTERNATIONAL INC, 424B4, 1997-10-09

SPEEDFAM INTERNATIONAL INC
424B4, 1997-10-09
SPECIAL INDUSTRY MACHINERY, NEC

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<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
File No. 333-35835

PROSPECTUS

2,180,000 SHARES

[SPEEDFAM LOGO]

COMMON STOCK
---------------------------

Of the 2,180,000 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 180,000 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 October 8, 1997, as
reported on the Nasdaq Stock Market, was $53 per share. See "Price Range of
Common Stock and Dividend Policy."
------------------------

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

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

<TABLE>
<CAPTION>
================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $52.75 $2.37 $50.38 $50.38
- ------------------------------------------------------------------------------------------------
Total(3)................ $114,995,000 $5,166,600 $100,760,000 $9,068,400
================================================================================================
</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 327,000 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $132,244,250, $5,941,590 and $117,234,260, 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 October 15, 1997.
---------------------------

LEHMAN BROTHERS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES, INC.
NEEDHAM & COMPANY, INC.

October 8, 1997
<PAGE> 2

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 documents previously filed by the Company with the Commission
are incorporated in this Prospectus by reference: (i) the Company's Annual
Report on Form 10-K for the year ended May 31, 1997, (ii) the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997, and (iii)
the Company's Current Report on Form 8-K dated September 17, 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> 3

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, 1997 and for the three
months ended August 31, 1997, 54.5%, 78.5%, 84.8% and 84.9%, respectively, of
the Company's total revenue was derived from the sale of capital equipment,
parts and expendables (including commissions) and 45.5%, 21.5%, 15.2% and 15.1%,
respectively, was derived from the sale of slurry and slurry components.

3
<PAGE> 4

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

<TABLE>
<S> <C>
Common Stock to be Offered:
By the Company............... 2,000,000 shares
By the Selling
Shareholders.............. 180,000 shares
----------
Total................ 2,180,000 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>
THREE MONTHS
YEAR ENDED MAY 31, ENDED AUGUST 31,
----------------------------- -----------------
1995 1996 1997 1996 1997
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Total revenue................................ $59,778 $120,170 $173,424 $39,728 $53,847
Gross margin................................. 14,284 41,509 69,923 13,946 23,016
Operating profit............................. 1,596 11,091 21,486 3,360 6,862
Other income (expense)....................... (953) (208) (298) (445) 759
Income tax expense........................... 186 4,266 8,037 1,063 2,793
Earnings from consolidated companies......... 457 6,617 13,151 1,852 4,828
Equity in net earnings of affiliates(2)...... 1,187 5,204 7,068 2,186 729
Net earnings................................. $ 1,644 $ 11,821 $ 20,219 $ 4,038 $ 5,557
Net earnings per share....................... $ 0.20 $ 1.16 $ 1.67 $ 0.36 $ 0.39
Weighted average common and common equivalent
shares.................................... 8,146 10,159 12,127 11,277 14,242
</TABLE>

<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $106,229 $206,589
Total assets..................................................... 220,095 320,455
Long-term debt, less current maturities.......................... 230 230
Stockholders' equity............................................. 164,722 265,082
</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, $5,513,000, $1,781,000 and $286,000 for
fiscal 1995, 1996, 1997 and for the three months ended August 31, 1996 and
1997, 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 after deducting the underwriting discounts and
commissions and estimated 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> 5

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.

5
<PAGE> 6

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%, 50.2% and 59.1% of net
sales for fiscal 1995, 1996, 1997 and the three months ended August 31, 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

6
<PAGE> 7

future introductions or volume production of new systems or enhancements. 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. 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

7
<PAGE> 8

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,
1997 and for the three months ended August 31, 1997, accounted for 43.1%, 19.7%,
13.5% and 14.0%, 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, 1997 and the
three months ended August 31, 1997, the Company's share of the net earnings of
the Far East Joint Venture was $1.1 million, $4.8 million, $5.5 million and
$286,000, respectively, representing 66.9%, 40.3%, 27.3% and 5.1%, respectively,
of the Company's net earnings. The Company accounts for the Far East Joint
Venture on the equity method. During fiscal 1995, 1996, 1997 and the three
months ended August 31, 1997, 4.6%, 5.2%, 7.2% and 3.6%, 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 August 31,
1997, the Company's equity interest in the Far East Joint Venture was $20.8
million, representing 9.5% of the Company's total assets and 12.6% 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

8
<PAGE> 9

of reasons, including the fact that the Company does not own a controlling
interest in the Far East Joint Venture, the Company's ability to effect a sale
of its interest is limited and the proceeds the Company would receive from a
sale of its interest in the Far East Joint Venture may be reduced.

Certain of the equipment produced and sold by the Far East Joint Venture is
similar to that produced in the U.S. by the Company. In addition, the Far East
Joint Venture produces and sells cleaning 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

9
<PAGE> 10

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

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

The Company believes that, to date, the relationship between the Company
and its joint venture partner has been good. However, no assurance can be given
that the relationship will continue to be satisfactory or that the 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 44% from 382 at August 31, 1996 to 549
at August 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."

10
<PAGE> 11

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, 1997 and the first quarter of fiscal 1998, 17.3%,
21.7%, 31.2% and 32.6%, 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

11
<PAGE> 12

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."

12
<PAGE> 13

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.

13
<PAGE> 14

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
$100.4 million ($116.8 million if the Underwriters' over-allotment option is
exercised in full), after deducting the underwriting discounts and commissions
and estimated 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.

14
<PAGE> 15

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 October 8, 1997).................... 60 3/8 47
</TABLE>

On October 8, 1997, the last reported sale price of the Common Stock on the
Nasdaq Stock Market was $53 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.

15
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
August 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 underwriting
discounts and commissions and estimated offering expenses payable by the
Company).

<TABLE>
<CAPTION>
AUGUST 31, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion................................ $ 230 $ 230
-------- ---------
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; 13,475,036
shares issued and outstanding, actual; 15,475,036 shares issued and
outstanding, as adjusted(1)......................................... 1 1
Additional paid-in capital............................................ 107,056 207,416
Retained earnings..................................................... 55,023 55,023
Foreign currency translation adjustment............................... 2,642 2,642
-------- ---------
Total stockholders' equity....................................... 164,722 265,082
-------- ---------
Total capitalization........................................ $164,952 $ 265,312
======== =========
</TABLE>

- ---------------
(1) Based on shares of Common Stock outstanding at August 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 August 31, 1997.

16
<PAGE> 17

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 consolidated
balance sheet data at August 31, 1997, and the statements of operations data for
the three months ended August 31, 1996 and 1997, have been derived from
unaudited consolidated financial statements, which, in the opinion of the
Company, reflect all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations of the Company for those periods. The statements of operations data
for interim periods are not necessarily indicative of results for subsequent
periods or the full year. The selected consolidated financial data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
consolidated financial statements, appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MAY 31, ENDED AUGUST 31,
------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
REVENUE:
Net sales.......................................... $42,542 $49,247 $57,021 $113,880 $160,994 $38,059 $51,915
Commissions from affiliate......................... 772 2,134 2,757 6,290 12,430 1,669 1,932
------- ------- ------- -------- -------- ------- -------
Total revenue...................................... 43,314 51,381 59,778 120,170 173,424 39,728 53,847
Cost of sales...................................... 32,472 38,945 45,494 78,661 103,501 25,782 30,831
------- ------- ------- -------- -------- ------- -------
Gross margin..................................... 10,842 12,436 14,284 41,509 69,923 13,946 23,016
OPERATING EXPENSES:
Research, development and engineering.............. 1,778 2,267 2,740 11,496 19,766 3,781 6,785
Selling, general and administrative expenses....... 8,545 8,988 9,948 18,922 28,671 6,805 9,369
------- ------- ------- -------- -------- ------- -------
Operating profit................................... 519 1,181 1,596 11,091 21,486 3,360 6,862
Other income (expense)............................. (391)(2) 277 (953) (208) (298) (445) 759
------- ------- ------- -------- -------- ------- -------
Earnings from consolidated companies before income
taxes............................................ 128 1,458 643 10,883 21,188 2,915 7,621
Income tax expense (benefit)....................... 573 (160)(3) 186 4,266 8,037 1,063 2,793
------- ------- ------- -------- -------- ------- -------
Earnings (loss) from consolidated companies before
cumulative effect of change in accounting
principle........................................ (445) 1,618 457 6,617 13,151 1,852 4,828
Equity in net earnings (loss) of affiliates(1)..... (45) 655 1,187 5,204 7,068 2,186 729
Cumulative effect of change in accounting principle
for income taxes................................. -- 78 -- -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net earnings (loss)................................ $ (490) $ 2,351 $ 1,644 $ 11,821 $ 20,219 $ 4,038 $ 5,557
======= ======= ======= ======== ======== ======= =======
Net earnings (loss) per share...................... $ (0.06) $ 0.31 $ 0.20 $ 1.16 $ 1.67 $ .36 $ .39
======= ======= ======= ======== ======== ======= =======
Weighted average common and common equivalent
shares........................................... 7,615 7,619 8,146 10,159 12,127 11,277 14,242
======= ======= ======= ======== ======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
------------------------------------------------- ----------
1993 1994 1995 1996 1997 1997
------- ------- ------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 5,944 $ 9,980 $11,072 $ 31,193 $106,822 $106,229
Total assets.............................................. 35,715 45,709 60,029 107,984 206,500 220,095
Long-term obligations, less current maturities............ 8,133 9,716 10,362 2,593 272 230
Stockholders' equity...................................... 15,669 18,576 23,037 60,039 156,533 164,722
</TABLE>

- ---------------
(1) Includes ($285,000), $450,000, $1,100,000, $4,759,000, $5,513,000,
$1,781,000 and $286,000 for the 1993 through 1997 fiscal years and the three
months ended August 31, 1996 and 1997, 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.

17
<PAGE> 18

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, 1997 and
the three months ended August 31, 1997, 52.3%, 77.3%, 83.6% and 84.4%,
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 August 31, 1997, the Company had
shipped 40 Auriga systems. The Company's CMP systems accounted for 7.9%, 34.7%,
50.2% and 59.1% of net sales for fiscal 1995, 1996, 1997 and the three months
ended August 31, 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, 1997 and the three months ended August 31, 1997, 47.7%, 22.7%, 16.4% and
15.6%, 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, 1997 and the
three months ended August 31, 1997, commissions accounted for 4.6%, 5.2%, 7.2%
and 3.6%, respectively, of total revenue. Commissions are subject to foreign
exchange rate fluctuations which can significantly impact operating profit
margins.

In fiscal 1995, 1996, 1997 and the three months ended August 31, 1997,
17.3%, 21.7%, 31.2% and 32.6%, respectively, of the Company's total revenue was
attributable to sales outside the United States. In particular, in fiscal 1997
and for the first quarter of fiscal 1998, 14.2% and 9.7%, respectively, of the
Company's total revenue was attributable to sales made to European markets and
17.0% and 22.9% 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

18
<PAGE> 19

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 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 $25.6 million at July 31, 1997 (the end of the first
quarter of fiscal 1998 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 August
31, 1997, the Company's equity interest in the Far East Joint Venture was $20.8
million, representing 9.5% of the Company's total assets and 12.6% 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.

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>
THREE MONTHS
ENDED AUGUST
YEARS ENDED MAY 31, 31,
------------------------- ---------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Net sales........................................ 95.4% 94.8% 92.8% 95.8% 96.4%
Commissions from affiliate....................... 4.6 5.2 7.2 4.2 3.6
----- ----- -----
Total revenue.................................... 100.0 100.0 100.0 100.0 100.0
Cost of sales.................................... 76.1 65.5 59.7 64.9 57.3
----- ----- -----
Gross margin..................................... 23.9 34.5 40.3 35.1 42.7
OPERATING EXPENSES:
Research, development and engineering............ 4.6 9.6 11.4 9.5 12.6
Selling, general and administrative expenses..... 16.6 15.7 16.5 17.1 17.4
----- ----- -----
Operating profit................................. 2.7 9.2 12.4 8.5 12.7
Other income (expense)........................... (1.6) (0.2) (0.2) (1.1) 1.5
----- ----- -----
Earnings from consolidated companies before
income taxes................................... 1.1 9.0 12.2 7.4 14.2
Income tax expense............................... 0.3 3.5 4.6 2.7 5.2
----- ----- -----
Earnings from consolidated companies............. 0.8 5.5 7.6 4.7 9.0
Equity in net earnings of affiliates............. 2.0 4.3 4.1 5.5 1.3
----- ----- -----
Net earnings..................................... 2.8% 9.8% 11.7% 10.2% 10.3%
===== ===== =====
</TABLE>

19
<PAGE> 20

THREE MONTHS ENDED AUGUST 31, 1997 COMPARED WITH THREE MONTHS ENDED AUGUST 31,
1996

Net Sales. The Company's net sales for the three months ended August 31,
1997 were $51.9 million, an increase of 36.4% over net sales of $38.1 million
for the corresponding period in the prior year. Sales of equipment, parts and
expendables increased to $43.8 million or 84.4% of net sales in the first
quarter of fiscal 1998, up from $31.2 million or 82.0% of net sales in the same
period of fiscal 1997. The growth in this segment was attributable to higher
sales of the Company's CMP systems to the semiconductor industry. Sales of CMP
systems generated $30.7 million, or 59.1% of net sales, nearly double the $16.3
million, or 42.8% of net sales, reported a year earlier. The growth in net sales
was also attributable to an increase in sales of slurries. Sales of slurries
increased 18.7% to $8.1 million or 15.6% of net sales in the first quarter of
fiscal 1998 from $6.8 million or 18.0% in the comparable period of fiscal 1997.

Sales to the thin film memory disk media market accounted for $15.6
million, or 30.0% of net sales, compared with $15.5 million, or 40.9%, 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 over capacity in
the memory disk market and increased competition, which the Company expects to
continue for at least the next several quarters.

Commissions from Affiliate. Commissions from affiliate increased to $1.9
million during the first quarter of fiscal 1998 from $1.7 million in the
corresponding period of fiscal 1997.

Gross Margin. Gross margin increased to $23.0 million or 42.7% of total
revenue for the three months ended August 31, 1997 from $13.9 million or 35.1%
of total revenue for the three months ended August 31, 1996. The increase was
due to the continued shift in the revenue mix to higher margin CMP systems.

Research, Development and Engineering. Research, development and
engineering expenses were $6.8 million or 12.6% of total revenue in the first
quarter of fiscal 1998 up from $3.8 million or 9.5% of total revenue in the
first quarter of fiscal 1997. 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. 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.

Other Income (Expense). Other income increased to $759,000 in the first
quarter of fiscal 1998 from $445,000 of other expense in the comparable period
of fiscal 1997. Other income consisted almost entirely of interest income in the
first quarter of fiscal 1998.

Equity in Net Earnings of Affiliates. 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.

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 significant
increase in CMP equipment sales to semiconductor manufacturers, net sales for
the fiscal year

20
<PAGE> 21

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.

21
<PAGE> 22

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.

22
<PAGE> 23

QUARTERLY RESULTS OF OPERATIONS

The following table presents certain unaudited consolidated quarterly
financial information for the nine quarters ended August 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 FISCAL 1998
------------------------------------- --------------------------------------- ------------
AUG. 31 NOV. 30 FEB. 29 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31
------- ------- ------- ------- -------- ------- -------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <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 $ 51,915
Commissions from affiliate.... 183 801 3,057 2,249 1,669 2,892 4,362 3,507 1,932
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue................... 17,816 25,438 33,140 43,776 39,728 39,119 45,280 49,297 53,847
Cost of sales................. 12,766 18,420 20,295 27,180 25,782 24,092 25,591 28,036 30,831
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.................. 5,050 7,018 12,845 16,596 13,946 15,027 19,689 21,261 23,016
Research, development and
engineering................. 1,195 2,302 3,496 4,503 3,781 4,114 4,884 6,987 6,785
Selling, general and
administrative.............. 3,482 3,380 5,183 6,877 6,805 6,675 9,003 6,188 9,369
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit................ 373 1,336 4,166 5,216 3,360 4,238 5,802 8,086 6,862
Other income (expense).......... (496) (333) 82 539 (445) (21) 64 104 759
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies before
income taxes.................. (123) 1,003 4,248 5,755 2,915 4,217 5,866 8,190 7,621
Income tax expense (benefit).... (27) 413 1,616 2,264 1,063 1,703 2,286 2,985 2,793
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies........ (96) 590 2,632 3,491 1,852 2,514 3,580 5,205 4,828
Equity in net earnings of
affiliates.................... 800 1,035 1,728 1,641 2,186 2,269 1,329 1,284 729
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings.................... $ 704 $1,625 $ 4,360 $5,132 $ 4,038 $4,783 $ 4,909 $6,489 $ 5,557
======= ======= ======= ======= ======= ======= ======= ======= =======

Net earnings per share.......... $ .09 $ .16 $ .39 $ .46 $ .36 $ .42 $ .42 $ .46 $ .39
======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average common and
common equivalent shares...... 8,248 9,937 11,211 11,258 11,277 11,315 11,801 14,100 14,242
======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUE:
Net sales..................... 99.0% 96.9% 90.8% 94.9% 95.8% 92.6% 90.4% 92.9% 96.4%
Commissions from affiliate.... 1.0 3.1 9.2 5.1 4.2 7.4 9.6 7.1 3.6
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue................... 100.0% 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 57.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.................. 28.3 27.6 38.8 37.9 35.1 38.4 43.5 43.1 42.7
Research, development and
engineering................. 6.7 9.0 10.5 10.3 9.5 10.5 10.8 14.2 12.6
Selling, general and
administrative.............. 19.5 13.3 15.7 15.7 17.1 17.1 19.9 12.5 17.4
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit................ 2.1 5.3 12.6 11.9 8.5 10.8 12.8 16.4 12.7
Other income (expense).......... (2.8) (1.3) 0.2 1.2 (1.1) 0.0 0.2 0.2 1.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies before
income taxes.................. (0.7) 4.0 12.8 13.1 7.4 10.8 13.0 16.6 14.2
Income tax expense (benefit).... (0.2) 1.6 4.9 5.1 2.7 4.4 5.1 6.0 5.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies........ (0.5) 2.4 7.9 8.0 4.7 6.4 7.9 10.6 9.0
Equity in net earnings of
affiliates.................... 4.5 4.1 5.3 3.7 5.5 5.8 2.9 2.6 1.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings.................... 4.0% 6.5% 13.2% 11.7% 10.2% 12.2% 10.8% 13.2% 10.3%
======= ======= ======= ======= ======= ======= ======= ======= =======
</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

23
<PAGE> 24

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 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 $19.2 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.

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<PAGE> 25

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 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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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, 1997 and for the
three months ended August 31, 1997, 54.5%, 78.5%, 84.8% and 84.9%, 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%, 15.2% and
15.1%, 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.

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<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 August 31, 1997, the U.S. direct sales organization had a total of 30
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.

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

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<PAGE> 36

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 August 31, 1997, the
Company had 139 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, 1997 and the
first quarter of fiscal 1998, were approximately $2.7 million, $11.5 million,
$19.8 million and $6.8 million, respectively.

At August 31, 1997, the Company had an engineering staff of 64 employees
and a research and development staff of 79 employees. Because of the complex and
highly specialized design, testing and manufacturing requirements of the
Company, these employees must be experienced in a wide range of engineering
disciplines. The Company's philosophy is to maintain strong technical expertise
in each of its core competencies and to utilize consulting engineers for
non-critical portions of product development projects. The Company believes that
this approach provides flexibility and allows the Company to shorten time to
market for new products.

Product Development

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

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<PAGE> 37

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."

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

37
<PAGE> 38

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 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.

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<PAGE> 39

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 August 31, 1997, the Company had 549 full time employees in the U.S. and
Europe, including 145 in manufacturing, 50 in marketing and sales, 139 in field
service, 64 in engineering, 79 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 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

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<PAGE> 40

(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 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,

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<PAGE> 41

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, 1997 fiscal years
and the first quarter of fiscal 1998, the Company's share of the net earnings of
the Far East Joint Venture was $1.1 million, $4.8 million, $5.5 million and
$286,000, respectively, representing 66.9%, 40.3%, 27.3% and 5.1%, 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, 1997 and the first quarter of fiscal 1998 4.5%, 5.2%,
7.2% and 3.6% 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 August 31, 1997, the Company's equity interest in
the Far East Joint Venture was $20.8 million, representing 9.5% of the Company's
total assets and 12.6% 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

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<PAGE> 43

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 May 31, 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.

43
<PAGE> 44

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, $36.6
million in fiscal 1997 and $11.0 million for the three months ended August 31,
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.

44
<PAGE> 45

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

45
<PAGE> 46

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.

46
<PAGE> 47

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

47
<PAGE> 48

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.

48
<PAGE> 49

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 *
James C. Farley(10)....................... 225,445 1.7 10,000 215,445 1.4
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.

49
<PAGE> 50

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 32,520
shares are subject to issuance to Mr. Pedersen upon the exercise of certain
stock options.

(10) Includes 9,474 shares held in trust for Mr. Farley's minor children and 625
shares beneficially owned by Mr. Farley's spouse. Mr. Farley is James N.
Farley's son.

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 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

50
<PAGE> 51

rights and terms, liquidation preferences, conversion rights, special series
voting rights and sinking fund provisions applicable to each such series of
Preferred Stock. If the Company issues a series of Preferred Stock in the future
that has special voting rights or preferences over the Common Stock with respect
to the payment of dividends or upon the Company's liquidation, dissolution or
winding up, the rights of the holders of the Common Stock may be adversely
affected. The issuance of shares of Preferred Stock could be utilized, under
certain circumstances, in an attempt to prevent an acquisition of the Company
and may adversely affect the voting and other rights of the holders of Common
Stock.

ANTI-TAKEOVER STATUTES

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

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

51
<PAGE> 52

UNDERWRITING

Lehman Brothers Inc., BT Alex. Brown Incorporated, NationsBanc Montgomery
Securities, Inc. 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.......................................... 545,000
BT Alex. Brown Incorporated.................................. 545,000
NationsBanc Montgomery Securities, Inc....................... 545,000
Needham & Company, Inc....................................... 545,000
---------
Total.............................................. 2,180,000
=========
</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 $1.42 per share. The
selected dealers may reallow a concession not in excess of $.10 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 327,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the offering price to the public less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.

Certain holders of shares of Common Stock of the Company, owning an
aggregate of 4,808,158 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 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,

52
<PAGE> 53

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.

53
<PAGE> 54

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
ANNUAL
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
INTERIM
Condensed Consolidated Balance Sheets -- at May 31, 1996 and August 31, 1997
(unaudited)......................................................................... F-22
Condensed Consolidated Statements of Earnings -- for the three months ended August 31,
1996 and August 31, 1997 (unaudited)................................................ F-23
Condensed Consolidated Statements of Cash Flows -- for the three months ended August
31, 1996 and August 31, 1997 (unaudited)............................................ F-24
Notes to Condensed Consolidated Financial Statements (unaudited)...................... F-25
SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES
ANNUAL
Independent Auditors' Report.......................................................... F-28
Consolidated Balance Sheets -- at the end of fiscal years 1996 and 1997............... F-29
Consolidated Statements of Earnings -- for the fiscal years 1995, 1996 and 1997....... F-30
Consolidated Statements of Stockholders' Equity -- for the fiscal years 1995, 1996 and
1997................................................................................ F-31
Consolidated Statements of Cash Flows -- for the fiscal years 1995, 1996 and 1997..... F-32
Notes to Consolidated Financial Statements............................................ F-33
</TABLE>

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

F-1
<PAGE> 55

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> 56

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> 57

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> 58

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> 59

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> 60

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.

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

F-7
<PAGE> 61

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> 62

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> 63

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> 64

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> 65

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> 66

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> 67

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> 68

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> 69

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> 70

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> 71

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> 72

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> 73

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> 74

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> 75

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 76,895 $ 70,491
Trade accounts and notes receivable, net........................... 38,021 46,401
Inventories........................................................ 35,849 39,388
Other current assets............................................... 4,950 4,290
-------- --------
Total current assets....................................... 155,715 160,570
Investments in affiliates............................................ 23,956 24,844
Property, plant and equipment, net................................... 24,582 32,294
-------- --------
Other assets......................................................... 2,247 2,387
-------- --------
Total assets............................................... $206,500 $220,095
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt........ $ 250 $ 226
Accounts payable and due to affiliates............................. 25,747 31,381
Customer deposits.................................................. 4,165 4,755
Other current liabilities.......................................... 18,731 17,979
-------- --------
Total current liabilities.................................. 48,893 54,341
-------- --------
Long-term liabilities:
Long-term debt..................................................... 272 230
Deferred income taxes.............................................. 802 802
-------- --------
Total long-term liabilities................................ 1,074 1,032
-------- --------
Stockholder's equity:
Common stock, no par value, 20,000,000 shares authorized,
13,323,547 and 13,475,036 shares issued and outstanding at
May 31, 1997 and August 31, 1997, respectively.................. 1 1
Additional paid-in capital......................................... 105,522 107,056
Retained earnings.................................................. 49,466 55,023
Foreign currency translation adjustment............................ 1,544 2,642
-------- --------
Total stockholders' equity................................. 156,533 164,722
-------- --------
Total liabilities and stockholders' equity................. $206,500 $220,095
======== ========
</TABLE>

F-22
<PAGE> 76

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 1996 AND 1997
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
AUGUST 31, AUGUST 31,
1996 1997
---------- ----------
<S> <C> <C>
Revenue:
Net sales............................................................ $ 38,059 $ 51,915
Commissions from affiliate........................................... 1,669 1,932
------- -------
Total revenue.......................................................... 39,728 53,847
Cost of sales.......................................................... 25,782 30,831
------- -------
Gross margin........................................................... 13,946 23,016
Research, development and engineering................................ 3,781 6,785
Selling, general and administrative.................................. 6,805 9,369
------- -------
Operating profit....................................................... 3,360 6,862
Other income (expense)................................................. (445) 759
------- -------
Earnings from consolidated companies before income taxes............... 2,915 7,621
Income tax expense..................................................... 1,063 2,793
------- -------
Earnings from consolidated companies................................... 1,852 4,828
Equity in net earnings of affiliates................................... 2,186 729
------- -------
Net earnings........................................................... $ 4,038 $ 5,557
======= =======
Net earnings per share................................................. $ .36 $ .39
======= =======
Weighted average common and common equivalent shares................... 11,277 14,242
======= =======
</TABLE>

F-23
<PAGE> 77

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
---------- ----------
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings......................................................... $ 4,038 $ 5,557
Adjustments to reconcile net earnings to net cash used in operating
activities:
Equity in net earnings of affiliates.............................. (2,186) (729)
Depreciation and amortization..................................... 463 743
Other............................................................. 167 11
Changes in assets and liabilities:
(Increase) decrease in trade accounts and notes receivable...... 1,864 (8,387)
Increase in inventories......................................... (3,363) (3,513)
Decrease in other current assets................................ 191 659
Increase (decrease) in accounts payable and due to affiliates... (5,436) 5,641
Decrease in accrued expenses, customer deposits and other
liabilities.................................................... (154) (183)
------- -------
Net cash used in operating activities.................................. (4,416) (201)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................................. (2,295) (8,424)
Dividend from affiliate.............................................. 454 875
Other investing activities........................................... (218) (153)
------- -------
Net cash used in investing activities................................ (2,059) (7,702)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options.............................. 57 594
Proceeds from sale of stock to employees............................. 273 940
Principal payments on long-term debt................................. (308) (66)
------- -------
Net cash provided by financing activities............................ 22 1,468
------- -------
Effects of foreign currency rate changes on cash..................... 89 31
------- -------
Net decrease in cash and cash equivalents............................ (6,364) (6,404)
Cash and cash equivalents at beginning of year....................... 10,871 76,895
------- -------
Cash and cash equivalents at August 31, 1996 and 1997................ $ 4,507 $ 70,491
======= =======
</TABLE>

F-24
<PAGE> 78

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(1) BASIS OF PRESENTATION

The condensed consolidated financial statements included herein have been
prepared by management without audit. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, although
management believes that the disclosures made are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements of the Company for the year ended May 31, 1997, as filed with the
Securities and Exchange Commission on August 26, 1997 as part of its Annual
Report on Form 10-K. In the opinion of management the information furnished
herein reflects all adjustments (consisting of normal recurring adjustments)
necessary for a fair statement of results for the interim periods presented.
Results of operations for the three months ended August 31, 1997 are not
necessarily indicative of results to be expected for the full fiscal year.

(2) INVENTORIES

The components of inventory were:

<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
-------- -----------
<S> <C> <C>
Raw materials.................................................. $ 16,323 $20,735
Work-in-process................................................ 16,030 14,677
Finished goods................................................. 3,496 3,976
------- -------
$ 35,849 $39,388
======= =======
</TABLE>

F-25
<PAGE> 79

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

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

(3) INVESTMENTS IN AFFILIATES

The Company owns a 50% interest in SpeedFam Co., Ltd. The Company's equity
interest in SpeedFam Co., Ltd. was $20,363 and $20,822 at May 31, 1997 and at
August 31, 1997, respectively, based on the balance sheet of SpeedFam Co., Ltd.
at April 30, 1997 and July 31, 1997, respectively. The remaining equity interest
included in investments in affiliates relates to the Company's 50% ownership
interest in Fujimi Corporation. Condensed consolidated financial statements of
SpeedFam Co., Ltd., which are consolidated on a fiscal year that ends April 30,
are as follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
APRIL
30, JULY 31,
1997 1997
-------- --------
<S> <C> <C>
ASSETS
Total current assets........................................... $115,671 $132,857
Investment in affiliates....................................... 780 818
Property, plant and equipment, net............................. 30,327 32,500
Deferred income taxes and other assets......................... 6,922 8,701
-------- --------
Total assets......................................... $153,700 $174,876
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities...................................... $ 96,034 $115,042
Long-term debt................................................. 10,786 10,736
Other long-term liabilities.................................... 6,154 7,454
Stockholders' equity
Common stock................................................. 664 664
Retained earnings............................................ 37,049 35,825
Foreign currency translation adjustment...................... 2,817 4,875
Unrealized gains on marketable securities.................... 196 280
-------- --------
Total liabilities and stockholders' equity........... $153,700 $174,876
======== ========
</TABLE>

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JULY 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Net sales........................................................ $56,750 $60,114
Costs and operating expenses..................................... 48,792 59,289
------- -------
Earnings before income taxes..................................... 7,958 825
Income taxes..................................................... 4,103 424
------- -------
Net earnings before minority interest............................ 3,855 401
Minority interest................................................ 34 (125)
------- -------
Net earnings..................................................... 3,821 526
Beginning retained earnings...................................... 26,943 37,049
Dividends........................................................ (907) (1,750)
------- -------
Ending retained earnings......................................... $29,857 $35,825
======= =======
</TABLE>

F-26
<PAGE> 80

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

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

The Company pays a commission to SpeedFam Co., Ltd. on sales of equipment
produced by the Company in the U.S. and exported to Pacific Rim customers
through SpeedFam Co., Ltd. As of August 31, 1997 the Company had accrued $2.3
million of commission expense to SpeedFam Co., Ltd.

(4) LONG-TERM DEBT

On August 29, 1997, the Company successfully negotiated a new unsecured
credit facility with its U.S. bank group. The new credit agreement provides for
a revolving loan facility in the amount of $60 million with a term of three
years. Should the loan be utilized, principal will be repaid at the end of the
loan term. Interest will accrue and be paid monthly on the outstanding balance
based on a 90 day LIBOR rate plus 25 to 100 basis points. The Company must meet
certain financial objectives each year as defined in the credit agreement. At
August 31, 1997, no amounts were outstanding on this loan facility.

(5) OFFERING OF COMMON STOCK

On September 17, 1997, the Company filed a registration statement on Form
S-3 with the Securities and Exchange Commission reflecting a registration of
2,170,000 shares of common stock, 2,000,000 of which will be offered by the
Company.

(6) DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to offset exposure to
market risks arising from changes in foreign exchange rates. Derivative
financial instruments currently utilized by the Company primarily include
foreign currency forward contracts. The Company evaluates and monitors
consolidated net exposures by currency and maturity, and external derivative
financial instruments correlate with that net exposure in all material respects.
Gains or losses related to hedges of firm commitments are deferred and included
in the basis of the transaction when it is completed. Gains or losses on
unhedged foreign currency transactions are included in income as part of cost of
sales.

F-27
<PAGE> 81

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.

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-28
<PAGE> 82

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-29
<PAGE> 83

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-30
<PAGE> 84

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-31
<PAGE> 85

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-32
<PAGE> 86

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.

F-33
<PAGE> 87

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-34
<PAGE> 88

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

(n) Reclassifications

Certain amounts in the prior year financial statements have been
reclassified to conform with the 1997 financial statement presentation.

F-35
<PAGE> 89

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-36
<PAGE> 90

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-37
<PAGE> 91

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-38
<PAGE> 92

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-39
<PAGE> 93

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-40
<PAGE> 94

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-41
<PAGE> 95

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-42
<PAGE> 96

======================================================

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
Risk Factors.......................... 5
The Company........................... 14
Use of Proceeds....................... 14
Price Range of Common Stock and
Dividend Policy..................... 15
Capitalization........................ 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Joint Venture Arrangements............ 39
Management............................ 45
Principal and Selling Shareholders.... 49
Description of Capital Stock.......... 50
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

======================================================
======================================================

2,180,000 SHARES

[SPEEDFAM LOGO]
SPEEDFAM
INTERNATIONAL, INC.

COMMON STOCK
---------------------------

PROSPECTUS
October 8, 1997

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

LEHMAN BROTHERS

BT ALEX. BROWN

NATIONSBANC MONTGOMERY
SECURITIES, INC.

NEEDHAM & COMPANY, INC.

======================================================