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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1997
COMMISSION FILE NUMBER 0-26784
SPEEDFAM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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ILLINOIS 36-2421613
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
305 NORTH 54TH STREET 85226
CHANDLER, ARIZONA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER: (602) 705-2100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $512,107,352 as of August 22, 1997.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock: 13,470,036 as of August 22, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III, Proxy Statement relating to 1997 Annual Meeting of Shareholders
(except for the Report of the Compensation Committee of the Board of Directors
and the Performance Graph).
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TABLE OF CONTENTS
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ITEM NO. CAPTION PAGE
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PART I
1. Business................................................................. 2
2. Properties............................................................... 13
3. Legal Proceedings........................................................ 14
4. Submission of Matters to a Vote of Security Holders...................... 14
PART II
5. Market for Common Equity and Related Shareholder Matters................. 14
6. Selected Financial Data.................................................. 15
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 16
8. Financial Statements and Supplementary Data.............................. 25
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................. 61
PART III
10. Directors and Executive Officers of the Company.......................... 61
11. Executive Compensation................................................... 61
12. Security Ownership of Certain Beneficial Owners and Management........... 61
13. Certain Relationships and Related Transactions........................... 61
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 61
Signatures............................................................... 62
List of Exhibits......................................................... EXHIBIT
INDEX
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ITEM 1. BUSINESS
SpeedFam International, Inc. (the "Company") was incorporated in Illinois
in 1959 as SpeedLap Corporation. SpeedFam International, Inc. is a holding
company operating through three wholly owned subsidiaries, and also owns
interests in two joint ventures. The Company operates through SpeedFam
Corporation in the U.S. ("SpeedFam U.S.") and SpeedFam Limited ("SpeedFam U.K.")
and SpeedFam GmbH ("SpeedFam Germany") in Europe. SpeedFam International, Inc.
owns 50% of each of two joint ventures, SpeedFam Co., Ltd. (together with its
subsidiaries and joint ventures, the "Far East Joint Venture") and Fujimi
Corporation (the "Fujimi Joint Venture"). The Far East Joint Venture primarily
produces and sells products in the Far East similar to those produced by the
Company, and the Fujimi Joint Venture sells slurries and pads in North America.
Unless the context otherwise requires, the "Company" and "SpeedFam" refer
only to SpeedFam International, Inc., an Illinois corporation, and its wholly
owned subsidiaries. The Company's principal executive offices are located at 305
North 54th Street, Chandler, Arizona 85226 and its telephone number is (602)
705-2100.
The Company 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.
JOINT VENTURES
Since 1971, the Company has owned a 50% interest in the Far East Joint
Venture. The remaining 50% is owned by Obara Corporation, a privately-owned
Japanese company that supplies products to the automotive industry. Generally,
the Far East Joint Venture designs, produces and markets in the Far East
equipment similar to that produced by the Company in the U.S. Prior to 1971, the
Company marketed its products in Japan through Japanese trading companies;
however, the Company believed that the most effective method to further
penetrate the Japanese market was with a Japanese partner. See "Joint Venture
Arrangements -- Far East Joint Venture." In 1984, the Company established the
Fujimi Joint Venture with Fujimi Incorporated, a 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 and
systems; cleaning systems; other high precision surface processing equipment;
and certain other products used in its customers' manufacturing process,
including slurries. During fiscal years 1995, 1996 and 1997, 54.5%, 78.5% and
84.8%, respectively, of the Company's total revenue (including commissions) was
attributable to the sale of capital equipment, parts and expendables and 45.5%,
21.5% and 15.2%, respectively, of the Company's total revenue was attributable
to sales of slurries.
Applications. 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
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action from the abrasive slurry is used to process silicon wafers, thin film
memory disk media and advanced semiconductor devices.
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 stone), rather than a liquid. Grinding
results in much 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.
EQUIPMENT
Semiconductor Chemical Mechanical Polishing (CMP). The Auriga is a five
head, two polishing table CMP system capable of processing 65-90 wafers per hour
based on a two-minute polishing cycle. 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. The Auriga offers
compatibility with all commonly used slurry chemistries. Both the Auriga and the
CMP-V are produced solely by the Company.
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 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.
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.
Semiconductor Wafers. The Company supplies chemical mechanical polishing,
double-sided lapping and, more recently, edge polishing systems to the
semiconductor substrates market.
The Company's DSM line of double-sided lapping systems is available in
various sizes and is used to create the initial flatness and thickness of the
silicon wafer after it is sliced from an ingot. The lapping process also removes
saw marks remaining after slicing and provides a surface finish suitable for
subsequent polishing processes. DSM double sided polishers for silicon wafer
polishing are also available.
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The SP line utilizes a chemical mechanical polishing process to remove the
shallow damage layer remaining from previous process steps and to attain the
specified flatness and surface finish. A 50-inch model is manufactured by the
Company in the U.S. and a 59-inch model is manufactured by the Far East Joint
Venture.
The 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.
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.
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.
The Company has entered into a joint venture (the "Fujimi Joint Venture")
with Fujimi Incorporated to sell certain products in North and South American
markets, including slurry and slurry components. The Company distributes thin
film memory disk polishing slurry and related products supplied by Fujimi
Incorporated, while the Fujimi Joint Venture distributes other products supplied
by Fujimi Incorporated. To date, no material sales of products have been made to
South American markets by the Fujimi Joint Venture. See "Joint Venture
Arrangements -- Fujimi Joint Venture."
The slurry for thin film memory disk media polishing applications is
available in different varieties to address the varying needs of each specific
process. Some formulations allow higher stock removal rates and others emphasize
surface finish results. There are also a variety of slurry formulations
available for silicon wafer processing. Slurry is an essential process component
in chemical mechanical polishing. The chemical action of this process is
implemented by designing the slurry to be chemically active with the surface to
be polished, typically by adjusting the pH of the slurry vehicle. The mechanical
portion of the process is accomplished by abrasive particles in the slurry.
The Company believes that meeting the evolving slurry requirements of each
customer is vital to providing a total process solution. The Company intends to
continue to maintain an emphasis on slurry distribution and to work closely with
Fujimi Incorporated in developing, designing and formulating customized slurries
that address specific customer needs.
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CUSTOMERS
The Company sells its products to leading manufacturers of semiconductor
devices, thin film memory disks, semiconductor wafers and for various general
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:
SEMICONDUCTOR DEVICE: Advanced Micro Devices; Rockwell; Siemens;
Hewlett-Packard; Promos Technology.
THIN FILM MEMORY DISK MEDIA: Komag; HMT; IBM; Seagate; Akashic.
SEMICONDUCTOR WAFER: MEMC; Mitsubishi Siltec; Sumitomo Sitix; Wacker
Siltronic.
GENERAL INDUSTRIAL APPLICATIONS: Hayward Quartz; Heraeus Amersil;
IBM; Manufacturing Technology; Motorola.
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. 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. 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.
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 device, thin film
memory disk media and semiconductor wafer industries.
At May 31, 1997, the U.S. direct sales organization had a total of 23 sales
personnel. The Company's main sales offices are in Chandler, Arizona, Austin,
Texas and Elk Grove Village, Illinois. The Company also had an aggregate of nine
direct sales personnel in the SpeedFam U.K. and SpeedFam Germany offices. To
enhance its sales capabilities, the Company maintains process development and
demonstration laboratories in the U.S. and Europe. Sales and marketing
activities in the Far East are conducted by the Far East Joint Venture. See
"Joint Venture Arrangements -- Far East Joint Venture."
The Company's marketing strategy includes involvement with SEMATECH, Inc.,
a consortium of major semiconductor manufacturers and equipment suppliers,
attendance at Semicon, Diskcon, IMTS and other trade shows worldwide and the
sponsorship of technical conferences, which include the presentation of
technical papers written by customers, university scientists and the Company's
own senior technologists. The Company believes these initiatives serve to
promote acceptance of the Company's products and process technologies in the
semiconductor, thin film memory disk and other industries.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing highly responsive service is an
essential factor in providing a total solution to its customers. In order to
provide customers with experienced service and support personnel, the Company
has structured its service operations into distinct service units responsible
for each of the semiconductor device, thin film memory disk media, semiconductor
wafer and general industrial products industries. Elements of the Company's
customer service and support program include system installation and
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process certification, process support, machine repair, providing spare parts
inventories, internal training programs, external customer training,
documentation and formation of customer user groups. At May 31, 1997, the
Company had 137 service employees in the U.S. and Europe. For large users of the
Company's systems, the Company often creates a customized service arrangement
designed to meet the specific requirements of the customer.
The Company generally provides a one year warranty on all equipment it
sells. Field service personnel provide warranty service, post-warranty service,
and equipment installations. Field service engineers are located in various
locations throughout the world, including dedicated site-specific engineers in
place at certain customer locations pursuant to contractual arrangements. The
Company also provides service and maintenance training as well as process
application training for its customers' personnel. The Company maintains an
extensive inventory of spare parts at its primary locations and at its satellite
service sites. This provides the Company the ability to provide same day or
overnight delivery for many parts.
BACKLOG
Backlog of orders for capital equipment, parts, expendables and slurries
increased to approximately $66.3 million at July 31, 1997, from approximately
$52.1 million at July 31, 1996. Approximately $55.9 million, or 84.3% of the
total backlog at July 31, 1997, is comprised of orders for capital equipment.
The Company's backlog does not include orders for capital equipment or other
products manufactured by the Far East Joint Venture and distributed by the
Company in the U.S. and Europe for which the Company receives commissions. The
time between the placing of orders and shipment of parts, expendables and
slurries is significantly less than for capital equipment and as a result, the
Company's backlog consists primarily of orders for capital equipment. The
Company includes in its backlog only those customer orders for which it has
accepted signed purchase orders with assigned delivery dates within 12 months.
Orders generally carry a stipulation that customers may incur a penalty in the
event of cancellation. However, there can be no assurance that orders will not
be cancelled by customers or that the Company will obtain a meaningful penalty
payment. As a result of systems and equipment ordered and shipped in the same
quarter, possible changes in delivery schedules, occasional cancellation of
orders and delays in product shipments, the Company's backlog at any particular
date may not be indicative of actual sales for any succeeding period.
RESEARCH, DEVELOPMENT AND ENGINEERING
The markets in which the Company competes are characterized by evolving
industry standards and frequent improvements in products and service. To compete
effectively in its markets, the Company must continually improve its products
and its process technologies and develop new technologies and products that
compete effectively on the basis of price and performance and that adequately
address current and future customer requirements. The Company's research,
development and engineering expenditures during fiscal 1995, 1996 and 1997, were
approximately $2.7 million, $11.5 million and $19.8 million, respectively.
At May 31, 1997, the Company had an engineering staff of 55 employees and a
research and development staff of 62 employees. Because of the complex and
highly specialized design, testing and manufacturing requirements of the
Company, these employees must be experienced in a wide range of engineering
disciplines. The Company's philosophy is to maintain strong technical expertise
in each of its core competencies and to utilize consulting engineers for
non-critical portions of product development projects. The Company believes that
this approach provides flexibility and allows the Company to shorten time to
market for new products.
Product Development. The Company began shipments of the Auriga, an
enhanced version of the CMP-V, its original system, in the second quarter of
fiscal 1997. The Company intends to periodically develop and introduce enhanced
versions of its CMP system. The Company has also recently introduced the
Capella, a post-CMP cleaning system. The Company has integrated this cleaning
system with the Auriga to provide a dry-in/dry-out system, the Auriga-C.
Deliveries of the Auriga-C for revenue are expected to begin in the second
quarter of fiscal 1998. The Company is also developing additional products and
product enhancements for the thin film memory disk and silicon wafer markets.
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Typically, the Company cultivates a "user-group" of current and potential
customers to act as technical advisors during the conceptualization of a new
product. The Company's CMP 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
additional film layers such as copper. The Company has also developed and
recently introduced an end-point detection metrology system, the Altair, for the
purpose of measuring the film thickness of oxide and metal layers of advanced
semiconductor devices. In the thin film memory disk area, the Company also
continues to pursue the development of automated machines and enhanced processes
enabling lower head flying heights. For the silicon wafer market, the Company is
currently focusing on the development of 300mm and enhanced edge polishing
systems.
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 (specifically for CMP), the thin film
memory disk media equipment market, the semiconductor wafer equipment market,
the general industrial applications market, and the related parts and
expendables market. In all markets, the Company competes on the basis of
technology, overall cost of ownership, product quality, price, availability,
size of installed base, breadth of product line and customer service and
support.
The Company faces substantial competition from both established competitors
and from potential new entrants, some of which have substantially greater
financial, engineering, manufacturing and marketing resources than the Company.
In the semiconductor device equipment market, the Company faces significant
competition from current competitors and any others that may enter this market
in the future. IPEC
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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 volume shipments of multiple head CMP systems. In addition, certain of the
Company's competitors have longer-standing relationships than the Company with
particular customers, including device manufacturers. These longer-standing
relationships may make it more difficult for the Company to sell its CMP system
to such semiconductor 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 relatively few but 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.
EMPLOYEES
At May 31, 1997, the Company had 513 full time employees in the U.S. and
Europe, including 142 in manufacturing, 45 in marketing and sales, 137 in field
service, 55 in engineering, 62 in research and development and 72 in general
administration. In addition, the Company had 32 temporary contract employees
engaged principally in its assembly operations at its Chandler, Arizona and Des
Plaines, Illinois facilities. The Company believes that the use of temporary
employees allows the Company to respond more rapidly to fluctuations in assembly
and product demand and enables the Company to better control the labor component
of its manufacturing costs. None of the Company's employees is represented by a
labor union and the Company has never experienced a work stoppage or strike. The
Company considers its employee relations to be good.
INTELLECTUAL PROPERTY
The Company currently holds numerous United States patents and additional
foreign patents in Japan and several Asian and European countries and has
several United States patent applications and foreign patent applications
pending. 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 holds numerous United States and foreign patents
and has a number of patent applications pending in the United States and in
foreign countries. The Company owns 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
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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.
EXECUTIVE OFFICERS OF THE COMPANY
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HELD PRESENT OTHER POSITIONS HELD
NAME AND POSITION AGE OFFICE SINCE DURING PAST FIVE YEARS
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James N. Farley................................ 68 1993 Chief Executive Officer
Chairman of the Board President
Makoto Kouzuma................................. 57 1997 Chief Operating Officer
President and Chief Executive Officer Executive Vice President
Roger K. Marach................................ 52 1988
Treasurer, Chief Financial Officer and
Assistant
Secretary
Christopher E. Augur........................... 37 1993 Executive Vice President
President of SpeedFam Corporation of SpeedFam Corporation
and General Manager of
SpeedFam Corporation
Robert R. Smith................................ 54 1974
Managing Director of SpeedFam Limited
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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. The Far East Joint Venture
operations in China, Hong Kong, Singapore, Korea and Thailand are primarily
marketing, sales and service functions. The subsidiaries in Taiwan and India
also include manufacturing facilities where certain of the equipment sold by the
subsidiaries is produced. Through a joint venture with Met-Coil Systems
Corporation (a U.S. company), the Far East Joint Venture manufactures and
markets in the Far East sheet metal forming equipment developed by Met-Coil
Systems Corporation.
Background. During the late 1960's, the Company marketed its products in
Japan through Japanese trading companies. At that time, the Company believed
that a presence in the Japanese market would enhance its competitive position in
the U.S. as well as provide additional sources of income and access to
technology. For numerous business and cultural reasons, the Company believed it
could most effectively penetrate the Japanese market with the aid of a Japanese
partner. In 1970 the Company entered into a joint venture with a Japanese
company, Obara Corporation ("Obara"), pursuant to which the Far East Joint
Venture was formed. The Company and Obara each own a 50% interest in the Far
East Joint Venture. Obara, a privately-owned company, principally supplies
welding guns and tips and related products to the automotive industry; its
business is unrelated to that of the Company and the Far East Joint Venture.
Terms of the Joint Venture Agreement. Pursuant to the terms of an
agreement between the Company and Obara dated November 14, 1970 (the "Joint
Venture Agreement"), the Far East Joint Venture will continue as long as
SpeedFam Co., Ltd. is in corporate existence and both the Company and Obara are
shareholders. Both parties to the Joint Venture Agreement have agreed to refrain
from competing with the joint venture in Japan. The agreement may, however, be
terminated upon 90-days notification by either party in the event of a
substantial breach by the other party if such breach is not cured within the
90-day period. In
9
<PAGE> 11
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
President of the Company, respectively, as well as Hiroshi Obara, Suminori
Suzuki, Ryosuke Tojo, Shinya Iida, Hatsuyuki Arai, Isao Nagahashi and Akitoshi
Yoshida. Mr. Kouzuma is the Executive Vice President and General Manager of
SpeedFam Co., Ltd. and is responsible for day to day operations and acts as the
primary liaison between the Company and Obara. Mr. Obara is the President of the
Far East Joint Venture. Mr. Suzuki, an employee of Obara, is the senior finance
officer of the Far East Joint Venture. Mr. Tojo is Managing Director of the Far
East Joint Venture and assists in the overall management of operations. Dr. Iida
is the chief technical officer and is responsible for all research, development
and engineering operations. Mr. Yoshida is Chief of the Makuhari Techno Garden
Laboratory and reports to Mr. Iida. Messrs. Arai and Nagahashi are the directors
of CMP and thin film memory disk technology, respectively, and report to Mr.
Tojo. Mr. Kunihiko Watanabe is director of sales for the silicon wafer market
and reports to Mr. Kouzuma.
The Joint Venture Agreement provides limited direction with respect to the
relationship between the joint venture partners and the operation and management
of the Far East Joint Venture. To date, decisions with respect to the strategic
direction of the Far East Joint Venture have been made by the Company and Obara
from time to time on the basis of informal discussions and the relationships
forged over time by the individuals. Business transactions between the Company
and the Far East Joint Venture, including those relating to the absence of
payment of royalties on transfers of certain technology, may not be consistent
with business decisions and results that would exist between two independent
entities dealing at arms-length.
10
<PAGE> 12
Financial Information. During the Company's 1995, 1996 and 1997 fiscal
years, the Company's share of the net earnings of the Far East Joint Venture was
$1.1 million, $4.8 million and $5.5 million, respectively, representing 66.9%,
40.3% and 27.3%, respectively, of the Company's net earnings. The Far East Joint
Venture has not paid significant dividends in the past and is expected to retain
substantially all of its earnings in the foreseeable future to support the
growth of its business. As a result, the Company's share of the net earnings of
the Far East Joint Venture has not in the past resulted and is not expected in
the future to result in a like effect on the cash flows of the Company. In
addition, in recent years 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, the Company does not expect that this historical rate of earnings
growth will continue. As a result, the Company does not expect earnings for the
Far East Joint Venture to grow in the next fiscal year. During fiscal 1995, 1996
and 1997, 4.6%, 5.2% and 7.2% respectively, of the Company's total revenue was
attributable to commissions earned on products produced by the Far East Joint
Venture and which were sold by the Company. At May 31, 1997, the Company's
equity interest in the Far East Joint Venture was $20.4 million, representing
9.9% of the Company's total assets and 13.0% of shareholders' equity. Set forth
below is certain selected financial information with respect to the Far East
Joint Venture which has been derived from consolidated financial statements
which have been audited by KPMG Peat Marwick LLP. Such information should be
read in conjunction with the consolidated financial statements and notes thereto
of the Far East Joint Venture appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Consolidated Statement of Earnings Data:
Net sales.................................................. $ 108,664 $ 161,169 $ 220,281
Gross profit............................................... 31,576 54,257 66,773
Operating profit........................................... 6,467 19,959 20,958
Net earnings(1)............................................ 2,169 9,637 11,013
Consolidated Balance Sheet Data (at period end):
Working capital............................................ $ 23,779 $ 23,526 $ 19,637
Total assets............................................... 110,813 126,551 153,700
Long-term debt, less current portion....................... 12,528 9,106 10,786
Stockholders' equity....................................... 34,215 37,091 40,726
</TABLE>
- ---------------
(1) Approximately one-half of such amount is recognized by the Company on the
equity method as "equity in net earnings 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. 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
11
<PAGE> 13
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: Nigata 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) and 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 greater financial, engineering, manufacturing and marketing
resources. In the equipment markets served, the Far East Joint Venture generally
competes with a relatively small number of competitors which, together with the
Far East Joint Venture, provide a substantial majority of the products sold into
those markets. In the slurries market, Fujimi Incorporated is the provider of
substantially all of the slurries sold by the Far East Joint Venture. Fujimi
Incorporated also sells directly to end users and is a dominant supplier and
distributor of slurries in the Far East region.
Sales, Marketing and Service. The Far East Joint Venture markets and sells
its products through a combination of Japanese trading companies and direct
sales personnel. As is customary in Japan, the Far East Joint Venture sells a
substantial portion of the products sold in Japan through trading companies,
although the Far East Joint Venture sales personnel have primary responsibility
for most aspects of the sale. The Far East Joint Venture maintains a field
service organization consisting of 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 Co., Ltd.,
and a substantial portion are manufactured by unaffiliated third party
subcontractors for the Far East Joint Venture.
Employees. At April 30, 1997, the Far East Joint Venture had 492 full-time
employees, including 388 in Japan, 4 in Thailand, 22 in Korea, 40 in Taiwan, 17
in India, 14 in Singapore, 2 in Shanghai, 3 in Hong Kong and 2 in Malaysia. Of
these employees, 87 are engaged in manufacturing, 67 in marketing and sales, 75
in field service, 85 in engineering, 67 in research and development, 52 in
management and 59 in clerical and general administration.
Certain Relationships. The Company acts as distributor in North America
and Europe of certain machines produced by the Far East Joint Venture. During
fiscal 1995, 1996 and 1997, commissions paid to the Company relating to such
distribution amounted to approximately $2.8 million, $6.3 million and $12.4
million, respectively. Further, the Company purchases certain components used in
its machines from the Far East
12
<PAGE> 14
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 Met-Coil Ltd., SpeedFam Co., Ltd.'s 50%-owned joint venture. Mr.
Kouzuma owns 10.62% of the outstanding capital stock of Saku Seiki Co., Ltd., a
majority owned subsidiary of SpeedFam Co., Ltd., and serves as a director of
Saku Seiki Co., Ltd. Messrs. Farley and Kouzuma also serve as directors of
several wholly owned subsidiaries of SpeedFam Co., 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 Fujimi Corporation, an Illinois corporation (the
"Fujimi Joint Venture"). Each of Fuijimi Incorporated and the Company owns 50%
of the Fujimi Joint Venture's common stock. Fujimi Incorporated, a publicly
traded company in Japan, is a manufacturer of slurry, abrasives and compounds in
Japan. The initial term of the joint venture agreement was for a period of five
years, but the agreement continues in effect until such time as either party
terminates upon written notice delivered to the other party upon one-year
notice. The agreement may also be terminated upon 60-days notification by either
party in the event of a breach by the other party if such breach is not cured
within 60 days.
The Fujimi Joint Venture was organized to sell Fujimi Incorporated products
in North and South America. The Fujimi Joint Venture distributes abrasives,
polishing pads, diamond wheels, diamond slurries and other products to the
semiconductor wafer, thin film memory disk and general industrial markets.
Notwithstanding the written terms of the joint venture agreement, the Company,
through SpeedFam U.S., has distributed a variety of products, primarily slurry,
to manufacturers of thin film memory disks. The Company has the exclusive right
to distribute Fujimi Incorporated memory disk polishing slurry in North America
until October 1, 1999. Revenue from sales of products by the Fujimi Joint
Venture were $15.8 million in fiscal 1995, $19.7 million in fiscal 1996 and
$36.6 million in fiscal 1997. For a description of other business relationships
between the Company and Fujimi Incorporated, see "Business -- Manufacturing and
Suppliers." The Fujimi Joint Venture imports a portion of the products it sells
and purchases such products in non-U.S. dollar denominated transactions. This
business is subject to foreign exchange rate fluctuations which can
significantly impact operating profit margins.
The Fujimi Joint Venture currently has six directors serving on its Board
of Directors, including Mr. Farley, Chairman of the Company, Mr. Kouzuma,
President of the Company, and Mr. Augur, President of SpeedFam U.S. The other
three directors, Messrs. Isamu Koshiyama, 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.
ITEM 2. PROPERTIES.
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
13
<PAGE> 15
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 Hinckley, England and maintains approximately
9,000 square feet of owned space. SpeedFam Germany has approximately 2,000
square feet of leased office space in Ingelfingen, Germany.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material legal proceedings.
The Company's wholly owned subsidiary, FamTec AG, incorporated under the
laws of Switzerland, engaged in the manufacture, sale and service of
through-feed grinding systems for the general industrial market. As a result of
declining sales, the Company decided to terminate Swiss operations and to seek
protection under the bankruptcy laws of Switzerland. A voluntary petition for
bankruptcy was filed with Swiss authorities in November, 1993. Subsequently,
creditors' claims were adjudicated and all Swiss assets liquidated. On July 27,
1995, the Bankruptcy Administrator paid out the liquidation proceeds to
creditors, and the bankruptcy matter was closed. Under the laws of Switzerland,
members of the Board of Directors of an entity have potential personal liability
for the debts of the bankrupt entity. Mr. Farley, Chairman and Chief Executive
Officer of the Company, was a director of FamTec AG. Because no creditor filed
within the ten-day period to reserve rights against the directors of FamTec AG,
no personal liability is expected to result.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDERS OF
RECORD AS OF
TITLE OF CLASS MAY 31, 1997
--------------------------------------------------------------- ---------------
<S> <C>
Common Stock, no par value..................................... 109
</TABLE>
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SFAM." Public trading of the Common Stock commenced on October 10,
1995. Prior to that time, there was no public market for the Company's Common
Stock. The following table sets forth the high and low closing sale prices for
the Common Stock as reported by Nasdaq for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1996
Second Quarter (from October 10, 1995).......................... $18 1/4 $111/8
Third Quarter................................................... 16 1/2 91/2
Fourth Quarter.................................................. 22 12
Fiscal 1997
First Quarter................................................... $20 1/8 $111/8
Second Quarter.................................................. 25 5/16 107/8
Third Quarter................................................... 39 3/4 207/8
Fourth Quarter.................................................. 39 1/2 241/4
Fiscal 1998
First Quarter (through August 22, 1997)......................... 53 1/2 311/2
</TABLE>
14
<PAGE> 16
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. Payment of dividends in
the future, if any, will be made at the discretion of the Board of Directors of
the Company. Such decisions will depend on a number of factors, including the
future earnings, capital requirements, financial condition and future prospects
of the Company and such other factors as the Board of Directors may deem
relevant.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of earnings data for the years ended May 31,
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 herein. The consolidated statement
of earnings data for the years ended May 31, 1993 and 1994 and the consolidated
balance sheet data as of May 31, 1993, 1994 and 1995 are derived from the
Company's consolidated financial statements which have been audited by KPMG Peat
Marwick LLP but are not included herein. The selected consolidated financial
data presented below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with the
Company's consolidated financial statements, appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUE:
Net sales.................................. $42,542 $49,247 $57,021 $113,880 $160,994
Commissions from affiliate................. 772 2,134 2,757 6,290 12,430
------- ------- ------- -------- --------
Total revenue.............................. 43,314 51,381 59,778 120,170 173,424
Cost of sales.............................. 32,472 38,945 45,494 78,661 103,501
------- ------- ------- -------- --------
Gross margin............................... 10,842 12,436 14,284 41,509 69,923
OPERATING EXPENSES:
Research, development and engineering...... 1,778 2,267 2,740 11,496 19,766
Selling, general and administrative
expenses................................. 8,545 8,988 9,948 18,922 28,671
------- ------- ------- -------- --------
Operating profit........................... 519 1,181 1,596 11,091 21,486
Other income (expense)..................... (391)(2) 277 (953) (208) (298)
------- ------- ------- -------- --------
Earnings from consolidated companies before
income taxes............................. 128 1,458 643 10,883 21,188
Income tax expense (benefit)............... 573 (160)(3) 186 4,266 8,037
------- ------- ------- -------- --------
Earnings (loss) from consolidated companies
before cumulative effect of change in
accounting principle..................... (445) 1,618 457 6,617 13,151
Equity in net earnings (loss) of
affiliates(1)............................ (45) 655 1,187 5,204 7,068
Cumulative effect of change in accounting
principle for income taxes............... -- 78 -- -- --
------- ------- ------- -------- --------
Net earnings (loss)........................ $ (490) $ 2,351 $ 1,644 $ 11,821 $ 20,219
======= ======= ======= ======== ========
Net earnings (loss) per share.............. $ (0.06) $ 0.31 $ 0.20 $ 1.16 $ 1.67
======= ======= ======= ======== ========
Weighted average common and common
equivalent shares........................ 7,615 7,619 8,146 10,159 12,127
======= ======= ======= ======== ========
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................ $ 5,944 $ 9,980 $11,072 $ 31,193 $106,822
Total assets............................... 35,715 45,709 60,029 107,984 206,500
Long-term obligations, less current
maturities............................... 8,133 9,716 10,362 2,593 272
Shareholders' equity....................... 15,669 18,576 23,037 60,039 156,533
</TABLE>
- ---------------
(1) Includes ($285), $450, $1,100, $4,759 and $5,513 for the 1993 through 1997
fiscal years, respectively, attributable to the Company's share of net
earnings (loss) from the Far East Joint Venture, accounted for on the equity
method. See "Business -- Joint Venture Arrangements," the consolidated
financial statements of the Far East Joint Venture included elsewhere
herein. The remainder represents the Company's share of net earnings from
the Fujimi Joint Venture.
(2) Reflects charges of $300 related to the bankruptcy of a subsidiary operating
in Switzerland.
(3) Reflects income tax benefits of $740 related to the bankruptcy of a
subsidiary operating in Switzerland.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company 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 order is shipped.
Equipment, parts and expendables consist of capital equipment manufactured
by the Company, spare parts for that equipment and expendable products, such as
bearings, grinding stones, lapping plates, workpiece carriers, seals, retaining
rings, workholders and polishing pads. During fiscal years 1995, 1996, and 1997,
52.3%, 77.3%, and 83.6% respectively, of the Company's net sales was
attributable to the sale of capital equipment, parts and expendables.
Historically, the gross margin for products in this segment has been
significantly higher than that for slurries. The Company began development of
its original CMP product, the CMP-V, in 1990. The Company initiated volume
shipments of the CMP-V in 1994. Shipments of the Auriga began in the second
quarter of fiscal 1997. Through May 31, 1997, the Company had shipped 26 Auriga
systems. The Company's CMP systems accounted for 7.9%, 34.7%, and 50.2% of net
sales for fiscal 1995, 1996, and 1997 respectively. The Company's CMP systems
generally have gross margins higher than those of the Company's other capital
equipment products.
Slurries consist of polishing slurry and slurry components (including
vehicles and abrasives) used in surface processing. During fiscal years 1995,
1996, and 1997, 47.7%, 22.7%, and 16.4%, respectively, of the Company's net
sales was attributable to the sale of slurries. Substantially all of the
slurries sold by the Company are manufactured by Fujimi Incorporated.
Historically, the gross margin for slurries has been significantly lower than
that for equipment, parts and expendables. In recent years, the Company has
experienced severe competitive pressure in the sale of slurries and has been
required to reduce prices. In addition, the Company has experienced increased
slurry costs.
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
16
<PAGE> 18
the Company acts as sales agent. Certain capital equipment marketed and
distributed by the Company is produced solely by the Far East Joint Venture. The
Company distributes such products throughout the U.S. and Europe and receives
commissions thereon. Such amount reflects the difference between the imported
equipment's cost to the Company and sales price to the customer. For fiscal
1995, 1996, and 1997, commissions accounted for 4.6%, 5.2%, 7.2%, respectively,
of total revenue. Commissions are subject to foreign exchange rate fluctuations
which can significantly impact operating profit margins.
In fiscal 1995, 1996, and 1997, 17.3%, 21.7%, and 31.2%, respectively, of
the Company's total revenue was attributable to sales outside of the United
States. In particular, in fiscal 1997, 14.2% of the Company's total revenue was
attributable to sales made to European markets and 17.0% was attributable to
sales to markets in the Far East.
The Company generally enters into foreign exchange contracts to hedge
certain firm commitments denominated in foreign currencies, principally in
Japanese yen. The terms of the contracts are rarely more than one year. Currency
exchange rate variations have had an immaterial effect on the Company's results
of operations for the periods presented. The results of operations of the
Company's 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 of the Company's results of operations. Net
assets of the Company's foreign subsidiaries and 50% of the net assets of the
Far East Joint Venture were approximately $24.6 million at April 30, 1997 (the
end of fiscal 1997 of such entities).
The Company owns a 50% interest in both the Far East Joint Venture and the
Fujimi Joint Venture. The Company's equity interest in each joint venture is
accounted for on the equity method. As a result, the Company's share of the net
earnings of the Far East Joint Venture and the Fujimi Joint Venture appear in
the "Equity in net earnings of affiliates" caption on the Company's consolidated
statements of earnings. The Far East Joint Venture and the Fujimi Joint Venture
have paid dividends in the past and may continue to do so in the foreseeable
future, but are expected to reinvest substantially all their earnings back into
their respective businesses. The Company's share of the net earnings of the Far
East Joint Venture has not in the past resulted and is not expected in the
future to result in a like effect on the cash flows of the Company. At May 31,
1997, the Company's equity interest in the Far East Joint Venture was $20.4
million, representing 9.9% of the Company's total assets and 13.0% of
shareholders' equity. The net earnings of the Company in the past have been
substantially influenced by the results of operations of the Far East Joint
Venture and can be expected to continue to be so influenced in the future. See
"Business -- Joint Venture Arrangements" and the consolidated financial
statements of SpeedFam Co., Ltd. included elsewhere herein.
Historically, a disproportionate share of the Company's revenue and
operating profit has been attributable to the last two quarters of the Company's
fiscal year, primarily the fourth quarter. In particular, the Company typically
experiences a decline in revenues and operating profit from the fourth fiscal
quarter to the first fiscal quarter of the succeeding year. The Company believes
that this decline is primarily due to the seasonal buying patterns of its
customers. Sales of slurries tend to be more consistent than equipment sales on
a quarterly basis.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of earnings
data for the periods indicated as a percentage of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
REVENUE:
Net sales................................................... 95.4% 94.8% 92.8%
Commissions from affiliate.................................. 4.6 5.2 7.2
----- ----- -----
Total revenue............................................... 100.0 100.0 100.0
Cost of sales............................................... 76.1 65.5 59.7
----- ----- -----
Gross margin................................................ 23.9 34.5 40.3
OPERATING EXPENSES:
Research, development and engineering....................... 4.6 9.6 11.4
Selling, general and administrative expenses................ 16.6 15.7 16.5
----- ----- -----
Operating profit............................................ 2.7 9.2 12.4
Other income (expense)...................................... (1.6) (0.2) (0.2)
----- ----- -----
Earnings from consolidated companies before income taxes.... 1.1 9.0 12.2
Income tax expense.......................................... 0.3 3.5 4.6
----- ----- -----
Earnings from consolidated companies........................ 0.8 5.5 7.6
Equity in net earnings of affiliates........................ 2.0 4.3 4.1
----- ----- -----
Net earnings................................................ 2.8% 9.8% 11.7%
===== ===== =====
</TABLE>
FISCAL 1997 COMPARED WITH FISCAL 1996
Net Sales. Net sales for the fiscal year ended May 31, 1997 were $161.0
million, up 41.4% over net sales of $113.9 million in fiscal 1996. Equipment,
parts and expendables accounted for 83.6% of net sales in fiscal 1997 compared
to 77.3% in fiscal 1996. The growth in this segment was attributable to higher
sales of the Company's CMP planarization 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 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
18
<PAGE> 20
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 Auriga machine,
the next generation of the CMP-V system, and the development of the Capella
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, the Company does not expect that this
historical rate of earnings growth will continue. As a result, the Company does
not expect earnings for the Far East Joint Venture to grow in the next fiscal
year. 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.
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 capacity requirements, and increased demand for
certain technologies developed and manufactured by the Far East Joint Venture.
Gross Margin. In fiscal 1996, gross margin was $41.5 million, or 34.5% of
total revenue, compared to $14.3 million, or 23.9% of total revenue, in fiscal
1995. In addition to higher sales levels, gross margin increased due to a
considerable shift towards higher margin products in the equipment, parts and
expendables segment, particularly the CMP-V planarization system.
19
<PAGE> 21
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.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended, May 31, 1997, $6.9 million in cash was provided by
operating activities primarily from net earnings. Cash from operating activities
was also provided by an increase in accounts payable and accrued expense
liabilities since the beginning of the fiscal year. Cash was used in operating
activities primarily to reduce the due to affiliates liability, income taxes
payable and to support growth in accounts receivable and inventories.
The Company recently completed construction of its new corporate
headquarters and manufacturing facility in Chandler, Arizona. Total costs
incurred for the project were approximately $18.9 million.
On February 20, 1997, the Company completed a 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
$2.8 million of the entire outstanding balance on 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.
As of September 13, 1996, the Company had successfully negotiated an
amendment to its then existing $22.5 million unsecured credit facility, in which
its U.S. bank group provided the Company an additional $14.0 million in an
unsecured term loan to fund the remaining costs to construct the new corporate
20
<PAGE> 22
headquarters in Chandler, Arizona. At May 31, 1997, no amounts were outstanding
on the term loan. Unless drawn upon, the term loan agreement will expire
September 29, 1997.
On October 31, 1996, SpeedFam Limited, 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 April 30, 1997, no amounts were outstanding on this loan.
The Company believes that current bank lines of credit, the term loan and
the funds provided by the recent sale of common stock will be sufficient to meet
the Company's capital requirements during the next 12 months.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces Accounting Principles Board Opinion
("APB") No. 15 and simplifies the computation of earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company, similar to fully diluted EPS under
APB No. 15. The Statement requires dual presentation of basic and diluted EPS by
entities with complex capital structures. The Company will adopt SFAS No. 128
for the financial statements for the year ended May 31, 1998.
SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards for
the reporting and display of comprehensive 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.
CERTAIN FACTORS AFFECTING THE COMPANY'S BUSINESS
Discussed below are certain factors which may affect the Company's
business. This discussion is not exclusive of other factors that may also affect
the Company's business and should be read in conjunction with the other
information contained in this Form 10-K including, without limitation,
information provided in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON CMP SYSTEMS
The Company believes that its future growth, if any, depends in large part
upon its ability to grow revenues attributable to its CMP systems and its
technology. Revenue growth attributable to the Company's CMP system depends upon
numerous factors, including cost of ownership, throughput, process flexibility,
performance and reliability and availability of customer support. The Company
intends to periodically develop and introduce enhanced versions of its CMP
system. Failure to continually enhance the Company's CMP system may impact its
ability to grow revenues attributable to 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
21
<PAGE> 23
enhanced version of the system. The failure of the Company to accomplish these
objectives would have a material adverse effect on the Company. See
"-- 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/or introduce enhanced versions of its CMP system and
post-CMP cleaning system. There can be no assurance that the Company's
development of new or enhanced products, such as enhanced versions of the CMP
system, will be cost-effective or introduced in a timely manner or accepted in
the marketplace. Failure by the Company to develop or introduce new products and
product enhancements in a timely manner would have a material adverse effect on
the Company's business, financial condition and results of operations.
Due to the complexity of the Company's products, significant delays can
occur between a system's introduction and the commencement of commercial
shipments. The Company has from time to time experienced delays in the
introduction of, and certain technical and manufacturing difficulties with,
certain of its systems and enhancements, and may experience such delays and
technical and manufacturing difficulties in future introductions or volume
production of new systems or enhancements. In addition, the Company may incur
substantial unanticipated costs to ensure the functionality and reliability of
its future product introductions early in the product's life cycle. If new
products experience reliability or quality problems, the Company could encounter
a number of problems, including reduced orders, higher manufacturing costs,
delays in collection of accounts receivable and additional service and warranty
expenses, all of which events could materially adversely affect the Company's
business and results of operations. In addition, in the event the Company does
not manage product transitions successfully, announcements or introductions, or
the perception that such events are likely to occur, by either the Company or
its competitors could adversely affect sales of existing Company products. See
"-- Market Share Growth Company's CMP System" and "Business -- Research,
Development and Engineering."
CYCLICAL NATURE OF THE COMPANY'S BUSINESS
The Company's business depends substantially on the capital expenditures of
thin film memory disk media and semiconductor manufacturers, which, in turn,
depend upon the current and anticipated market demand for memory disks and
semiconductor devices. Sales of capital equipment to these manufacturers are
expected to continue to represent a significant portion of the Company's total
revenue. These industries are highly cyclical and have historically experienced
periodic downturns characterized by oversupply and weak demand, which often have
a material adverse effect on the acquisition of capital equipment and other
products used in the manufacturing process, including products offered by the
Company. These downturns generally have materially adversely affected the
business and operating results of capital equipment suppliers, including the
Company. The semiconductor and thin film memory disk industries have recently or
are currently experiencing downturns which have led many semiconductor and
memory disk manufacturers to delay or cancel capital expenditures. The Company's
business and results of operations will be materially adversely affected by
future downturns in the semiconductor market and the thin film memory disk
market.
Sales of the Company's capital equipment depend, in large part, upon the
decision of a prospective customer to increase manufacturing capacity or respond
to advances in technology by upgrading or expanding existing manufacturing
facilities or constructing new manufacturing facilities, all of which typically
involve a significant capital commitment. Certain of the Company's capital
equipment have lengthy sales cycles while
22
<PAGE> 24
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.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have historically and may in the
future vary significantly due to a number of factors. Historically, a
disproportionate share of the Company's revenue and operating profit has been
attributable to the last two quarters of the Company's fiscal year, primarily
the fourth quarter. In particular, the Company typically experiences a decline
in revenues and operating profit from the fourth fiscal quarter to the first
fiscal quarter of the succeeding year. The Company believes that this decline is
primarily due to the seasonal buying patterns of its customers.
Factors that may influence the Company's operating results in a given
quarter include: (i) customer demand, such as economic conditions in the memory
disk and semiconductor industries, market acceptance of products of both the
Company and its customers, changes in product mix, and the timing, cancellation
or delay of customer orders and shipments; (ii) competition, such as competitive
pressures on prices of the Company's products and the introduction or
announcement of new products by competitors; (iii) manufacturing and operations,
such as fluctuations in availability and cost of raw materials and production
capacity; (iv) fluctuations in foreign currency exchange rates; (v) new product
development, such as increased research, development and engineering, as well as
marketing, expenses associated with new product introductions, including the
effect of transitioning to new or enhanced products, and the Company's ability
to introduce new products and technologies on a timely basis; (vi) sales and
marketing, such as concentrations of customers, and discounts that may be
granted to certain customers; and (vii) the quarterly operating results of the
Company's joint ventures, which the Company accounts for on the equity method;
as well as other factors, such as levels of expenses relative to revenue levels,
personnel changes and generally prevailing economic conditions.
During a given quarter, a significant portion of the Company's revenue may
be derived from the sale of a relatively small number of machines and systems.
Accordingly, a small change in the number of machines and systems actually
shipped may cause significant changes in operating results. Moreover, customers
may cancel or reschedule shipments, and production difficulties could delay
shipments. In addition, because of the significantly different gross margins
attributable to the Company's two segments, changes in product mix may cause
fluctuations in operating results. Further, the lengthy sales cycle for certain
of the Company's capital equipment may result in the Company incurring
significant expenses prior to the receipt of customer orders. In addition, the
introduction of new products has in the past contributed, and may continue to
contribute, to fluctuations in quarterly operating results. These same factors
also could materially and adversely affect annual results of operations. In
addition, the need for continued investment in research and development,
marketing and customer support limits the Company's ability to reduce expenses
in response to downturns in the industries it serves.
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
23
<PAGE> 25
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."
INTERNATIONAL BUSINESS
In fiscal 1995, 1996 and 1997, 17.3%, 21.7% and 31.2%, respectively, of the
Company's total revenue was attributable to sales outside the United States. In
addition, under certain circumstances, products sold to U.S. customers are
shipped to those customers' overseas facilities. The Company expects that
international sales will continue to represent a significant portion of its
total revenue. Sales to customers outside the United States are subject to
numerous risks, including exposure to currency fluctuations, the imposition of
government controls, the need to comply with a wide variety of foreign and U.S.
export laws, political and economic instability, trade restrictions, changes in
tariffs and taxes typically associated with foreign sales, the greater
difficulty of administering business overseas and general economic conditions.
In addition, the laws of certain foreign countries may not protect the Company's
intellectual property to the same extent as do the laws of the United States.
Moreover, slurries marketed and distributed by both the Company and the Fujimi
Joint Venture are purchased from Fujimi Incorporated, a Japanese company. The
Company also purchases in Japanese yen certain equipment from the Far East Joint
Venture that the Company then sells in the U.S. and Europe. Fluctuations in
exchange rates have in the past resulted, and may in the future result, in
increases in the cost to the Company of such products. Also, because the value
of the net assets of the Company's foreign subsidiaries and its equity interest
in the Far East Joint Venture fluctuate based upon exchange rates and because
the Company does not hedge the value of such net assets, fluctuations in
exchange rates may have an adverse effect on the Company's shareholders' equity.
Certain statements in "Business," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Factors Affecting
the Company's Business" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
Independent Auditors' Report.......................................................... 25
Consolidated Balance Sheets -- at the end of fiscal years 1996 and 1997............... 26
Consolidated Statements of Earnings -- for the fiscal years 1995, 1996 and 1997....... 27
Consolidated Statements of Stockholders' Equity -- for the fiscal years 1995, 1996 and
1997................................................................................ 28
Consolidated Statements of Cash Flows -- for the fiscal years 1995, 1996 and 1997..... 29
Notes to Consolidated Financial Statements............................................ 30
SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Independent Auditors' Report.......................................................... 45
Consolidated Balance Sheets -- at the end of fiscal years 1996 and 1997............... 46
Consolidated Statements of Earnings -- for the fiscal years 1995, 1996 and 1997....... 47
Consolidated Statements of Shareholders' Equity -- for the fiscal years 1995, 1996 and
1997................................................................................ 48
Consolidated Statements of Cash Flows -- for the fiscal years 1995, 1996 and 1997..... 49
Notes to Consolidated Financial Statements............................................ 50
</TABLE>
The above consolidated financial statements of SpeedFam Co., Ltd. and
consolidated subsidiaries are included herein pursuant to Rule 3-09 of
Regulation S-X.
25
<PAGE> 27
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
26
<PAGE> 28
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.
27
<PAGE> 29
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.
28
<PAGE> 30
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.
29
<PAGE> 31
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.
30
<PAGE> 32
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SpeedFam International, Inc. (the Company), an Illinois corporation,
designs, develops, manufactures, markets, and services chemical mechanical
planarization, or "CMP," systems used in the fabrication of semiconductor
devices and other high throughput, precision surface processing systems used in
the fabrication of thin film memory disk media, semiconductor wafers, and
general industrial components. In addition, the Company markets and distributes
slurries, parts, and expendables used in its customers' manufacturing processes.
The Company's customers are primarily located in the United States, Europe, and
the Far East.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and the following wholly owned subsidiaries:
<TABLE>
<CAPTION>
SUBSIDIARIES INCORPORATED
------------------------------------------- ----------------
<S> <C>
SpeedFam Corporation United States
SpeedFam Limited United Kingdom
SpeedFam GmbH Germany
</TABLE>
All significant intercompany balances and transactions have been
eliminated. Non-U.S. subsidiaries are included in the consolidated financial
statements based upon fiscal years ended April 30. The Company's fiscal year
ends on May 31.
The Company's investments in the common stock of affiliates SpeedFam Co.,
Ltd. (a Japanese corporation, 50% owned) and Fujimi Corporation (an Illinois
corporation, 50% owned) are accounted for by the equity method using fiscal
years that end April 30 and May 31, respectively.
(b) Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks and highly liquid
short-term investments with original maturities of three months or less.
Short-term investments are carried at cost which approximates market.
(c) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets.
Depreciation expense was $538, $1,172, and $2,795 in fiscal years 1995, 1996,
and 1997, respectively. The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 7 to 40 years
Machinery and equipment....................................... 5 years
Furniture and fixtures........................................ 3 to 5 years
Leasehold improvements........................................ 2 to 10 years
</TABLE>
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their
31
<PAGE> 33
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.
32
<PAGE> 34
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.
33
<PAGE> 35
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.
34
<PAGE> 36
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>
35
<PAGE> 37
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
------------------
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>
36
<PAGE> 38
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>
37
<PAGE> 39
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.
38
<PAGE> 40
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 950 ($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>
39
<PAGE> 41
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
40
<PAGE> 42
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
by an established formula. In fiscal year 1995, stock options were granted at
100% to 110% of the fair value of the Company's common stock as determined by an
independent appraiser. Subsequent to 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
41
<PAGE> 43
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.
42
<PAGE> 44
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
43
<PAGE> 45
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>
44
<PAGE> 46
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>
45
<PAGE> 47
SPEEDFAM CO., LTD. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors
SpeedFam Co., Ltd.:
We have audited the accompanying consolidated balance sheets of SpeedFam
Co., Ltd. and consolidated subsidiaries as of April 30, 1996 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 1997. These
consolidated financial statements are the responsibility of the management of
SpeedFam Co., Ltd. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam Co.
Ltd. and consolidated subsidiaries as of April 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
June 27, 1997
Chicago, Illinois
46
<PAGE> 48
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.
47
<PAGE> 49
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.
48
<PAGE> 50
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.
49
<PAGE> 51
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.
50
<PAGE> 52
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SpeedFam Co., Ltd. (the Company) was incorporated in 1971 as a joint
venture owned equally by two corporate shareholders, Obara Corporation, a
Japanese company; and SpeedFam International, Inc., a U.S. company.
The Company and its domestic subsidiaries and affiliated companies conduct
operations primarily in Japan, but have subsidiaries and branches in Taiwan,
South Korea, India, Singapore, Hong Kong, Malaysia, and China.
The Company and its subsidiaries and affiliates are engaged in the design,
engineering, manufacture, and distribution mainly of lapping and polishing
equipment and consumables, through-feed grinders, cleaning machines, and
measuring equipment used in high technology industries.
(a) Basis of Presentation
The Company and its consolidated Japanese subsidiaries maintain their books
of account in conformity with the financial accounting standards of Japan. The
Company's non-Japanese subsidiaries maintain their books of account in
conformity with the financial accounting standards of the countries in which
they are located. The consolidated financial statements presented herein in U.S.
dollars have been adjusted to conform to U.S. generally accepted accounting
principles.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and the following subsidiaries:
<TABLE>
<CAPTION>
PERCENTAGE OF FISCAL
SUBSIDIARIES OWNERSHIP LOCATION YEAR END
--------------------------------------------- ------------- ----------- --------
<S> <C> <C> <C>
SpeedFam Clean System Co., Ltd............... 61.25% Japan March 31
Saku Seiki Co., Ltd.......................... 53.54 Japan March 31
SpeedFam Incorporated........................ 100.00 Taiwan March 31
SpeedFam Korea Ltd........................... 100.00 South Korea March 31
SpeedFam India (Pvt.) Ltd.................... 82.00 India March 31
</TABLE>
All significant intercompany balances and transactions have been
eliminated. The Company's fiscal year ends on April 30.
The Company's investments in the common stock of affiliates, Met Coil Ltd.
(50% owned); CRT K.K. (23.08% owned); and Xevios Corporation (50% owned,
acquired in fiscal year 1996) are accounted for by the equity method.
The investment in Clean Technology K.K., a 27.5% owned affiliate of
SpeedFam Clean System Co., Ltd., and 22.5% owned by the Company, is accounted
for by the equity method.
(c) Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks and highly liquid
short-term investments with original maturities of three months or less.
Short-term investments are carried at cost which approximates market.
51
<PAGE> 53
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.
52
<PAGE> 54
SPEEDFAM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(i) Warranty Costs
Generally, the Company provides a one-year warranty against manufacturer's
defects on all machines sold. Provision for warranty expense is provided based
upon an estimate derived from experience factors.
(j) Foreign Currency Translation
Assets and liabilities of the Company's non-Japanese operations have been
translated using the exchange rates in effect at the balance sheet dates or
balance sheet date of the subsidiary, if different. Results of operations are
translated using the average exchange rates prevailing throughout the period.
Local currencies are considered the functional currencies of the Company's
non-Japanese entities. Foreign currency exchange rates used to translate the
financial statements are summarized below:
<TABLE>
<CAPTION>
FOREIGN CURRENCY PER JAPANESE YEN
-------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Rates at balance sheet date:
South Korean Won (March)................... 11.67/100 13.78/100 13.91/100
Taiwan Dollar (NT$) (March)................ 3.41 3.91 4.49
India Rupee (RPS) (March).................. 2.80 3.06 3.39
Singapore Dollar (S$)...................... 60.21 74.09 87.36
Thailand Baht.............................. 3.41 4.15 4.56
Japanese Yen (Y) per U.S. $................ 84.20 105.07 127.09
</TABLE>
(k) Significant Customer
The Company had sales to a Japanese company that amounted to approximately
10.5%, 11.2%, and 12.5% of net sales in fiscal years 1995, 1996, and 1997,
respectively.
(l) Research and Development
Research and development expense amounted to approximately $1,748, $6,651,
and $11,488 in fiscal years 1995, 1996, and 1997, respectively. Such
expenditures are expensed as incurred.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(n) Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform with the 1997 financial statement presentation.
53
<PAGE> 55
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>
54
<PAGE> 56
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.
55
<PAGE> 57
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>
56
<PAGE> 58
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.
57
<PAGE> 59
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>
58
<PAGE> 60
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.
59
<PAGE> 61
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.
60
<PAGE> 62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10, 11, 12 AND 13.
These items, constituting Part III of the Form 10-K, have been omitted from
this annual report pursuant to the provisions of Instruction G to Form 10-K,
because a definitive proxy statement, which is incorporated herein by reference,
except for the report of the compensation committee of the board of directors
and the performance graph, will be filed on or about September 9, 1997.
Information required for executive officers is included in Part I, Item 1.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
See Part II, Item 8.
(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................... S-1
Schedule I............................................................. S-2
Schedule II............................................................ S-4
</TABLE>
(3) Exhibits filed:
See Exhibit Index.
(b) Reports filed on Form 8-K:
Form 8-K (Item 5) was filed May 22, 1997.
(c) Exhibits filed:
See Exhibit Index.
(d) Financial Statements Omitted from Annual Report to Security Holders:
Financial Statements of SpeedFam Co., Ltd. are filed herein. See Part
II, Item 8.
61
<PAGE> 63
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SPEEDFAM INTERNATIONAL, INC.
/s/ JAMES N. FARLEY
--------------------------------------
James N. Farley
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- -------------------------------------- ----------------
<C> <S> <C>
/s/ JAMES N. FARLEY Chairman and Director August 25, 1997
- -------------------------------------
James N. Farley
/s/ MAKOTO KOUZUMA President, Chief Executive Officer and August 25, 1997
- ------------------------------------- Director
Makoto Kouzuma
/s/ ROGER K. MARACH Treasurer, Assistant Secretary and August 25, 1997
- ------------------------------------- Chief Financial Officer
Roger K. Marach (Principal financial and accounting
officer)
Director August , 1997
- -------------------------------------
Neil R. Bonke
Director August , 1997
- -------------------------------------
Thomas J. McCook
/s/ STUART MEYER Director August 25, 1997
- -------------------------------------
Stuart Meyer
/s/ ROBERT MILLER Director August 25, 1997
- -------------------------------------
Robert Miller
/s/ CARL S. PEDERSEN Director August 25, 1997
- -------------------------------------
Carl S. Pedersen
</TABLE>
62
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
3.1 Articles of Incorporation of the Registrant (incorporated by reference to Exhibit
3.1 to the Registrant's Registration Statement on Form S-1, File No. 33-95628).
3.2 Amended Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10-K for fiscal 1996, File No. 0-26784).
10.1 Revolving Credit Agreement between the Registrant and The First National Bank of
Chicago and Firstar Bank Milwaukee, N.A. dated April 15, 1996 (incorporated by
reference to Exhibit 3.2 to the Registrant's Form 10-K for fiscal year ended May
31, 1996, File No. 0-26784).
10.2 Amendment No. 1 to Revolving Credit Agreement between the Registrant and The First
National Bank of Chicago and Firstar Bank Milwaukee, N.A. dated September 13, 1996
(incorporated by reference to Exhibit 10 to the Registrant's Form 10-Q for the
period ended August 31, 1996, File No. 0-26784).
10.3 Multi-Currency Revolving Line of Credit between the Registrant's Subsidiary and the
First National Bank of Chicago, dated October 31, 1996 (incorporated by reference
to Exhibit 10 to the Registrant's Form 10-Q for the period ended November 30, 1996,
File No. 0-26784.
10.4 Joint Venture Agreement between the Registrant and Obara Corporation, dated
November 14, 1970 (incorporated by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1, File No. 33-95628).
10.5 License and Technical Service Agreement between the Registrant and SpeedFam Co.,
Ltd., dated November 14, 1970 (incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, File No. 33-95628).
10.6 Amendment to License and Technical Service Agreement between the Registrant and
SpeedFam Co., Ltd., dated July 24, 1995 (incorporated by reference to Exhibit 10.5
to the Registrant's Registration Statement on Form S-1, File No. 33-95628).
10.7 Joint Venture Agreement between the Registrant and Fujimi Incorporated, dated
September 7, 1984 (incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1, File No. 33-95628).
10.8 Distributorship Agreement between the Registrant and Fujimi Incorporated, dated
October 1, 1994 (incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1, File No. 33-95628).
10.9 Amendment to Distributorship Agreement between the Registrant and Fujimi
Incorporated, dated August 3, 1995 (incorporated by reference to Exhibit 10.8 to
the Registrant's Registration Statement on Form S-1, File No. 33-95628).
10.10 1991 Employee Incentive Stock Option Plan as amended and restated July 27, 1995 and
as further amended as of May 22, 1997.
10.11 1995 Stock Plan for Employees and Director of SpeedFam International, Inc. as
amended as of May 22, 1997.
10.12 Registrant's 1995 Stock Purchase Plan (incorporated by reference to Exhibit 10.11
to the Registrant's Registration Statement on Form S-1, File No. 33-95628).
10.13 SpeedFam Employees' Savings and Profit Sharing Plan and Trust, as amended and
restated June 1, 1989 (incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1, File No. 33-95628).
10.14 Employment Agreement between the Registrant and James N. Farley.
10.15 Employment Agreement between the Registrant and Makoto Kouzuma.
10.16 Employment Agreement between the Registrant and Roger K. Marach.
10.17 Employment Agreement between the Registrant and Christopher E. Augur.
10.18 Employment Agreement between the Registrant and Robert R. Smith.
11.1 Statement Re Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the
Registrant's Registration Statement on Form S-1, File No. 33-95628).
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SpeedFam International, Inc.:
Under date of June 27, 1997, we reported on the consolidated balance sheets
of SpeedFam International, Inc. and consolidated subsidiaries as of May 31, 1996
and 1997, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the years in the three-year period ended May
31, 1997, which are included in the Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedules as listed in Item 14(a)(2) of
the Form 10-K. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
June 27, 1997
Chicago, Illinois
S-1
<PAGE> 66
SCHEDULE I
SPEEDFAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
SPEEDFAM INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 7,228 $ 72,955
Due from affiliated companies.......................................... 16,699 16,489
Prepaid expenses and other current assets.............................. 1,762 3,780
------- --------
Total current assets..................................................... 25,689 93,224
Investments in subsidiaries and affiliates............................... 35,431 52,362
Property, plant and equipment, net....................................... 2,624 15,741
Other assets............................................................. 820 920
------- --------
$69,564 $162,247
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................................... $ 400 $ --
Accounts payable....................................................... 149 339
Due to affiliates...................................................... 2 --
Accrued expenses....................................................... 770 2,085
Income taxes........................................................... 1,381 2,701
------- --------
Total current liabilities................................................ 2,702 5,125
Long-term debt........................................................... 2,000 --
Deferred income taxes.................................................... 420 801
Stockholders' equity..................................................... 59,442 156,321
------- --------
$64,564 $162,247
======= ========
</TABLE>
STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED,
----------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Revenue........................................................... $ 96 $ 22 $ 140
Cost and operating expenses....................................... 648 251 708
Other income (expense)............................................ (151) 342 646
------ ------- -------
Earnings (loss) before income taxes and equity in net earnings of
subsidiaries and affiliates..................................... (703) 113 78
Income tax expense (benefit)...................................... (3) 51 (155)
Equity in net earnings of subsidiaries and affiliates............. 2,275 11,500 20,372
------ ------- -------
Net earnings...................................................... $1,575 $11,562 $20,605
====== ======= =======
</TABLE>
S-2
<PAGE> 67
SPEEDFAM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
SPEEDFAM INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED,
---------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................................... $ 1,575 $ 11,562 $ 20,605
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in net earnings of subsidiaries and
affiliates........................................ (2,275) (11,500) (20,372)
Depreciation and amortization........................ 92 117 56
Provision for deferred income taxes.................. (75) (1,121) (941)
Gains on sales of assets............................. (15) -- --
Increase in cash surrender value..................... (138) (142) (144)
Change in assets and liabilities..................... 1,037 (19,368) 2,345
------- -------- --------
Cash flows (used in) provided by operating
activities........................................... 201 (20,452) 1,549
Cash flows from investing activities:
Capital expenditures................................. (42) (2,589) (13,136)
Proceeds from sales of assets........................ 42 -- --
Dividends from subsidiaries and affiliates........... 90 163 554
Other investing activities........................... (32) (22) 6
------- -------- --------
Net cash provided by (used in)investing activities.......... 58 (2,448) (12,576)
------- -------- --------
Cash flows from financing activities:
Treasury transactions, net............................. (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........................... -- 2,500 414
Principal payments on long-term debt................... (224) (928) (2,814)
------- -------- --------
Net cash provided by (used in) financing activities......... (259) 30,127 76,754
------- -------- --------
Net increase in cash and cash equivalents................... -- 7,227 65,727
Cash and cash equivalents at beginning of year.............. 1 1 7,228
------- -------- --------
Cash and cash equivalents at end of year.................... $ 1 $ 7,228 $ 72,955
======= ======== ========
</TABLE>
S-3
<PAGE> 68
SCHEDULE II
SPEEDFAM INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED MAY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
CHARGED OTHER ACCOUNTS
TO (TRANSLATION DEDUCTIONS
BALANCE AT COSTS ADJUSTMENT (WRITE-OFFS BALANCE
BEGINNING AND AND AND AT END
DESCRIPTION OF YEAR EXPENSE RECOVERIES) ADJUSTMENTS) OF YEAR
- ----------------------------------- ---------- ------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1995.......................... $192 3 7 15 $ 187
1996.......................... $187 316 (2) 6 $ 495
1997.......................... $495 817 5 173 $ 1,144
</TABLE>
<TABLE>
<CAPTION>
CHARGED
TO CHARGED TO
BALANCE AT COSTS OTHER ACCOUNTS DEDUCTIONS BALANCE
BEGINNING AND (TRANSLATION (WRITE-OFFS OF AT END
DESCRIPTION OF YEAR EXPENSE ADJUSTMENTS) INVENTORY) OF YEAR
- ----------------------------------- ---------- ------- -------------- -------------- -------
<S> <C> <C> <C> <C> <C>
Inventory obsolescence:
1995.......................... $ 161 305 7 121 $ 352
1996.......................... $ 352 1,804 -- 1,097 $ 1,059
1997.......................... $1,059 1,652 (18) 1,545 $ 1,148
</TABLE>
<TABLE>
<CAPTION>
CHARGED
TO
BALANCE AT COSTS BALANCE
BEGINNING AND CHARGED TO DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSE OTHER ACCOUNTS FROM RESERVE OF YEAR
- ----------------------------------- ---------- ------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Warranty reserve:
1995.......................... $ 480 (145) -- 135 $ 200
1996.......................... $ 200 2,285 -- -- $ 2,485
1997.......................... $2,485 8,503 4 5,482 $ 5,510
</TABLE>
S-4
<PAGE> 1
EXHIBIT 10.10
SPEEDFAM INTERNATIONAL, INC.
1991 EMPLOYEE INCENTIVE STOCK OPTION PLAN
AS AMENDED AND RESTATED JULY 27, 1995
AND AS FURTHER AMENDED AS OF MAY 22, 1997
The purpose of this 1991 Employee Incentive Stock Option Plan (the "Plan")
is to strengthen the ability of SpeedFam International, Inc. (formerly FamTec
International, Inc.), an Illinois corporation (the "Company"), to reward valued
employees by furnishing them with additional incentives to continue in its
service and to use their maximum efforts on its behalf.
This purpose will be effected by the granting of stock options under the
Plan to purchase shares of Common Stock of the Company which will qualify as
"incentive stock options" under the provisions of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code").
As used herein "Board of Directors" means the Board of Directors of the
Company.
(1) Shares of Stock Subject to the Plan. The total number of shares of
Common Stock of the Company which may be issued and sold pursuant to options
granted hereunder shall not exceed One Million Five Hundred Thousand (post July
27, 1995 stock split shares) (1,500,000) shares. Options granted hereunder shall
apply to the Company's no-par value Common Stock.
(2) Eligibility. Options may be granted hereunder only to persons who are
employees of the Company or of any subsidiary (as defined in Section 425 of the
Code) of the Company. No person may be granted an option hereunder who possesses
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company at the time the option is granted unless the terms of the
option comply with the special provisions of sections (3) and (4)(b) of this
Plan relating to employees who own more than such percentage of stock. The Board
of Directors shall determine the employee or employees to be granted options
under the Plan, the number of shares subject to each option, and the period and
terms and conditions of each option in accordance with the provisions of the
Plan. An option granted to an employee is exercisable, during the employee's
lifetime, only by the employee, and following the employee's death, only in
conformance with Section (6) of the Plan.
(3) Option Price. The purchase price of the Common Stock covered by each
option awarded to an Employee shall be determined by the Compensation Committee;
provided, however, that the purchase price shall not be less than 100% of the
fair market value of the Common Stock on the date the option is granted. Fair
market value shall mean,
(a) if the Common Stock is duly listed on a national securities
exchange or on the National Association of Securities Dealers Automatic
Quotation System/National
<PAGE> 2
Market System ("NASDAQ") ("Duly Listed"), the closing price of the Common
Stock for the date on which the option is granted, or, if there are no
sales on such date, on the next preceding day on which there were sales,
or
(b) if the Common Stock is not Duly Listed, the fair market value of
the Common Stock for the date on which the option is granted, as
determined by the Compensation Committee in good faith.
(4) Restrictions.
(a) No option may be granted under the Plan after May 31, 2001.
(b) No option granted under the Plan may be exercised more than Ten
(10) years after the date on which it is granted; provided, however, when
the employee to whom an option is being granted owns, at the time the
option is granted, more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, in no event may such
option, by its terms, be exercised more than five (5) years after the date
on which it is granted.
(c) The aggregate fair market value (determined as of the time the
option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by an optionee during any
calendar year shall not exceed One Hundred Thousand Dollars ($100,000).
(d) Whenever the Board of Directors shall designate an employee to
receive an option under the Plan, the employee shall be notified and given
the opportunity to enter into an option agreement with the Company setting
forth the terms and conditions of the option in accordance with the Plan.
(e) Any option awarded hereunder to an Officer of the Company, or
the shares of Common Stock into which any such option is exercised, may
not be transferred or disposed of for at least six (6) months following
the date of acquisition by the Officer of such option. The Compensation
Committee shall take no action the effect of which would cause an Officer
of the Company to be in violation of the foregoing.
(5) Non-Transferability. The right to purchase shares under any option
granted under the Plan may not be sold, pledged, assigned, transferred or
otherwise disposed of in any manner whatsoever; provided, however, that an
option granted to an employee may be transferred upon the death of the employee
by will or by the laws of descent and distribution. Upon any attempt to sell,
pledge, assign, transfer (other than at death) or otherwise dispose of such
right to purchase shares, or upon the levy of any attachment or similar process
upon such right, such right shall immediately cease and terminate.
(6) Termination of Employment. Except as provided in Section (12), no
shares may be purchased under any option granted under the Plan unless at the
time of exercise
-2-
<PAGE> 3
thereof the optionee is an employee of the Company or a subsidiary of the
company, or the optionee's employment by the Company or a subsidiary of the
Company terminated no more than three (3) months prior to the purchase of shares
under the option. In the event that the employment of an employee to whom an
option has been granted under the Plan shall be terminated for any reason other
than as set forth in Section (12), such option may, subject to the provisions of
the Plan, be exercised (but only to the extent that the employee was entitled to
do so at the termination of his employment) at any time within three (3) months
after such termination, but in no event later than the date on which the option
or right terminates.
(7) Administration and Amendment of the Plan. The ISO Plan shall be
administered in all regards by the Compensation Committee or any successor
thereto of the Board of Directors of the Corporation or by such other committee
(the "Committee") as shall be determined by the Board of Directors. The
Committee shall consist of not less than two members of the Board of Directors,
each of whom shall qualify as a "disinterested person" to administer the Plan as
contemplated by Rule 16b-3, as amended, or other applicable rules under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Compensation Committee may adopt rules and regulations and establish forms
for carrying out the Plan. The determination, or the interpretation and
construction of any provision of the Plan by the Board of Directors shall be
final and conclusive. The Board of Directors may make such modifications to the
Plan as it may deem proper and in the best interests of the Company; provided,
however, that no such modification shall affect or impair any right to purchase
shares heretofore granted under the Plan; and provided, further, that without
the approval of stockholders (1) the total number of shares which may be
purchased under the Plan shall not be increased (except pursuant to Section 10),
(2) the purchase price shall not be changed, and (3) the period during which
shares may be purchased under any option shall not be extended. Notwithstanding
the foregoing, the Board of Directors of the Company may amend the Plan, without
stockholder approval to the extent necessary to cause Incentive Stock Options
granted under the Plan to meet the requirements of Section 422A of the Code. Any
provision in this Plan to the contrary notwithstanding, if any amendment to the
Plan requires shareholder approval to meet the requirements of the then
applicable rules under Section 16(b) of the Exchange Act, then such amendment
shall be subject to the approval of the Corporation's shareholders; provided,
further any action taken by the Committee or the Board of Directors pursuant to
the Plan, and any provision of the Plan, is null and void if it does not comply
with the requirements of Rule 16(b)-3 under the Exchange Act and would otherwise
result in liability under Section 16(b) of that Act.
(8) Effective Date of the Plan. The Plan shall become effective upon its
adoption by the Board of Directors, subject to ratification by the stockholders
of the Company within twelve (12) months thereafter.
(9) Notification Requirement. At such time as stock is transferred
pursuant to an exercise of an Incentive Stock Option hereunder the Company shall
provide such optionee with a written statement containing (1) the name, address
and employer identification number of the Company, (2) the date the option was
granted and the stock transferred, (3)
-3-
<PAGE> 4
the fair market value of shares of stock at the exercise date, (4) the number of
shares transferred and (5) the option price.
(10) Effect of Stock Dividends, Etc. The Board of Directors shall make
appropriate adjustments in the price of the shares and the number allotted or
subject to allotment if there are any changes in the Common Stock of the Company
by reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, mergers or consolidations.
(11) Stock Restriction and Redemption Agreement. All shares of the Common
Stock of the Company transferred to an optionee upon exercise of an option
granted hereunder shall be subject to the terms of the SpeedFam Corporation (now
known as FamTec International, Inc.) Master Stock Restriction and Redemption
Agreement (Employee Shareholder), or Master Stock Restriction and Redemption
Agreement (Non-Employee Shareholder) in the case of a transfer of an option upon
the death of the optionee.
(12) Eligible Retirement, Death, Disability or Change in Control Followed
by Involuntary Termination. Notwithstanding anything in the Plan to the
contrary, if any employee to whom an option has been granted under the Plan
shall die or suffer a disability (as defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended) while employed by the Company, if any employee
terminates his employment pursuant to an Eligible Retirement, or at the
discretion of the Compensation Committee and only if provided in the option
agreement (or any supplement thereto), if within three (3) years following a
Change in Control an employee's employment is terminated by an Involuntary
Termination, such option may be exercised in full as set forth herein, whether
or not the employee was otherwise entitled at such time to exercise such option.
Subject to the restrictions otherwise set forth in the Plan, such option shall
be exercisable by the employee, a legatee or legatees of the employee under the
employee's last will, or by the employee's personal representatives or
distributees, whichever is applicable, from the date of such death, disability
or termination of employment and until the first to occur of:
a. the date on which the option terminates in accordance with the
terms of grant;
b. the date three (3) months after the date of such employee's
Eligible Retirement, his termination due to disability, or the Involuntary
Termination of the employee within three (3) years of a Change in Control;
or
c. the date one (1) year after the date of such employee's death.
For purposes of this Plan, the term "Eligible Retirement" shall mean the
date upon which an employee, having attained an age of not less than sixty-two,
terminates his employment with the Company and its subsidiaries, provided that
such employee has been employed by the Company or any of its subsidiaries or any
company of which the Company or any of its subsidiaries is the successor for a
period of not less than five (5) years prior to such termination.
-4-
<PAGE> 5
A "Change in Control" shall be deemed to have occurred upon:
a. a business combination, including a merger or consolidation, of
the Company and the shareholders of the Company prior to the combination
do not continue to own, directly or indirectly, more than fifty-one
percent (51%) of the equity of the combined entity;
b. a sale, transfer, or other disposition in one or more
transactions (other than in transactions in the ordinary course of
business or in the nature of a financing) of the assets or earning power
aggregating more than forty-five percent (45%) of the assets or operating
revenues of the Company to any person or affiliated or associated group of
persons (as defined by Rule 12b-2 of the Exchange Act in effect as of the
date hereof);
c. the liquidation of the Company;
d. one or more transactions which result in the acquisition by any
person or associated group of persons (other than the Company, any
employee benefit plan whose beneficiaries are employees of the Company or
any of its subsidiaries) of the beneficial ownership (as defined in Rule
13d-3 of the Exchange Act, in effect as of the date hereof) of forty
percent (40%) or more of the Common Stock of the Company, securities
representing forty percent (40%) or more of the combined voting power of
the voting securities of the Company which affiliated persons owned less
than forty percent (40%) prior to such transaction or transactions; or
e. the election or appointment, within a twelve (12) month period,
of any person or affiliated or associated group, or its or their nominees,
to the Board of Directors of the Company, such that such persons or
nominees, when elected or appointed, constitute a majority of the Board of
Directors of the Company and whose appointment or election was not
approved by a majority of those persons who were directors at the
beginning of such period or whose election or appointment was made at the
request of an Acquiring Person.
An "Acquiring Person" is any person who, or which, together with all
affiliates or associates of such person, is the beneficial owner of twenty
percent (20%) or more of the Common Stock of the Company then outstanding,
except that an Acquiring Person does not include the Company or any employee
benefit plan of the Company or any of its subsidiaries or any person holding
Common Stock of the Company for or pursuant to such plan. For the purpose of
determining who is an Acquiring Person, the percentage of the outstanding shares
of the Common Stock of which a person is a beneficial owner shall be calculated
in accordance with Rule 13d-e of the Exchange Act.
"Involuntary Termination" shall mean any termination of the employee prior
to the employee attaining age 65, which does not result from either a
Termination for Cause, death or disability, and which:
-5-
<PAGE> 6
a. does not result from a resignation by the employee (other than a
resignation pursuant to clause b. of this paragraph); or
b. results from a resignation following any Change in Duties.
"Termination for Cause" shall mean only a termination as a result of
fraud, misappropriation of or intentional material damage to the property or
business of the Company (including its subsidiaries), or commission of a felony
by the employee.
"Change in Duties" shall mean any one or more of the following:
a. a significant change in the nature or scope of the employee's
authorities or duties from those applicable to him immediately prior to
the date on which a Change in Control occurs;
b. a material reduction in the employee's annual salary, including a
material reduction in the scope of employee's eligibility for
participation in any bonus or other special incentive programs from that
provided or available to him immediately prior to the date on which a
Change in Control occurs;
c. a diminution in the employee's eligibility to participate in
bonus, stock option, incentive award and other compensation plans which
provide opportunities to receive compensation, from the greater of:
(i) the opportunities provided by the Company (including
its subsidiaries) for executives with comparable duties; or
(ii) the employee benefits and perquisites to which he was
entitled immediately prior to that date on which a Change in Control
occurs;
d. a change in the location of the Employee's principal place of
employment by the Company (including its subsidiaries) by more than fifty
miles from the location where he was principally employed immediately
prior to the date on which a Change in Control occurs; or
e. a reasonable determination by the Board of Directors of the
Company, that as a result of a Change in Control and a change in
circumstances thereafter significantly affecting employee's position, he
is unable to exercise the authorities, powers, function or duties attached
to his position immediately prior to the date on which a Change in Control
occurs.
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<PAGE> 1
EXHIBIT 10.11
1995 STOCK PLAN FOR EMPLOYEES AND DIRECTORS OF
SPEEDFAM INTERNATIONAL, INC.
AS AMENDED AS OF MAY 22, 1997
1. Purpose. SpeedFam International, Inc. (the "Corporation") desires to
attract and retain Employees (as defined herein) and directors of outstanding
talent. The 1995 Stock Plan for Employees and Directors of SpeedFam
International, Inc. (the "Plan") affords eligible Employees and directors the
opportunity to acquire proprietary interests in the Corporation and thereby
encourages their highest levels of performance and interest.
2. Scope and Duration.
a. Awards under the Plan may be granted in the following forms:
(1) incentive stock options ("incentive stock options"), as
provided in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and non-qualified stock options
("non-qualified options"; the term "options" includes incentive
stock options and non-qualified options);
(2) shares of Common Stock of the Corporation (the "Common
Stock") which are restricted as provided in paragraph 10.
("restricted shares"); or
(3) rights to acquire shares of Common Stock which are
restricted as provided in paragraph 10. ("units" or "restricted
units").
Any other provision herein to the contrary notwithstanding, every award
granted in the form of an incentive stock option must comply in every
respect with the requirement of Section 422 of the Code and in particular
with all such requirements which apply to employees owning 10% or more of
the total combined voting power of all classes of stock of the Company.
Stock appreciation rights ("rights") may be awarded by the Committee in
connection with any option granted under the Plan, either at the time the
option is granted or thereafter at any time prior to the exercise,
termination or expiration of the option ("tandem right"), or separately
("freestanding right").
b. The maximum aggregate number of shares of Common Stock as to
which awards of options, restricted shares, units, or rights may be made
from time to time under the Plan is 1,000,000 [post-July 27, 1995 stock
split] shares. Shares issued pursuant to this Plan may be in whole or in
part, as the Board of Directors of the Corporation (the "Board of
Directors") shall from time to time determine, authorized but unissued
shares or issued shares reacquired by the Corporation. If for any reason
any shares as to which an option has been granted cease to be subject to
purchase thereunder or any restricted shares or restricted units are
forfeited to the Corporation, or to the extent that any awards under the
Plan denominated in shares or units are paid or settled in cash or are
surrendered upon the exercise of an option, then (unless the Plan shall
have been terminated) such shares or units, and any shares surrendered to
the Corporation upon such exercise, shall become available for
<PAGE> 2
subsequent awards under the Plan; provided, however, that shares
surrendered by the Corporation upon the exercise of an incentive stock
option and shares subject to an incentive stock option surrendered upon
the exercise of a right shall not be available for subsequent award of
additional stock options under the Plan.
c. No incentive stock option shall be granted hereunder after
July 27, 2005.
3. Administration.
a. The Plan shall be administered by the Compensation Committee
or any successor thereto of the Board of Directors of the Corporation or
by such other committee (the "Committee") as shall be determined by the
Board of Directors. The Committee shall consist of not less than two
members of the Board of Directors, each of whom shall qualify as a
"disinterested person" to administer the Plan as contemplated by Rule
16b-3, as amended, or other applicable rules under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
b. The Committee shall have plenary authority in its sole
discretion, subject to and not inconsistent with the express provisions of
this Plan:
(1) to grant options, to determine the purchase price of the
Common Stock covered by each option, the term of each option, the
persons to whom, and the time or times at which, options shall be
granted and the number of shares to be covered by each option;
(2) to designate options as incentive stock options or
non-qualified options and to determine which options shall be
accompanied by rights;
(3) to grant rights and to determine the purchase price of the
Common Stock covered by each right or related option, the term of
each right or related option, the Employees and Eligible Directors
(as such terms are defined below) to whom, and the time or times at
which, rights or related options shall be granted and the number of
shares to be covered by each right or related option;
(4) to grant restricted shares and restricted units and to
determine the term of the Restricted Period (as defined in paragraph
10.) and other conditions applicable to such shares or units, the
Employees to whom, and the time or times at which, restricted shares
or restricted units shall be granted and the number of shares or
units to be covered by each grant;
(5) to interpret the Plan;
(6) to prescribe, amend and rescind rules and regulations
relating to the Plan;
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<PAGE> 3
(7) to determine the terms and provisions of the option and
rights agreements (which need not be identical) and the restricted
share and restricted unit agreements (which need not be identical)
entered into in connection with awards under the Plan;
and to make all other determinations deemed necessary or advisable for the
administration of the Plan.
Without limiting the foregoing, the Committee shall have plenary
authority in its sole discretion, subject to, and not inconsistent with,
the express provisions of the Plan, to:
(1) select Participants (as defined below) for participation
in the Plan;
(2) determine the timing, price, and amount of any grant or
award under the Plan to any Participant; and
(3) either
(a) determine the form in which payment of any right
granted or awarded under the Plan will be made (i.e., cash,
securities, or any combination thereof), or
(b) approve the election of the Participant to receive
cash in whole or in part in settlement of any right granted or
awarded under the Plan.
As used in the Plan, the following terms shall have the following
meanings: the term "SpeedFam Officer" shall mean an officer (other than an
assistant officer) of the Corporation or any of its Subsidiaries and any
other person who may be designated as an executive officer by the Board of
Directors of the Corporation; the term "Participant" shall mean an
Employee or Eligible Director; the term "Employee" shall mean a full-time,
non-union, salaried employee of the Corporation or any of its
Subsidiaries; the term "Eligible Director" shall mean any individual who
is a member of the Board of Directors of the Corporation who is not then
an Employee or a beneficial owner, either directly or indirectly, of more
than ten percent (10%) of the Common Stock of the Corporation; and the
term "Subsidiaries" shall mean all corporations in which the Corporation
owns, directly or indirectly, at least fifty percent (50%) of the total
voting power of all classes of stock (including subsidiaries of
subsidiaries).
(c) The Committee may delegate to one or more of its
members or to one or more agents such administrative duties as
it may deem advisable, and the Committee or any person to whom
it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan;
provided, that the Committee may not delegate any duties
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<PAGE> 4
to a member of the Board of Directors who, if elected to serve
on the Committee, would not qualify as a "disinterested
person" to administer the Plan as contemplated by Rule 16b-3,
as amended, or other applicable rules under the Exchange Act.
The Committee may employ attorneys, consultants, accountants,
or other persons, and the Committee, the Corporation, its
Subsidiaries, and their respective officers and directors
shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in
good faith shall be final and binding upon all Participants,
the Corporation, its Subsidiaries, and all other interested
persons. No member or agent of the Committee shall be
personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan or
awards made hereunder, and all members and agents of the
Committee shall be fully protected by the Corporation in
respect of any such action, determination, or interpretation.
4. Eligibility; Factors to Be Considered in Making Awards.
a. Persons eligible to participate in this Plan shall include all
Employees of the Corporation or any of its Subsidiaries and all Eligible
Directors; provided, however, that Eligible Directors shall only be
eligible to receive grants of options pursuant to subparagraph 4.e.
b. In determining the Employees to whom awards shall be granted
and the number of shares or units to be covered by each award, the
Committee shall take into account the nature of the Employee's duties, his
or her present and potential contributions to the success of the
Corporation or any of its Subsidiaries and such other factors as it shall
deem relevant in connection with accomplishing the purposes of the Plan.
c. Awards may be granted singly, in combination, or in tandem and
may be made in combination or in tandem with or in replacement of, or as
alternatives to, awards or grants under any other employee plan maintained
by the Corporation or any of its Subsidiaries. An award made in the form
of a unit or a right may provide, in the discretion of the Committee, for
(1) the crediting to the account of, or the current payment
to, each Employee who has such an award of an amount equal to the
cash dividends and stock dividends paid by the Corporation upon one
share of Common Stock for each restricted unit or share of Common
Stock subject to a right included in such award ("Dividend
Equivalents"), or
(2) the deemed reinvestment of such Dividend Equivalents and
stock dividends in shares of Common Stock, which deemed reinvestment
shall be deemed to be made in accordance with the provisions of
paragraph 10., and credited to the Employee's account ("Additional
Deemed Shares").
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<PAGE> 5
Such Additional Deemed Shares shall be subject to the same restrictions
(including but not limited to provisions regarding forfeitures) applicable
with respect to the unit or right with respect to which such credit is
made. Dividend Equivalents not deemed reinvested as stock dividends shall
not be subject to forfeiture, and may bear amounts equivalent to interest
or cash dividends as the Committee may determine.
d. The Committee, in its sole discretion, may grant to an
Employee who has been granted an award under the Plan or any other
employee plan maintained by the Corporation or any of its Subsidiaries, or
any successor thereto, in exchange for the surrender and cancellation of
such award, a new award in the same or a different form and containing
such terms, including, without limitation, a price which is different
(either higher or lower) than any price provided in the award so
surrendered and cancelled, as the Committee may deem appropriate.
e. Each Eligible Director shall be automatically granted a
non-qualified option to purchase 2000 shares of Common Stock, which option
shall be granted on the effective date of the Plan (hereinafter referred
to as the "Initial Eligible Director Stock Options"). Commencing in 1996,
each Eligible Director shall be automatically granted a non-qualified
option to purchase 5000 shares of Common Stock, which option shall be
granted on the date of the first meeting of the Board of Directors of the
Corporation following each annual meeting of the stockholders of the
Corporation (hereinafter sometimes referred to as the "Annual Eligible
Director Stock Options" and sometimes, together with the Initial Eligible
Director Stock Options, as the "Eligible Director Stock Options"). The
number of Annual Eligible Director Stock Options to be granted as of the
date of any such meeting of the Board of Directors shall be
proportionately adjusted to reflect any stock splits, stock dividends,
recapitalizations or similar transactions causing an increase or decrease
in the number of issued and outstanding shares of Common Stock which have
occurred since the date of the most recent grant of Annual Eligible
Director Stock Options. Any Eligible Director may waive his or her right
to be granted Eligible Director Stock Options. In the event that the
granting of any Annual Eligible Director Stock Options would cause the
1,000,000 share limitation contained in Section 2.b. hereof to be exceeded
(after taking into account any waivers by Eligible Directors to accept
some or all of the Annual Eligible Director Stock Options to which he or
she would otherwise be entitled), the total number of Annual Eligible
Director Stock Options then to be granted shall be reduced to a number
which would cause said 1,000,000 share limitation not to be exceeded and
the amount of non-qualified options to be granted to each Eligible
Director who has not waived his or her right to receive Annual Eligible
Director Stock Options shall be proportionately reduced. The purchase
price for the Common Stock covered by each Eligible Director Stock Option
shall be the fair market value (as defined below) of the Common Stock on
the date the Eligible Director Stock Option is granted, payable at the
time and in the manner provided in Section 5.b. below. Each Eligible
Director Stock Option granted to an Eligible Director shall be exercisable
as follows: with respect to twenty-percent (20%) of the Common Stock
covered thereby during the ten (10) year period commencing one (1) year
following the date of grant; with respect to an additional twenty percent
(20%) of the Common Stock covered thereby during the ten (10) year period
commencing two
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<PAGE> 6
(2) years following the date of grant; with respect to an additional
twenty percent (20%) of the Common Stock covered thereby during the ten
(10) year period commencing three (3) years following the date of grant;
with respect to an additional twenty percent (20%) of the Common Stock
covered thereby during the ten (10) year period commencing four (4) years
following the date of grant; and with respect to the remaining twenty
percent (20%) of the Common Stock covered thereby during the ten (10) year
period commencing five (5) years following the date of grant. The
foregoing formula can only be amended to the extent permitted by Rule
16b-3, as amended, under the Exchange Act and may not be amended more than
once every six months other than to comport with changes in the Code,
ERISA, or the rules thereunder.
5. Option Price.
a. The purchase price of the Common Stock covered by each option
awarded to an Employee shall be determined by the Committee; provided,
however, that in the case of incentive stock options, the purchase price
shall not be less than 100% of the fair market value of the Common Stock
on the date the option is granted. Fair market value shall mean,
(1) if the Common Stock is duly listed on a national
securities exchange or on the National Association of Securities
Dealers Automatic Quotation System/National Market System ("NASDAQ")
("Duly Listed"), the closing price of the Common Stock for the date
on which the option is granted, or, if there are no sales on such
date, on the next preceding day on which there were sales, or
(2) if the Common Stock is not Duly Listed, the fair market
value of the Common Stock for the date on which the option is
granted, as determined by the Committee in good faith. Such price
shall be subject to adjustment as provided in paragraph 13.
The price so determined shall also be applicable in connection with the
exercise of any related right.
b. The purchase price of the shares as to which an option is
exercised shall be paid in full at the time of exercise; payment may be
made in cash, which may be paid by check or other instrument acceptable to
the Corporation, or, if permitted by the Committee, in shares of the
Common Stock, valued at the closing price of the Common Stock as reported
on either a national securities exchange or NASDAQ for the date of
exercise, or if there were no sales on such date, on the next preceding
day on which there were sales (or, if the Common Stock is not Duly Listed,
the fair market value of the Common Stock on the date of exercise, as
determined by the Committee in good faith), or, upon such terms as the
Committee shall approve, a copy of instructions to a broker directing such
broker to sell the shares of Common Stock for which such option is
exercised, and to remit to the Corporation the aggregate purchase price of
the shares as to which such option is exercised ("cashless exercise"),
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<PAGE> 7
or, if permitted by the Committee and subject to such terms and conditions
as it may determine, by surrender of outstanding awards under the Plan. In
addition, the Participant shall pay any amount necessary to satisfy
applicable federal, state, or local tax requirements promptly upon
notification of the amount due. The Committee may permit such amount to be
paid in shares of Common Stock previously owned by the Participant, or a
portion of the shares of Common Stock that otherwise would be distributed
to such Participant upon exercise of the option, or a cashless exercise,
or a combination of cash, cashless exercise and shares of such Common
Stock.
6. Term of Options. The term of each incentive stock option granted
under the Plan shall be such period of time as the Committee shall
determine, but not more than ten years from the date of grant, subject to
earlier termination as provided in paragraphs 11. and 12. The term of each
non-qualified option granted under the Plan to Employees shall be such
period of time as the Committee shall determine, subject to earlier
termination as provided in paragraphs 11. and 12.
7. Exercise of Options.
a. Each option shall become exercisable, in whole or in part, as
the Committee shall determine; provided, however, that the Committee may
also, in its discretion, accelerate the exercisability of any option in
whole or in part at any time.
b. Subject to the provisions of the Plan and unless otherwise
provided in the option agreement, an option granted under the Plan shall
become exercisable in full at the earliest of the Participant's death,
Eligible Retirement (as defined below), or Total Disability. Furthermore,
at the discretion of the Committee and only if provided in the option
agreement (or any supplement thereto), an option granted under the Plan
shall become exercisable in full upon the termination of the Participant's
employment by an Involuntary Termination (as defined in paragraph 12)
within three (3) years following a Change in Control (as defined in
paragraph 12). For purposes of this Plan, the term "Eligible Retirement"
shall mean (1) the date upon which an Employee, having attained an age of
not less than sixty-two, terminates his employment with the Corporation
and its Subsidiaries, provided that such Employee has been employed by the
Corporation or any of its Subsidiaries or any corporation of which the
Corporation or any of its Subsidiaries is the successor for a period of
not less than five (5) years prior to such termination, or (2) the date
upon which an Eligible Director, having attained the age of not less than
sixty-two, terminates his service as a director of the Corporation.
c. An option may be exercised, at any time or from time to time
(subject, in the case of an incentive stock option, to such restrictions
as may be imposed by the Code), as to any or all full shares as to which
the option has become exercisable; provided, however, that an option may
not be exercised at any one time as to less than 100 shares or less than
the number of shares as to which the option is then exercisable, if that
number is less than 100 shares.
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<PAGE> 8
d. Subject to the provisions of paragraphs 11. and 12., in the
case of incentive stock options, no option may be exercised at any time
unless the holder thereof is then an Employee.
e. Upon the exercise of an option or portion thereof in
accordance with the Plan, the option agreement and such rules and
regulations as may be established by the Committee, the holder thereof
shall have the rights of a shareholder with respect to the shares issued
as a result of such exercise.
8. Award and Exercise of Rights.
a. Rights may be awarded by the Committee either as a tandem
right or a freestanding right. Each tandem right shall be subject to the
same terms and conditions as the related option and shall be exercisable
only to the extent the option is exercisable. No right shall be
exercisable for cash by a SpeedFam Officer within six (6) months from the
date the right is awarded (and then, as to a tandem right, only to the
extent the related option is exercisable) or, if the exercise price of the
right is not fixed on the date of the award, within six (6) months from
the date when the exercise price is so fixed, and in any case only when
the SpeedFam Officer's election to receive cash in full or partial
satisfaction of the right, as well as the SpeedFam Officer's exercise of
the right for cash, is made during a Quarterly Window Period (as defined
below); provided, that a right may be exercised by a SpeedFam Officer for
cash outside a Quarterly Window Period if the date of exercise is
automatic or has been fixed in advance under the Plan and is outside the
SpeedFam Officer's control. The term "Quarterly Window Period" shall mean
the period beginning on the third business day following the date of
release of each of the Corporation's quarterly and annual summary
statements of sales and earnings and ending on the twelfth business day
following such release; and the date of any such release shall be deemed
to be the date it either:
(1) appears on a wire service,
(2) appears on a financial news service,
(3) appears in a newspaper of general circulation, or
(4) is otherwise made publicly available, for example, by
press releases to a wire service, financial news service, or
newspapers or general circulation.
b. A right shall entitle the Employee upon exercise in accordance
with its terms (subject, in the case of a tandem right, to the surrender
unexercised of the related option or any portion or portions thereof which
the Employee from time to time determines to surrender for this purpose)
to receive, subject to the provisions of the Plan and such rules and
regulations as from time to time may be established by the Committee, a
payment having an aggregate value equal to the product of
(1) the excess of
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<PAGE> 9
(a) the fair market value on the exercise date of one
share of Common Stock over
(b) the exercise price per share, in the case of a
tandem right, or the price per share specified in the terms of
the right, in the case of a freestanding right, multiplied by
(2) the number of shares with respect to which the right shall
have been exercised.
The payment may be made only in cash, subject to subparagraph 8.a. hereof.
c. The exercise price per share specified in a right shall be as
determined by the Committee, provided that, in the case of a tandem right
accompanying an incentive stock option, the exercise price shall be not
less than fair market value of the Common Stock subject to such option on
the date of grant.
d. If upon the exercise of a right the Employee is to receive a
portion of the payment in shares of Common Stock, the number of shares
shall be determined by dividing such portion by the fair market value of a
share on the exercise date. The number of shares received may not exceed
the number of shares covered by any option or portion thereof surrendered.
Cash will be paid in lieu of any fractional share.
e. No payment will be required from an Employee upon exercise of
a right, except that any amount necessary to satisfy applicable federal,
state, or local tax requirements shall be withheld or paid promptly by the
Employee upon notification of the amount due and prior to or concurrently
with delivery of cash or a certificate representing shares. The Committee
may permit such amount to be paid in shares of Common Stock previously
owned by the Employee, or a portion of the shares of Common Stock that
otherwise would be distributed to such Employee upon exercise of the
right, or a combination of cash and shares of such Common Stock.
f. The fair market value of a share shall mean the closing price
of the Common Stock as reported on either a national securities exchange
or NASDAQ for the date of exercise, or if there are no sales on such date,
on the next preceding day on which there were sales; provided, however,
that in the case of rights that relate to an incentive stock option, the
Committee may prescribe, by rules of general application, such other
measure of fair market value as the Committee may in its discretion
determine but not in excess of the maximum amount that would be
permissible under Section 422 of the Code without disqualifying such
option under Section 422.
g. Upon exercise of a tandem right, the number of shares subject
to exercise under the related option shall automatically be reduced by the
number of shares represented by the option or portion thereof surrendered.
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<PAGE> 10
h. A right related to an incentive stock option may only be
exercised if the fair market value of a share of Common Stock on the
exercise date exceeds the option price.
9. Non-Transferability of Options, Rights, and Units; Holding Periods
for SpeedFam Officers and Eligible Directors.
a. Options, rights, and units granted under the Plan shall not be
transferable by the grantee thereof otherwise than by will or the laws of
descent and distribution; provided, however, that
(1) the designation of a beneficiary by a Participant shall
not constitute a transfer, and
(2) options and rights may be exercised during the lifetime of
the Participant only by the Participant or, unless such exercise
would disqualify an option as an incentive stock option, by the
Participant's guardian or legal representative.
b. Notwithstanding anything contained in the Plan to the
contrary,
(1) any shares of Common Stock awarded hereunder to a SpeedFam
Officer may not be transferred or disposed of for at least six (6)
months from the date of award thereof,
(2) any option, right, or unit awarded hereunder to a SpeedFam
Officer or Eligible Director, or the shares of Common Stock into
which any such option, right or unit is exercised or converted, may
not be transferred or disposed of for at least six (6) months
following the date of acquisition by the SpeedFam Officer or
Eligible Director of such option, right, or unit, and
(3) the Committee shall take no action whose effect would
cause a SpeedFam Officer or Eligible Director to be in violation of
clause (1) or (2) above.
10. Award and Delivery of Restricted Shares or Restricted Units.
a. At the time an award of restricted shares or restricted units
is made, the Committee shall establish a period of time (the "Restricted
Period") applicable to such award. Each award of restricted shares or
restricted units may have a different Restricted Period. The Committee
may, in its sole discretion, at the time an award is made, prescribe
conditions for the incremental lapse of restrictions during the Restricted
Period and for the lapse or termination of restrictions upon the
satisfaction of other conditions in addition to or other than the
expiration of the Restricted Period with respect to all or any portion of
the restricted shares or restricted units. Subject to paragraph 9., the
Committee may also, in its sole discretion shorten, or terminate the
Restricted Period, or waive any conditions for the lapse or termination of
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<PAGE> 11
restrictions with respect to all or any portion of the restricted shares
or restricted units. Notwithstanding the foregoing but subject to
paragraph 9., all restrictions shall lapse or terminate with respect to
all restricted shares or restricted units upon the earliest to occur of an
Employee's Eligible Retirement, a Change in Control, death, or Total
Disability.
b. (1) Unless such shares are issued as uncertificated shares
pursuant to subparagraph 10.b.(2)(a) below, a stock certificate
representing the number of restricted shares granted to an Employee shall
be registered in the Employee's name but shall be held in custody by the
Corporation or an agent therefor for the Employee's account. The Employee
shall generally have the rights and privileges of a shareholder as to such
restricted shares, including the right to vote such restricted shares,
except that, subject to the provisions of paragraphs 11. and 12., the
following restrictions shall apply:
(a) the Employee shall not be entitled to delivery of the
certificate until the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by
the Committee;
(b) none of the restricted shares may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the
Restricted Period and until the satisfaction of any other conditions
prescribed by the Committee; and
(c) all of the restricted shares shall be forfeited and all
rights of the Employee to such restricted shares shall terminate
without further obligation on the part of the Corporation unless the
Employee has remained an Employee until the expiration or
termination of the Restricted Period and the satisfaction of any
other conditions prescribed by the Committee applicable to such
restricted shares. At the discretion of the Committee,
(i) cash and stock dividends with respect to the
restricted shares may be either currently paid or withheld by
the Corporation for the Employee's account, and interest may
be paid on the amount of cash dividends withheld at a rate and
subject to such terms as determined by the Committee, or
(ii) the Committee may require that all cash dividends
be applied to the purchase of additional shares of Common
Stock, and such purchased shares, together with any stock
dividends related to such restricted shares (such purchased
shares and stock dividends are hereafter referred to as
"Additional Restricted Shares") shall be treated as Additional
Shares, subject to forfeiture on the same terms and conditions
as the original grant of the restricted shares to the
Employee.
(2) The purchase of any such Additional Restricted Shares
shall be made either
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<PAGE> 12
(a) through a dividend reinvestment plan that may be
established by the Corporation which satisfies the
requirements of Rule 16b-2 under the Exchange Act, in which
event the price of such shares so purchased through the
reinvestment of dividends shall be as determined in accordance
with the provisions of that plan and no stock certificate
representing such Additional Restricted Shares shall be in the
Employee's name, or
(b) in accordance with such alternative procedure as is
determined by the Committee in which event the price of such
purchased shares shall be
(i) if the Common Stock is Duly Listed, the
closing price of the Common Stock as reported on either
a national securities exchange or NASDAQ for the date on
which such purchase is made, or if there were no sales
on such date, the next preceding day on which there were
sales, or
(ii) if the Common Stock is not Duly Listed, the
fair market value of the Common Stock for the date on
which such purchase is made, as determined by the
Committee in good faith. In the event that the Committee
shall not require reinvestment, cash, or stock dividends
so withheld by the Committee shall not be subject to
forfeiture. Upon the forfeiture of any restricted shares
(including any Additional Restricted Shares), such
forfeited shares shall be transferred to the Corporation
without further action by the Employee. The Employee
shall have the same rights and privileges, and be
subject to the same restrictions, with respect to any
shares received pursuant to paragraph 13.
c. Upon the expiration or termination of the Restricted Period
and the satisfaction of any other conditions prescribed by the Committee
or at such earlier time as provided for in paragraphs 11. and 12., the
restrictions applicable to the restricted shares (including Additional
Restricted Shares) shall lapse and a stock certificate for the number of
restricted shares (including any Additional Restricted Shares) with
respect to which the restrictions have lapsed shall be delivered, free of
all such restrictions, except any that may be imposed by law, to the
Employee or the Employee's beneficiary or estate, as the case may be. The
Corporation shall not be required to deliver any fractional share of
Common Stock but will pay, in lieu thereof, the fair market value
(determined as of the date the restrictions lapse) of such fractional
share to the Employee or the Employee's beneficiary or estate, as the case
may be. No payment will be required from the Employee upon the issuance or
delivery of any restricted shares, except that any amount necessary to
satisfy applicable federal, state, or local tax requirements shall be
withheld or paid promptly upon notification of the amount due and prior to
or concurrently with the issuance or delivery of a certificate
representing such shares. The Committee may permit such amount to be paid
in shares of Common Stock previously owned by the Employee, or a portion
of the shares of Common Stock that otherwise would be distributed to such
Employee upon the lapse of the restrictions applicable to the restricted
shares, or a combination of cash and shares of such Common Stock.
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<PAGE> 13
d. In the case of an award of restricted units, no shares of
Common Stock shall be issued at the time the award is made, and the
Corporation shall not be required to set aside a fund for the payment of
any such award.
e. (1) Upon the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by the
Committee or at such earlier time as provided in paragraphs 11. and 12.,
the Corporation shall deliver to the Employee or the Employee's
beneficiary or estate, as the case may be, one share of Common Stock for
each restricted unit with respect to which the restrictions have lapsed
("vested unit").
(2) In addition, if the Committee has not required the deemed
reinvestment of such Dividend Equivalents pursuant to paragraph 4.,
at such time the Corporation shall deliver to the Employee cash
equal to any Dividend Equivalents or stock dividends credited with
respect to each such vested unit and, to the extent determined by
the Committee, the interest thereupon. However, if the Committee has
required such deemed reinvestment in connection with such restricted
unit, in addition to the stock represented by such vested unit, the
Corporation shall deliver the number of Additional Deemed Shares
credited to the Employee with respect to such vested unit.
(3) Notwithstanding the foregoing, the Committee may, in its
sole discretion, elect to pay cash or part cash and part Common
Stock in lieu of delivering only Common Stock for the vested units
and related Additional Deemed Shares. If a cash payment is made in
lieu of delivering Common Stock, the amount of such cash payment
shall be equal to
(a) if the Common Stock is Duly Listed, the closing
price of the Common Stock as reported on either a national
securities exchange or NASDAQ for the date on which the
Restricted Period lapsed with respect to such vested unit and
related Additional Deemed Shares (the "Lapse Date") or, if
there are no sales on such date, on the next preceding day on
which there were sales, or
(b) if the Common Stock is not Duly Listed, the fair
market value of the Common Stock for the Lapse Date, as
determined by the Committee in good faith.
f. No payment will be required from the Employee upon the award
of any restricted units, the crediting or payment of any Dividend
Equivalents or Additional Deemed Shares, or the delivery of Common Stock
or the payment of cash in respect of vested units, except that any amount
necessary to satisfy applicable federal, state, or local tax requirements
shall be withheld or paid promptly upon notification of the amount due.
The Committee may permit such amount to be paid in shares of Common Stock
previously owned by the Employee, or a portion of the shares of Common
Stock that otherwise would be distributed to such Employee in respect of
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<PAGE> 14
vested units and Additional Deemed Shares, or a combination of cash and
shares of such Common Stock.
g. In addition, the Committee shall have the right, in its
absolute discretion, upon the vesting of any restricted shares (including
Additional Restricted Shares) and restricted units (including Additional
Deemed Shares) to award cash compensation to the Employee for the purpose
of aiding the Employee in the payment of any and all federal, state, and
local income taxes payable as a result of such vesting, if the performance
of the Corporation during the Restricted Period meets such criteria as
then or theretofore determined by the Committee.
11. Termination of Employment or Service. In the event that the
employment of an Employee or the service as a director of an Eligible Director
to whom an option or right has been granted under the Plan shall be terminated
for any reason other than as set forth in paragraph 12., such option or right
may, subject to the provisions of the Plan, be exercised (but only to the extent
that the Employee or an Eligible Director was entitled to do so at the
termination of his employment or service as a director, as the case may be) at
any time within three (3) months after such termination, but in no case later
than the date on which the option or right terminates.
Unless otherwise determined by the Committee, if an Employee to whom
restricted shares or restricted units have been granted ceases to be an
Employee, for any reason other than as set forth in paragraph 12., prior to the
end of the Restricted Period and the satisfaction of any other conditions
prescribed by the Committee, the Employee shall immediately forfeit all
restricted shares and restricted units, including all Additional Restricted
Shares or Additional Deemed Shares related thereto.
Any option, right, restricted share or restricted unit agreement, or any
rules and regulations relating to the Plan, may contain such provisions as the
Committee shall approve with reference to the determination of the date
employment terminates and the effect of leaves of absence. Any such rules and
regulations with reference to any option agreement shall be consistent with the
provisions of the Code and any applicable rules and regulations thereunder.
Nothing in the Plan or in any award granted pursuant to the Plan shall confer
upon any Participant any right to continue in the employ or service of the
Corporation or any of its Subsidiaries or interfere in any way with the right of
the Corporation or its Subsidiaries to terminate such employment or service at
any time.
12. Eligible Retirement, Death, Total Disability of Employee or Eligible
Director, or Change in Control Followed by Involuntary Termination of the
Employee. If any Employee or Eligible Director to whom an option, right,
restricted share, or restricted unit has been granted under the Plan shall die
or suffer a Total Disability while employed by the Corporation or in the service
of the Corporation as a director, if any Employee terminates his employment or
any Eligible Director terminates his service as a director pursuant to an
Eligible Retirement, or at the discretion of the Committee and only if provided
in the option agreement, if within three (3) years following a Change in Control
an Employee's employment is terminated by an Involuntary Termination, such
option or right may be exercised as set forth herein, or such restricted shares
or restricted unit shall be deemed to
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<PAGE> 15
be vested, whether or not the Participant was otherwise entitled at such time to
exercise such option or right, or be treated as vested in such share or unit.
Subject to the restrictions otherwise set forth in the Plan, such option or
right shall be exercisable by the Participant, a legatee or legatees of the
Participant under the Participant's last will, or by the Participant's personal
representatives or distributees, whichever is applicable, from the date of such
death, Total Disability or termination of employment and until the first to
occur of:
a. the date on which the option terminates in accordance with the
terms of grant;
b. the date three (3) months after the date of such employee's
Eligible Retirement, his termination due to Total Disability, or the
Involuntary Termination of the employee within three (3) years of a Change
in Control; or
c. the date one (1) year after the date of such employee's death.
For purposes of this paragraph 12., "Total Disability" is defined as the
permanent inability of a Participant, as a result of accident or sickness, to
perform any and every duty pertaining to such Participant's occupation or
employment for which the Participant is suited by reason of the Participant's
previous training, education and experience.
A "Change in Control" shall be deemed to have occurred upon:
a. a business combination, including a merger or consolidation,
of the Corporation and the shareholders of the Corporation prior to the
combination do not continue to own, directly or indirectly, more than
fifty-one percent (51%) of the equity of the combined entity;
b. a sale, transfer, or other disposition in one or more
transactions (other than in transactions in the ordinary course of
business or in the nature of a financing) of the assets or earning power
aggregating more than forty-five percent (45%) of the assets or operating
revenues of the Corporation to any person or affiliated or associated
group of persons (as defined by Rule 12b-2 of the Exchange Act in effect
as of the date hereof);
c. the liquidation of the Corporation;
d. one or more transactions which result in the acquisition by
any person or associated group of persons (other than the Corporation, any
employee benefit plan whose beneficiaries are employees of the Corporation
or any of its subsidiaries) of the beneficial ownership (as defined in
Rule 13d-3 of the Exchange Act, in effect as of the date hereof) of forty
percent (40%) or more of the Common Stock of the Corporation, securities
representing forty percent (40%) or more of the combined voting power of
the voting securities of the Corporation which affiliated persons owned
less than forty percent (40%) prior to such transaction or transactions;
or
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<PAGE> 16
e. the election or appointment, within a twelve (12) month
period, of any person or affiliated or associated group, or its or their
nominees, to the Board of Directors of the Corporation, such that such
persons or nominees, when elected or appointed, constitute a majority of
the Board of Directors of the Corporation and whose appointment or
election was not approved by a majority of those persons who were
directors at the beginning of such period or whose election or appointment
was made at the request of an Acquiring Person.
An "Acquiring Person" is any person who, or which, together with all
affiliates or associates of such person, is the beneficial owner of twenty
percent (20%) or more of the Common Stock of the Corporation then outstanding,
except that an Acquiring Person does not include the Corporation or any employee
benefit plan of the Corporation or any of its Subsidiaries or any person holding
Common Stock of the Corporation for or pursuant to such plan. For the purpose of
determining who is an Acquiring Person, the percentage of the outstanding shares
of the Common Stock of which a person is a beneficial owner shall be calculated
in accordance with Rule 13d-e of the Exchange Act.
"Involuntary Termination" shall mean any termination of the Employee prior
to the Employee attaining age 65, which does not result from either a
Termination for Cause, death or Total Disability, and which:
a. does not result from a resignation by the Employee (other than
a resignation pursuant to clause b. of this paragraph); or
b. results from a resignation following any Change in Duties.
"Termination for Cause" shall mean only a termination as a result of
fraud, misappropriation of or intentional material damage to the property or
business of the Corporation (including its subsidiaries), or commission of a
felony by the Employee.
"Change in Duties" shall mean any one or more of the following:
a. a significant change in the nature or scope of the Employee's
authorities or duties from those applicable to him immediately prior to
the date on which a Change in Control occurs;
b. a material reduction in the Employee's annual salary,
including a material reduction in the scope of Employee's eligibility for
participation in any bonus or other special incentive programs from that
provided or available to him immediately prior to the date on which a
Change in Control occurs;
c. a diminution in the Employee's eligibility to participate in
bonus, stock option, incentive award and other compensation plans which
provide opportunities to receive compensation, from the greater of:
(i) the opportunities provided by the Corporation (including
its Subsidiaries) for executives with comparable duties; or
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<PAGE> 17
(ii) the employee benefits and perquisites to which he was
entitled immediately prior to that date on which a Change in Control
occurs;
d. a change in the location of the Employee's principal place of
employment by the Corporation (including its Subsidiaries) by more than
fifty miles from the location where he was principally employed
immediately prior to the date on which a Change in Control occurs; or
e. a reasonable determination by the Board of Directors of the
Corporation, that as a result of a Change in Control and a change in
circumstances thereafter significantly affecting Employee's position, he
is unable to exercise the authorities, powers, function or duties attached
to his position immediately prior to the date on which a Change in Control
occurs.
13. Adjustments Upon Changes in Capitalization, etc. Notwithstanding any
other provision of the Plan, the Committee may at any time make or provide for
such adjustments to the Plan, to the number and class of shares available
thereunder or to any outstanding options, restricted shares, or restricted units
as it shall deem appropriate to prevent dilution or enlargement of rights,
including adjustments in the event of distributions to holders of Common Stock
other than a normal cash dividend, changes in the outstanding Common Stock by
reason of stock dividends, split-ups, recapitalizations, mergers,
consolidations, combinations, or exchanges of shares, separations,
reorganizations, liquidations, and the like. In the event of any offer to
holders of Common Stock generally relating to the acquisition of their shares,
the Committee may make such adjustment as it deems equitable in respect of
outstanding options, rights, and restricted units including in the Committee's
discretion revision of outstanding options, rights, and restricted units so that
they may be exercisable for or payable in the consideration payable in the
acquisition transaction. Any such determination by the Committee shall be
conclusive. No adjustment shall be made in the minimum number of shares with
respect to which an option may be exercised at any time. Any fractional shares
resulting from such adjustments to options, rights, limited rights, or
restricted units shall be eliminated.
14. Effective Date. The Plan shall become effective as of August 1,
1995, subject to approval by the Corporation's stockholders. The Committee may,
in its discretion, grant awards under the Plan, the grant, exercise, or payment
of which shall be expressly subject to the conditions that, to the extent
required at the time of grant, exercise, or payment,
a. the shares of Common Stock covered by such awards shall be
Duly Listed, upon official notice of issuance, and
b. if the Corporation deems it necessary or desirable, a
Registration Statement under the Securities Act of 1933 with respect to
such shares shall be effective.
15. Termination and Amendment. The Board of Directors of the Corporation
may suspend, terminate, modify, or amend the Plan, provided that if any such
amendment requires shareholder approval to meet the requirement of the then
applicable rules under
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<PAGE> 18
Section 16(b) of the Exchange Act, such amendment shall be subject to the
approval of the Corporation's stockholders. If the Plan is terminated, the terms
of the Plan shall, notwithstanding such termination, continue to apply to awards
granted prior to such termination. In addition, no suspension, termination,
modification, or amendment of the Plan may, without the consent of the Employee
or Eligible Director to whom an award shall theretofore have been granted,
adversely affect the rights of such Employee or Eligible Director under such
award.
16. Written Agreements. Each award of options, rights, restricted
shares, or restricted units shall be evidenced by a written agreement, executed
by the Participant and the Corporation, which shall contain such restrictions,
terms and conditions as the Committee may require.
17. Effect on Other Stock Plans. The adoption of the Plan shall have no
effect on awards made, or to be made, pursuant to other stock plans covering
Employees or Eligible Directors of the Corporation or any successors thereto.
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<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of June, 1997, by
and between SPEEDFAM INTERNATIONAL, INC., an Illinois corporation (hereinafter
referred to as the "Company") and JAMES N. FARLEY (hereinafter referred to as
the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee in
the capacities set forth herein, and the Employee desires to be employed by the
Company in such capacities;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee and
the Employee hereby accepts employment with the Company upon the terms
and conditions hereinafter set forth and subject to the policies as
published in the Company's Employee Handbook, as from time to time
amended.
2. Term. Subject to the provisions for earlier termination
hereinafter set forth in Section 12 of this Agreement, the term of
employment hereunder shall commence on the date hereof and end on the
first May 31st after the date hereof.
3. Automatic Extension. The term of employment of the
Employee hereunder shall automatically continue for additional one (1)
year terms upon the same terms and conditions contained herein unless
either the Company or the Employee shall notify the other at least six
(6) months prior to the expiration of the initial one (1) year term or
any renewal term of its or his intention to terminate the term of
employment of the Employee as of the end of the initial one (1) year
term or any such renewal term, as the case may be.
4. Compensation. The Company agrees to provide the Employee
with the following compensation for all services rendered under this
Agreement:
4.1. Salary. During the term hereof, the Company
shall pay to the Employee a Base Annual Salary of TWO HUNDRED
SEVENTY EIGHT THOUSAND FIVE HUNDRED DOLLARS ($278,500),
payable in accordance with the standard payroll practices of
the Company (including any salary-reduction contributions to
plans or programs maintained by the Company). Further, the
Base Annual Salary of the Employee shall be reviewed annually
by the Company and adjusted as appropriate.
4.2. Annual Incentive Opportunity. During the term of
this Agreement, the Employee shall participate in the annual
incentive plan maintained by the Company for its executives.
<PAGE> 2
4.3. Long-term Incentive Opportunity. During the term
of this Agreement, the Employee shall participate in any
long-term incentive plan maintained by the Company, including,
but not limited to, stock options, performance shares,
restricted stock and long-term cash incentive plans, in a
manner consistent with other executives of the Company, as
determined by the Board.
4.4. Other Benefits. To the extent the Employee is
eligible under the appropriate laws, the Employee shall be
entitled to participate in and receive benefits under any and
all pension, profit-sharing, health, disability and insurance
plans, if any, which the Company may maintain. The Employee
shall also receive an allowance of THIRTEEN THOUSAND SEVEN
HUNDRED FIFTY-FOUR DOLLARS ($13,754) annually for automobile
expenses.
4.5. Health Care Insurance Beyond Termination.
Following the termination of Employee's employment with the
Company, to the extent the Employee or his spouse shall no
longer qualify to participate under the Company's health
insurance plan, the Company shall pay for private health care
insurance policies, with coverage comparable to the health
insurance coverage provided from time to time to officers of
the Company, for the Employee and his spouse for their
lifetimes.
5. Duties. The Employee shall, subject to election and
removal by the Board of the Company in their sole discretion, serve as
CHAIRMAN of the Board of the Company. As such, the Employee's duties
and responsibilities shall include, but shall not be limited to, giving
advice and counsel to the President and CEO.
6. Extent of Service. The Employee shall devote the
Employee's full business time, attention, and energies to the business
of the Company and its Affiliates and shall not, during the term of
this Agreement, be engaged in any other business activity, whether or
not such activity is pursued for gain, profit, or other pecuniary
advantage, unless written approval is first secured from the Board of
the Company. The foregoing to the contrary notwithstanding, the
Employee may continue his present service as a member of the board of
directors of Lovejoy, Inc., of Downers Grove, Illinois, and Extrude
Hone Corporation, of Irving, Pennsylvania.
7. Working Facilities. The Employee shall be furnished with
office space, furnishings, secretarial support and such other
facilities and services which are reasonably necessary for the
performance of the Employee's duties.
8. Expenses. The Company will reimburse the Employee for all
reasonable business expenses which are incurred by the Employee in the
promoting of the interests of the Company upon presentation by the
Employee from time to time (at least monthly) of an itemized account of
such expenses containing such detail as may reasonably be required by
the Board of Directors of the Company.
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<PAGE> 3
9. Vacation. The Employee shall be entitled to paid vacation
in accordance with Company policy. All vacation time shall be taken by
the Employee at such times as shall be mutually agreed upon by the
Employee and the Chief Executive Officer of the Company.
10. Disability. If, as a result of sickness or other
disability, the Employee is not able to perform the Employee's duties,
this Section 10 shall apply as follows:
10.1. For the first ninety (90) consecutive days of
sickness or other disability the Company shall continue to pay
the Employee full Base Annual Salary (reduced by any payments
from any short-term disability plan which may be maintained by
the Company), and shall continue to pay premiums on then
existing group life, health, disability and other insurance
plans with respect to which the Employee participates,
provided the Employee remains eligible to participate
thereunder.
10.2. If the disability or other sickness continues
past ninety (90) consecutive days, the Company, in its sole
discretion, may elect to place the Employee on Disability
Leave of Absence. During such period, the Company shall, for
the remainder of the contract term, or until the Employee
returns from such Disability Leave of Absence, continue to pay
premiums on then existing group life, health, disability and
other insurance plans with respect to which the Employee
participates, provided the Employee remains eligible to
participate thereunder. Further, the Company shall pay to the
Employee, two-thirds (2/3) of the Employee's Base Annual
Salary, reduced by any payments for which the Employee is
eligible from any disability insurance programs maintained by
the Company.
11. Death. If the Employee dies during the term of this
Agreement, the Company shall pay to the Employee's Beneficiary (or if
there is no named Beneficiary, the estate of the Employee), the
compensation as set forth in Section 4 of this Agreement, for the
period up to the date of the Employee's death. In no event shall the
Company be obligated to pay to any person any other compensation with
respect to any period following the date of the Employee's death.
12. Termination of Employment.
12.1. Termination for Cause. The Company may
terminate the Employee's employment under this Section of the
Agreement for Cause. Cause shall be defined as:
12.1.1. The Employee's failure or refusal to
perform the Employee's duties as provided for in this
Agreement, occasioned by reason other than sickness
or other disability of the Employee, which is not
cured within ten (10) business days after written
notice from the Company specifying such failure or
refusal has been delivered to the Employee;
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<PAGE> 4
12.1.2. Commission by the Employee of any
materially fraudulent, dishonest or other act of
misconduct in the performance of the Employee's
duties hereunder, other than at the specific
direction of the Board; or,
12.1.3. Conviction for any felony or crime
involving moral turpitude.
12.1.4. Following a Termination for Cause,
the Company shall pay to the Employee the Base Annual
Salary provided in Section 4.1 accrued up to the date
of termination. In no event shall the Company be
obligated to pay any other compensation with respect
to any period before or after the date of such
termination.
12.2. Termination Following a Change of Control. If,
during a period of two (2) years following a Change of
Control, the employment of the Employee is terminated by the
Company for any reason other than Cause, or if the Employee is
subject to Constructive Termination, benefits shall be payable
under this Section 12.2.
12.2.1. The Employee shall receive within
thirty (30) days of termination a single payment
equal to two (2) times the sum of (i) the Employee's
highest Base Annual Salary during the Employee's
employment with the Company and (ii) the Employee's
highest target annual incentive award opportunity.
12.3. Other Termination at the Election of the
Company. The Company may elect to terminate the employment of
the Employee for any reason other than Cause or following a
Change of Control, upon written notice to the Employee,
accompanied by payment in a lump sum of:
12.3.1. All compensation accrued up to the
date of termination;
12.3.2. An amount equal to one (1) times the
Employee's Base Annual Salary of record on the date
of termination.
13. Restrictive Covenants.
13.1. Employee understands that the Company's
business involves the design, improvement, development,
testing, manufacturing, marketing and sale of products, and
that this business requires substantial investments in capital
and substantial commitments of time and effort by the
Company's employees. The Employee further understands that, as
a result, certain of the Company's personnel, including the
Employee, acquire information with respect to customer
goodwill, trade secrets and Confidential Information, which,
of itself
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<PAGE> 5
and apart from the Employee's abilities, could be of great
value to a competitor of the Company, potential competitors of
the Company, and to others.
13.2. The Employee further understands that
employment with the Company is conditioned upon the Company's
being able to place complete trust and confidence in the
Employee and to rely on the Employee's doing everything
possible to avoid the disclosure or use of Confidential
Information to persons, corporations, organizations and others
outside the Company, which may become known to, or subject to
the control of the Employee during the term of employment
hereunder. The Employee also understands that competition in
the manufacture, sale, and development of products is not
local in nature or scope, but involves various corporations,
organizations and others located within the United States and
throughout the world.
13.3. In recognition of these circumstances and for
the purpose of inducing the Company to employ the Employee (or
continue the employment of the Employee with appropriate
compensation reviews) to repose trust and confidence in the
Employee, and to make Confidential Information available to
the Employee, the Employee agrees that the following
restrictive covenants are necessary and proper for the
protection of the Company.
13.4. Subject to Section 13.6 below, the Employee
will promptly disclose and assign to the Company, without the
right to any form of compensation therefore, every invention
that the Employee, individually or jointly with others, during
the term of the Employee's employment with the Company and for
a period of one (1) year following termination of such
employment for any reason, may discover, invent, conceive or
originate, relating in any way to the present or contemplated
scope of the Company's business with regard to any of its
clients, customers or vendors or to any Product, Technology,
process, or device dealt in, used or under development or
manufacture by the Company for itself or others or that
results from or may be suggested by any work the Employee may
do for the Company or at the Company's request. The Employee
will fully cooperate with the Company in applying for and
securing in the name of the Company or its designee patents or
copyrights with respect to said Inventions in each country in
which the Company may desire to secure patent or copyright
protection. The Employee will promptly execute all proper
documents presented to the Employee for signature by the
Company to enable the Company or its designee to secure such
patent or copyright protection and to transfer legal title
therein, together with any patents or copyrights that may be
issued thereon or in connection therewith, to the Company or
its designee. The Employee will give such true information and
testimony as may be requested of the Employee by the Company
relative to any of said Inventions.
13.5. Subject to Section 13.6 below, the Company
shall have the exclusive right to use in its business, and to
make, use and sell products, processes, and/or services
arising out of any Invention, whether or not
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<PAGE> 6
patentable, which is assignable by the Employee to the Company
pursuant to Section 13.4 above.
13.6. Pursuant to Section 2(3) of the Illinois
Employee Patent Act, the Employee is hereby notified that
Sections 13.4 and 13.5 above do not apply to an Invention for
which no equipment, supplies, facility, technology,
confidential information, or trade secret information of the
Company was used and which was developed entirely on the
Employee's own time, unless:
13.6.1. The Invention was related:
13.6.1.1. To the business of the
Company; or
13.6.1.2. To the Company's actual
or demonstrably anticipated research or
development;
or;
13.6.2. The Invention results from any work
performed by the Employee for the Company.
13.7. The Employee agrees that all financial data,
customer lists, plans, contracts, agreements, literature,
manuals, catalogues, brochures, books, records, computer files
or applications, maps, correspondence, and other materials
furnished or made available to the Employee by the Company or
an Affiliate, or any of its clients, or created, prepared or
secured through the efforts of the Employee, relating to the
business conducted by the Company or an Affiliate, whether or
not containing any Confidential Information, are and shall
remain the property of the Company, and the Employee agrees to
deliver all such materials, including all copies thereof, to
the Company upon termination of the Employee's employment
hereunder, or at any other time at the Company's request.
13.8. Other than as expressly directed by the Company
and in the performance of duties to the Company or with the
expressed permission of the Company, the Employee shall never,
during or following the Employee's employment with the
Company, directly or indirectly, sell, use, disclose, lecture
upon, or publish data of information containing or relating to
any Confidential Information or Technology of the Company or
its Affiliates or any Invention assignable to the Company
pursuant to the terms of Section 13.4 above.
13.9. During the term of the Employee's employment
with the Company and for a period of two (2) years after the
termination thereof, the Employee agrees that the Employee
will not:
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<PAGE> 7
13.9.1. Own or have any interest, directly
or indirectly, in or act as an officer, director,
agent, employee, or consultant of, or assist in any
way or in any capacity, any person, firm,
association, partnership, corporation or other entity
which sells or provides products or services in
competition with the Company or its Affiliates
anywhere within the world where any Confidential
Information acquired by the Employee would reasonably
be considered advantageous to such other competing
entity, or
13.9.2. Directly or indirectly entice,
induce or in any manner influence any person who is,
or shall be, in the service of the Company or its
Affiliates to leave such service for the purpose of
engaging in business or being employed by or
associated with any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere in the world.
If any court shall finally hold that the time,
territory or any other provision of this Section 13.9
constitutes an unreasonable restriction against the
Employee, the Employee agrees that the provisions
hereof shall not be rendered null and void, but shall
apply as to such time, territory, and other extent as
such court may determine to be a reasonable
restriction under the circumstances involved.
13.10. The Employee understands that if there is a
breach by the Employee of any duty to the Company with respect
to any Confidential Information or Invention, the Company may
suffer irreparable injury and may not have adequate remedy at
law. As a result, the Employee agrees that if a breach of this
Agreement occurs, the Company may, in addition to any other
remedies available to it, bring an action or actions for
injunction, specific performance, or both, and have entered
into a temporary restraining order, preliminary or permanent
injunction, or other action compelling specific performance.
14. Definitions.
14.1. "Affiliate" means any entity in which the
Company, or any entity which owns, directly or indirectly, a
majority ownership interest in the Company, owns, directly or
indirectly, at least a twenty percent (20%) interest in such
entity.
14.2. "Base Annual Salary" means the annualized value
of the Employee's salary, based on the most recent pay period.
14.3. "Board" means the Board of Directors of the
Company.
14.4. "Change in Duties" means:
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14.4.1. A significant reduction in the
nature or scope of the Employee's authority or duties
from those immediately prior to the date on which a
Change of Control occurs;
14.4.2. A material reduction in the
Employee's Base Annual Salary;
14.4.3. Exclusion from any incentive program
from which the Employee was previously eligible, or
which other executives with comparable duties
participate in;
14.4.4. A change in location of the
Employee's principal place of employment by more than
fifty (50) miles;
14.5. "Change of Control" means:
14.5.1. Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Exchange Act, other than James N. Farley, his spouse,
descendants, or any Trust for the benefit of James N.
Farley, his spouse or descendants, who is, or
becomes, the beneficial owner of securities of the
Company representing more than fifty percent (50%) of
the combined voting power of the Company's then
outstanding securities, other than by reason of any
redemption of stock resulting from the death of James
N. Farley or his spouse;
14.5.2. As a result of, or in connection
with, any tender offer or exchange offer, merger or
other business combination, sale of assets or
contested election, or any combination of the
foregoing transactions (a "Transaction") the persons
who constituted the Board of the Company prior to the
Transaction shall cease to constitute a majority of
the Board of the Company or any successor to the
Company.
14.5.3. The Company is merged or
consolidated with another corporation and as a result
of the merger or consolidation, less than seventy
percent (70%) of the outstanding voting securities of
the surviving or resulting corporation shall then be
owned in the aggregate by the former stockholders of
the Company;
14.5.4. A tender offer or exchange offer is
made and consummated for the ownership of securities
of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's
then outstanding voting securities; or,
14.5.5. The Company transfers substantially
all of its assets to another corporation of which the
Company owns less than fifty percent (50%) of the
outstanding voting securities.
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14.6. "Code" means the Internal Revenue Code of 1986,
as from time to time amended.
14.7. "Company" means SpeedFam International, Inc.,
an Illinois corporation.
14.8. "Confidential Information" means any and all
Technology and/or information which:
14.8.1. Is provided to the Employee by the
Company;
14.8.2. Is created, developed, or otherwise
generated by or on behalf of the Company;
14.8.3. Concerns or relates to any aspect of
the Company's business; or
14.8.4. Is, for any reason, identified by
the Company as confidential.
14.8.5. Notwithstanding the foregoing
provisions of this Section 14.8, Confidential
Information shall not include such information which
the Employee can show, clearly and convincingly:
14.8.5.1. Is publicly and openly
known and in the public domain;
14.8.5.2. Becomes publicly and
openly known and in the public domain
through no fault of the Employee; or
14.8.5.3. Is in the Employee's
possession and documented prior to this
Agreement, lawfully obtained from a source
other than from the Company, and not subject
to any obligation of confidentiality or
restricted use.
14.9. "Constructive Termination" means the voluntary
termination of employment by the Employee following a Change
in Duties following a Change of Control.
14.10. "Exchange Act" means the Securities Exchange
Act of 1934, as from to time amended.
14.11. "Invention" means any new or useful art,
discovery, or improvement (including any technologies, tests,
programs, products, concepts, ideas, apparatus, equipment,
machinery, processes, methods, formulae, designs or
techniques), whether or not related to a Product and whether
or not patentable, and all the know-how related thereto.
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14.12. "Product" means any product or service which
is, or may in the reasonable future, be manufactured, sold,
designed, developed, considered by, or of interest to the
Company or an Affiliate (including, but not limited to, any
product or service involving CMP planarization technology,
such as CMP-V tools or any free-abrasive machining, lapping,
polishing and grinding).
14.13. "Technology" means prototypes, models,
concepts, inventions, circuit designs, drawings, hardware,
technological developments and improvements, methods,
techniques, systems, documentation, data, works of authorship,
products, and related information whether or not patentable,
copyrightable, and whether or not presently used or used in
the future.
14.14. "Voting Securities" mean any securities which
ordinarily possess the power to vote in the election of
directors without the happening of any precondition or
contingency.
15. Miscellaneous.
15.1. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Company
and any of its Affiliates or their respective directors,
officers, shareholders, employees, attorneys, agents, or
representatives, including any Severance Agreement, Employment
Letter, Employment Terms, Non-Disclosure Agreement and/or
Employment Agreement and constitutes the entire agreement
between the parties, respecting the subject matter hereof and
there are no representations, warranties or other commitments
other than those expressed herein.
15.2. The Employee represents and warrants to the
Company that the Employee is not a party to or bound by, and
the employment of the Employee by the Company or the
Employee's disclosure of any information to the Company or its
use of such information will not violate or breach any
employment, retainer, consulting, license, non-competition,
non-disclosure, trade secrets or other agreement between the
Employee and any other person, partnership, corporation, joint
venture, association or other entity.
15.3. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing
and signed by the Employee and an appropriate officer of the
Company, pursuant to expressed authority of the Board.
15.4. The Employee agrees to indemnify the Company
and its Affiliates against, and to hold the Company and its
Affiliates harmless from, any and all claims, lawsuits,
losses, damages, expenses, costs and liabilities, including,
without limitation, court costs and attorney's fees, which the
Company or any of its Affiliates may sustain as a result of,
or in connection with, either directly or
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indirectly, the Employee's breach or violation of any of the
provisions of this Agreement.
15.5. The Employee hereby agrees that if the Employee
violates any provision of this Agreement, the Company will be
entitled, if it so elects, to institute and prosecute
proceedings at law or in equity to obtain damages with respect
to such violation or to enforce the specific performance of
this Agreement by the Employee or to enjoin the Employee from
engaging in any activity in violation hereof.
15.6. The waiver by either party to this Agreement of
a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent
breach.
15.7. Any communication which may be required under
this Agreement shall be deemed to have been properly given
when delivered personally at the address set forth below for
the intended party during normal business hours, when sent by
facsimile or other electronic transmission to the respective
facsimile transmission numbers of the parties set forth below
with telephone confirmation of receipt, or when sent by U.S.
registered or certified mail, return receipt requested,
postage prepaid as follows:
If to the Company: SpeedFam International, Inc.
305 N. 54th St.
Chandler, AZ 85226-2416
Attention: Chief Executive Officer
Facsimile: 602-705-2122
Confirm: 602-705-2100
If to the Employee: SpeedFam International
305 N. 54th Street
Chandler, AZ 85226
Facsimile: 602-705-2122
Confirm: 602-705-2101
Notices shall be given to such other addressee or address, or
both, or by way of such other facsimile transmission number,
as a particular party may from time to time request by written
notice to the other party to the Agreement. Each notice,
request, demand, approval or other communication which is sent
in accordance with this Section shall be deemed to be
delivered, given and received for all purposes of this
Agreement as of two (2) business days after the date of
deposit thereof for mailing in a duly constituted U.S. post
office or branch thereof, one (1) business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice
given to a party hereto by any other method shall only be
deemed to be delivered, given and received when actually
received in writing by such party.
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15.8. This Agreement shall inure to the benefit of
and be binding upon the Company and the Employee and their
respective heirs, personal representatives, successors and
assigns.
15.9. All claims, disputes and other matters in
question arising out of, or relating to this Agreement, or the
breach thereof, shall be decided by arbitration, pursuant to
the rules established by the American Arbitration Association
for the arbitration of such disputes, and such arbitration
shall occur in Chandler, Arizona.
15.10. This Agreement may be signed in multiple
counterparts which when taken together shall constitute the
entire Agreement.
15.11. This Agreement shall be governed and construed
in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPEEDFAM INTERNATIONAL, INC. an
Illinois Corporation
By /s/ Makoto Kouzuma
--------------------------------------
Title President/CEO
--------------------------------
Employee
/s/ James N. Farley
----------------------------------------
James N. Farley
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<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of June, 1997, by
and between SPEEDFAM INTERNATIONAL, INC., an Illinois corporation (hereinafter
referred to as the "Company") and MAKOTO KOUZUMA (hereinafter referred to as the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee in
the capacities set forth herein, and the Employee desires to be employed by the
Company in such capacities;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth and subject to the policies as
published in the Company's Employee Handbook, as from time to time
amended.
2. Term. Subject to the provisions for earlier termination
hereinafter set forth in Section 12 of this Agreement, the term of
employment hereunder shall commence on the date hereof and end on the
first May 31st after the date hereof.
3. Automatic Extension. The term of employment of the Employee
hereunder shall automatically continue for additional one (1) year
terms upon the same terms and conditions contained herein unless either
the Company or the Employee shall notify the other at least six (6)
months prior to the expiration of the initial one (1) year term or any
renewal term of its or his intention to terminate the term of
employment of the Employee as of the end of the initial one (1) year
term or any such renewal term, as the case may be.
4. Compensation. The Company agrees to provide the Employee
with the following compensation for all services rendered under this
Agreement:
4.1. Salary. During the term hereof, the Company
shall pay to the Employee a Base Annual Salary of THREE
HUNDRED SIXTY-EIGHT THOUSAND, FOUR HUNDRED DOLLARS ($368,400),
payable in accordance with the standard payroll practices of
the Company (including any salary-reduction contributions to
plans or programs maintained by the Company). Further, the
Base Annual Salary of the Employee shall be reviewed annually
by the Company and adjusted as appropriate.
4.2. Annual Incentive Opportunity. During the term of
this Agreement, the Employee shall participate in the annual
incentive plan maintained by the Company for its executives.
<PAGE> 2
4.3. Long-term Incentive Opportunity. During the term
of this Agreement, the Employee shall participate in any
long-term incentive plan maintained by the Company, including,
but not limited to, stock options, performance shares,
restricted stock and long-term cash incentive plans, in a
manner consistent with other executives of the Company, as
determined by the Board.
4.4. Other Benefits. To the extent the Employee is
eligible under the appropriate laws, the Employee shall be
entitled to participate in and receive benefits under any and
all pension, profit-sharing, health, disability and insurance
plans, if any, which the Company may maintain. The Employee
shall also receive an allowance of THIRTEEN THOUSAND SEVEN
HUNDRED FIFTY-FOUR DOLLARS ($13,754) annually for automobile
expenses.
5. Duties. The Employee shall, subject to election and removal
by the Board of the Company in their sole discretion, serve as
PRESIDENT AND CHIEF EXECUTIVE OFFICER of the Company. As such, the
Employee's duties and responsibilities shall include, but shall not be
limited to, overseeing all corporate functions and directing the
organization to assure the attainment of agreed upon sales and profit
goals and maximum return on invested capital. Subject to the approval
of the Board of the Company, the President/Chief Executive Officer is
responsible for the formulation of current and long-range plans and
objectives, and represents the organization in relations with its
customers and the business and non-business communities. The Employee
shall also be responsible for the performance of such other duties and
responsibilities as may be prescribed from time to time by the Board of
the Company.
6. Extent of Service. The Employee shall devote the Employee's
full business time, attention, and energies to the business of the
Company and its Affiliates, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or not
such activity is pursued for gain, profit, or other pecuniary
advantage, unless written approval is first secured from the Board of
Directors of the Company.
7. Working Facilities. The Employee shall be furnished with
office space, furnishings, secretarial support and such other
facilities and services which are reasonably necessary for the
performance of the Employee's duties.
8. Expenses. The Company will reimburse the Employee for all
reasonable business expenses which are incurred by the Employee in the
promoting of the interests of the Company upon presentation by the
Employee from time to time (at least monthly) of an itemized account of
such expenses containing such detail as may reasonably be required by
the Board of Directors of the Company.
9. Vacation. The Employee shall be entitled to paid vacation
in accordance with Company policy. All vacation time shall be taken by
the Employee at such times
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<PAGE> 3
as shall be mutually agreed upon by the Employee and the Board of
Directors of the Company.
10. Disability. If, as a result of sickness or other
disability, the Employee is not able to perform the Employee's duties,
this Section 10 shall apply as follows:
10.1. For the first ninety (90) consecutive days of
sickness or other disability the Company shall continue to pay
the Employee full Base Annual Salary (reduced by any payments
from any short-term disability plan which may be maintained by
the Company), and shall continue to pay premiums on then
existing group life, health, disability and other insurance
plans with respect to which the Employee participates,
provided the Employee remains eligible to participate
thereunder.
10.2. If the disability or other sickness continues
past ninety (90) consecutive days, the Company, in its sole
discretion, may elect to place the Employee on Disability
Leave of Absence. During such period, the Company shall, for
the remainder of the contract term, or until the Employee
returns from such Disability Leave of Absence, continue to pay
premiums on then existing group life, health, disability and
other insurance plans with respect to which the Employee
participates, provided the Employee remains eligible to
participate thereunder. Further, the Company shall pay to the
Employee, two-thirds (2/3) of the Employee's Base Annual
Salary, reduced by any payments for which the Employee is
eligible from any disability insurance programs maintained by
the Company.
11. Death. If the Employee dies during the term of this
Agreement, the Company shall pay to the Employee's Beneficiary (or if
there is no named Beneficiary, the estate of the Employee), the
compensation as set forth in Section 4 of this Agreement, for the
period up to the date of the Employee's death. In no event shall the
Company be obligated to pay to any person any other compensation with
respect to any period following the date of the Employee's death.
12. Termination of Employment.
12.1. Termination for Cause. The Company may
terminate the Employee's employment under this Section of the
Agreement for Cause. Cause shall be defined as:
12.1.1. The Employee's failure or refusal to
perform the Employee's duties as provided for in this
Agreement, occasioned by reason other than sickness
or other disability of the Employee, which is not
cured within ten (10) business days after written
notice from the Company specifying such failure or
refusal has been delivered to the Employee;
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<PAGE> 4
12.1.2. Commission by the Employee of any
materially fraudulent, dishonest or other act of
misconduct in the performance of the Employee's
duties hereunder, other than at the specific
direction of the Board; or,
12.1.3. Conviction for any felony or crime
involving moral turpitude.
12.1.4. Following a Termination for Cause,
the Company shall pay to the Employee the Base Annual
Salary provided in Section 4.1 accrued up to the date
of termination. In no event shall the Company be
obligated to pay any other compensation with respect
to any period before or after the date of such
termination.
12.2. Termination Following a Change of Control. If,
during a period of two (2) years following a Change of
Control, the employment of the Employee is terminated by the
Company for any reason other than Cause, or if the Employee is
subject to Constructive Termination, benefits shall be payable
under this Section 12.2.
12.2.1. The Employee shall receive within
thirty (30) days of termination a single payment
equal to two (2) times the sum of (i) the Employee's
highest Base Annual Salary during the Employee's
employment with the Company and (ii) the Employee's
highest target annual incentive award opportunity.
12.3. Other Termination at the Election of the
Company. The Company may elect to terminate the employment of
the Employee for any reason other than Cause or following a
Change of Control, upon written notice to the Employee,
accompanied by payment in a lump sum of:
12.3.1. All compensation accrued up to the
date of termination;
12.3.2. An amount equal to one (1) times the
Employee's Base Annual Salary of record on the date
of termination.
13. Restrictive Covenants.
13.1. Employee understands that the Company's
business involves the design, improvement, development,
testing, manufacturing, marketing and sale of products, and
that this business requires substantial investments in capital
and substantial commitments of time and effort by the
Company's employees. The Employee further understands that, as
a result, certain of the Company's personnel, including the
Employee, acquire information with respect to customer
goodwill, trade secrets and Confidential Information, which,
of itself
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<PAGE> 5
and apart from the Employee's abilities, could be of great
value to a competitor of the Company, potential competitors of
the Company, and to others.
13.2. The Employee further understands that
employment with the Company is conditioned upon the Company's
being able to place complete trust and confidence in the
Employee and to rely on the Employee's doing everything
possible to avoid the disclosure or use of Confidential
Information to persons, corporations, organizations and others
outside the Company, which may become known to, or subject to
the control of the Employee during the term of employment
hereunder. The Employee also understands that competition in
the manufacture, sale, and development of products is not
local in nature or scope, but involves various corporations,
organizations and others located within the United States and
throughout the world.
13.3. In recognition of these circumstances and for
the purpose of inducing the Company to employ the Employee (or
continue the employment of the Employee with appropriate
compensation reviews) to repose trust and confidence in the
Employee, and to make Confidential Information available to
the Employee, the Employee agrees that the following
restrictive covenants are necessary and proper for the
protection of the Company.
13.4. Subject to Section 13.6 below, the Employee
will promptly disclose and assign to the Company, without the
right to any form of compensation therefore, every invention
that the Employee, individually or jointly with others, during
the term of the Employee's employment with the Company and for
a period of one (1) year following termination of such
employment for any reason, may discover, invent, conceive or
originate, relating in any way to the present or contemplated
scope of the Company's business with regard to any of its
clients, customers or vendors or to any Product, Technology,
process, or device dealt in, used or under development or
manufacture by the Company for itself or others or that
results from or may be suggested by any work the Employee may
do for the Company or at the Company's request. The Employee
will fully cooperate with the Company in applying for and
securing in the name of the Company or its designee patents or
copyrights with respect to said Inventions in each country in
which the Company may desire to secure patent or copyright
protection. The Employee will promptly execute all proper
documents presented to the Employee for signature by the
Company to enable the Company or its designee to secure such
patent or copyright protection and to transfer legal title
therein, together with any patents or copyrights that may be
issued thereon or in connection therewith, to the Company or
its designee. The Employee will give such true information and
testimony as may be requested of the Employee by the Company
relative to any of said Inventions.
13.5. Subject to Section 13.6 below, the Company
shall have the exclusive right to use in its business, and to
make, use and sell products, processes, and/or services
arising out of any Invention, whether or not
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<PAGE> 6
patentable, which is assignable by the Employee to the Company
pursuant to Section 13.4 above.
13.6. Pursuant to Section 2(3) of the Illinois
Employee Patent Act, the Employee is hereby notified that
Sections 13.4 and 13.5 above do not apply to an Invention for
which no equipment, supplies, facility, technology,
confidential information, or trade secret information of the
Company was used and which was developed entirely on the
Employee's own time, unless:
13.6.1. The Invention was related:
13.6.1.1. To the business of the
Company; or
13.6.1.2. To the Company's actual
or demonstrably anticipated research or
development; or;
13.6.2. The Invention results from any work
performed by the Employee for the Company.
13.7. The Employee agrees that all financial data,
customer lists, plans, contracts, agreements, literature,
manuals, catalogues, brochures, books, records, computer files
or applications, maps, correspondence, and other materials
furnished or made available to the Employee by the Company or
an Affiliate, or any of its clients, or created, prepared or
secured through the efforts of the Employee, relating to the
business conducted by the Company or an Affiliate, whether or
not containing any Confidential Information, are and shall
remain the property of the Company, and the Employee agrees to
deliver all such materials, including all copies thereof, to
the Company upon termination of the Employee's employment
hereunder, or at any other time at the Company's request.
13.8. Other than as expressly directed by the Company
and in the performance of duties to the Company or with the
expressed permission of the Company, the Employee shall never,
during or following the Employee's employment with the
Company, directly or indirectly, sell, use, disclose, lecture
upon, or publish data of information containing or relating to
any Confidential Information or Technology of the Company or
its Affiliates or any Invention assignable to the Company
pursuant to the terms of Section 13.4 above.
13.9. During the term of the Employee's employment
with the Company and for a period of two (2) years after the
termination thereof, the Employee agrees that the Employee
will not:
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<PAGE> 7
13.9.1. Own or have any interest, directly
or indirectly, in or act as an officer, director,
agent, employee, or consultant of, or assist in any
way or in any capacity, any person, firm,
association, partnership, corporation or other entity
which sells or provides products or services in
competition with the Company or its Affiliates
anywhere within the world where any Confidential
Information acquired by the Employee would reasonably
be considered advantageous to such other competing
entity, or
13.9.2. Directly or indirectly entice,
induce or in any manner influence any person who is,
or shall be, in the service of the Company or its
Affiliates to leave such service for the purpose of
engaging in business or being employed by or
associated with any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere in the world.
If any court shall finally hold that the time,
territory or any other provision of this Section 13.9
constitutes an unreasonable restriction against the
Employee, the Employee agrees that the provisions
hereof shall not be rendered null and void, but shall
apply as to such time, territory, and other extent as
such court may determine to be a reasonable
restriction under the circumstances involved.
13.10. The Employee understands that if there is a
breach by the Employee of any duty to the Company with respect
to any Confidential Information or Invention, the Company may
suffer irreparable injury and may not have adequate remedy at
law. As a result, the Employee agrees that if a breach of this
Agreement occurs, the Company may, in addition to any other
remedies available to it, bring an action or actions for
injunction, specific performance, or both, and have entered
into a temporary restraining order, preliminary or permanent
injunction, or other action compelling specific performance.
14. Definitions.
14.1. "Affiliate" means any entity in which the
Company, or any entity which owns, directly or indirectly, a
majority ownership interest in the Company, owns, directly or
indirectly, at least a twenty percent (20%) interest in such
entity.
14.2. "Base Annual Salary" means the annualized value
of the Employee's salary, based on the most recent pay period.
14.3. "Board" means the Board of Directors of the
Company.
14.4. "Change in Duties" means:
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14.4.1. A significant reduction in the
nature or scope of the Employee's authority or duties
from those immediately prior to the date on which a
Change of Control occurs;
14.4.2. A material reduction in the
Employee's Base Annual Salary;
14.4.3. Exclusion from any incentive program
from which the Employee was previously eligible, or
which other executives with comparable duties
participate in;
14.4.4. A change in location of the
Employee's principal place of employment by more than
fifty (50) miles;
14.5. "Change of Control" means:
14.5.1. Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Exchange Act, other than James N. Farley, his spouse,
descendants, or any Trust for the benefit of James N.
Farley, his spouse or descendants, who is, or
becomes, the beneficial owner of securities of the
Company representing more than fifty percent (50%) of
the combined voting power of the Company's then
outstanding securities, other than by reason of any
redemption of stock resulting from the death of James
N. Farley or his spouse;
14.5.2. As a result of, or in connection
with, any tender offer or exchange offer, merger or
other business combination, sale of assets or
contested election, or any combination of the
foregoing transactions (a "Transaction") the persons
who constituted the Board of the Company prior to the
Transaction shall cease to constitute a majority of
the Board of the Company or any successor to the
Company.
14.5.3. The Company is merged or
consolidated with another corporation and as a result
of the merger or consolidation, less than seventy
percent (70%) of the outstanding voting securities of
the surviving or resulting corporation shall then be
owned in the aggregate by the former stockholders of
the Company;
14.5.4. A tender offer or exchange offer is
made and consummated for the ownership of securities
of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's
then outstanding voting securities; or,
14.5.5. The Company transfers substantially
all of its assets to another corporation of which the
Company owns less than fifty percent (50%) of the
outstanding voting securities.
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<PAGE> 9
14.6. "Code" means the Internal Revenue Code of 1986,
as from time to time amended.
14.7. "Company" means SpeedFam International, Inc.,
an Illinois corporation.
14.8. "Confidential Information" means any and all
Technology and/or information which:
14.8.1. Is provided to the Employee by the
Company;
14.8.2. Is created, developed, or otherwise
generated by or on behalf of the Company;
14.8.3. Concerns or relates to any aspect of
the Company's business; or
14.8.4. Is, for any reason, identified by
the Company as confidential.
14.8.5. Notwithstanding the foregoing
provisions of this Section 14.8, Confidential
Information shall not include such information which
the Employee can show, clearly and convincingly:
14.8.5.1. Is publicly and openly
known and in the public domain;
14.8.5.2. Becomes publicly and
openly known and in the public domain
through no fault of the Employee; or
14.8.5.3. Is in the Employee's
possession and documented prior to this
Agreement, lawfully obtained from a source
other than from the Company, and not subject
to any obligation of confidentiality or
restricted use.
14.9. "Constructive Termination" means the voluntary
termination of employment by the Employee following a Change
in Duties following a Change of Control.
14.10. "Exchange Act" means the Securities Exchange
Act of 1934, as from to time amended.
14.11. "Invention" means any new or useful art,
discovery, or improvement (including any technologies, tests,
programs, products, concepts, ideas, apparatus, equipment,
machinery, processes, methods, formulae, designs or
techniques), whether or not related to a Product and whether
or not patentable, and all the know-how related thereto.
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14.12. "Product" means any product or service which
is, or may in the reasonable future, be manufactured, sold,
designed, developed, considered by, or of interest to the
Company or an Affiliate (including, but not limited to, any
product or service involving CMP planarization technology,
such as CMP-V tools or any free-abrasive machining, lapping,
polishing and grinding).
14.13. "Technology" means prototypes, models,
concepts, inventions, circuit designs, drawings, hardware,
technological developments and improvements, methods,
techniques, systems, documentation, data, works of authorship,
products, and related information whether or not patentable,
copyrightable, and whether or not presently used or used in
the future.
14.14. "Voting Securities" mean any securities which
ordinarily possess the power to vote in the election of
directors without the happening of any precondition or
contingency.
15. Miscellaneous.
15.1. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Company
and any of its Affiliates or their respective directors,
officers, shareholders, employees, attorneys, agents, or
representatives, including any Severance Agreement, Employment
Letter, Employment Terms, Non-Disclosure Agreement and/or
Employment Agreement and constitutes the entire agreement
between the parties, respecting the subject matter hereof and
there are no representations, warranties or other commitments
other than those expressed herein.
15.2. The Employee represents and warrants to the
Company that the Employee is not a party to or bound by, and
the employment of the Employee by the Company or the
Employee's disclosure of any information to the Company or its
use of such information will not violate or breach any
employment, retainer, consulting, license, non-competition,
non-disclosure, trade secrets or other agreement between the
Employee and any other person, partnership, corporation, joint
venture, association or other entity.
15.3. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing
and signed by the Employee and an appropriate officer of the
Company, pursuant to expressed authority of the Board.
15.4. The Employee agrees to indemnify the Company
and its Affiliates against, and to hold the Company and its
Affiliates harmless from, any and all claims, lawsuits,
losses, damages, expenses, costs and liabilities, including,
without limitation, court costs and attorney's fees, which the
Company or any of its Affiliates may sustain as a result of,
or in connection with, either directly or
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<PAGE> 11
indirectly, the Employee's breach or violation of any of the
provisions of this Agreement.
15.5. The Employee hereby agrees that if the Employee
violates any provision of this Agreement, the Company will be
entitled, if it so elects, to institute and prosecute
proceedings at law or in equity to obtain damages with respect
to such violation or to enforce the specific performance of
this Agreement by the Employee or to enjoin the Employee from
engaging in any activity in violation hereof.
15.6. The waiver by either party to this Agreement of
a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent
breach.
15.7. Any communication which may be required under
this Agreement shall be deemed to have been properly given
when delivered personally at the address set forth below for
the intended party during normal business hours, when sent by
facsimile or other electronic transmission to the respective
facsimile transmission numbers of the parties set forth below
with telephone confirmation of receipt, or when sent by U.S.
registered or certified mail, return receipt requested,
postage prepaid as follows:
If to the Company: SpeedFam International, Inc.
305 N. 54th St.
Chandler, AZ 85226-2416
Attention: Chairman of the Board
Facsimile: 602-705-2122
Confirm: 602-705-2100
If to the Employee: SpeedFam International, Inc.
305 N. 54th Street
Chandler, AZ 85226
Facsimile: 602-705-2122
Confirm: 602-705-2100
Notices shall be given to such other addressee or address, or
both, or by way of such other facsimile transmission number,
as a particular party may from time to time request by written
notice to the other party to the Agreement. Each notice,
request, demand, approval or other communication which is sent
in accordance with this Section shall be deemed to be
delivered, given and received for all purposes of this
Agreement as of two (2) business days after the date of
deposit thereof for mailing in a duly constituted U.S. post
office or branch thereof, one (1) business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice
given to a party hereto by any other method shall only be
deemed to be delivered, given and received when actually
received in writing by such party.
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15.8. This Agreement shall inure to the benefit of
and be binding upon the Company and the Employee and their
respective heirs, personal representatives, successors and
assigns.
15.9. All claims, disputes and other matters in
question arising out of, or relating to this Agreement, or the
breach thereof, shall be decided by arbitration, pursuant to
the rules established by the American Arbitration Association
for the arbitration of such disputes, and such arbitration
shall occur in Chandler, Arizona.
15.10. This Agreement may be signed in multiple
counterparts which when taken together shall constitute the
entire Agreement.
15.11. This Agreement shall be governed and construed
in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPEEDFAM INTERNATIONAL, INC. an
Illinois Corporation
By /s/ James N. Farley
--------------------------------------
Title Chairman
--------------------------------
Employee
/s/ Makoto Kouzuma
----------------------------------------
Makoto Kouzuma
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<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of June, 1997, by
and between SPEEDFAM INTERNATIONAL, INC., an Illinois corporation (hereinafter
referred to as the "Company") and ROGER K. MARACH (hereinafter referred to as
the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee in
the capacities set forth herein, and the Employee desires to be employed by the
Company in such capacities;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth and subject to the policies as
published in the Company's Employee Handbook, as from time to time
amended.
2. Term. Subject to the provisions for earlier termination
hereinafter set forth in Section <0- 32>12 of this Agreement, the term
of employment hereunder shall commence on the date hereof and end on
the first May 31st after the date hereof.
3. Automatic Extension. The term of employment of the Employee
hereunder shall automatically continue for additional one (1) year
terms upon the same terms and conditions contained herein unless either
the Company or the Employee shall notify the other at least six (6)
months prior to the expiration of the initial one (1) year term or any
renewal term of its or his intention to terminate the term of
employment of the Employee as of the end of the initial one (1) year
term or any such renewal term, as the case may be.
4. Compensation. The Company agrees to provide the Employee
with the following compensation for all services rendered under this
Agreement:
4.1. Salary. During the term hereof, the Company
shall pay to the Employee a Base Annual Salary of ONE HUNDRED
EIGHTY THOUSAND DOLLARS ($180,000), payable in accordance with
the standard payroll practices of the Company (including any
salary-reduction contributions to plans or programs maintained
by the Company). Further, the Base Annual Salary of the
Employee shall be reviewed annually by the Company and
adjusted as appropriate.
4.2. Annual Incentive Opportunity. During the term of
this Agreement, the Employee shall participate in the annual
incentive plan maintained by the Company for its executives.
<PAGE> 2
4.3. Long-term Incentive Opportunity. During the term
of this Agreement, the Employee shall participate in any
long-term incentive plan maintained by the Company, including,
but not limited to, stock options, performance shares,
restricted stock and long-term cash incentive plans, in a
manner consistent with other executives of the Company, as
determined by the Board.
4.4. Other Benefits. To the extent the Employee is
eligible under the appropriate laws, the Employee shall be
entitled to participate in and receive benefits under any and
all pension, profit-sharing, health, disability and insurance
plans, if any, which the Company may maintain. The Employee
shall also receive an allowance of SIX THOUSAND EIGHT HUNDRED
THIRTY EIGHT DOLLARS ($6,838) annually for automobile
expenses.
5. Duties. The Employee shall, subject to election and
removal by the Board of the Company in their sole discretion, serve as
TREASURER/CHIEF FINANCIAL OFFICER of the Company. As such, the
Employee's duties and responsibilities shall include, but shall not be
limited to, overseeing the financial functions of the organization,
including its financial plans and policies, accounting practices and
procedures, and the communication of financial information to the
financial community. The Employee shall report to the President/Chief
Executive Officer of the Company and shall also be responsible for the
performance of such other duties and responsibilities as may be
prescribed from time to time by the President/Chief Executive Officer
or the Board of the Company.
6. Extent of Service. The Employee shall devote the
Employee's full business time, attention, and energies to the business
of the Company and its Affiliates and shall not, during the term of
this Agreement, be engaged in any other business activity, whether or
not such activity is pursued for gain, profit, or other pecuniary
advantage, unless written approval is first secured from the Board of
the Company.
7. Working Facilities. The Employee shall be furnished with
office space, furnishings, secretarial support and such other
facilities and services which are reasonably necessary for the
performance of the Employee's duties.
8. Expenses. The Company will reimburse the Employee for all
reasonable business expenses which are incurred by the Employee in the
promoting of the interests of the Company upon presentation by the
Employee from time to time (at least monthly) of an itemized account of
such expenses containing such detail as may reasonably be required by
the President/Chief Executive Officer of the Company.
9. Vacation. The Employee shall be entitled to paid vacation
in accordance with Company policy. All vacation time shall be taken by
the Employee at such times as shall be mutually agreed upon by the
Employee and the Chief Executive Officer of the Company.
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<PAGE> 3
10. Disability. If, as a result of sickness or other
disability, the Employee is not able to perform the Employee's duties,
this Section 10 shall apply as follows:
10.1. For the first ninety (90) consecutive days of
sickness or other disability the Company shall continue to pay
the Employee full Base Annual Salary (reduced by any payments
from any short-term disability plan which may be maintained by
the Company), and shall continue to pay premiums on then
existing group life, health, disability and other insurance
plans with respect to which the Employee participates,
provided the Employee remains eligible to participate
thereunder.
10.2. If the disability or other sickness continues
past ninety (90) consecutive days, the Company, in its sole
discretion, may elect to place the Employee on Disability
Leave of Absence. During such period, the Company shall, for
the remainder of the contract term, or until the Employee
returns from such Disability Leave of Absence, continue to pay
premiums on then existing group life, health, disability and
other insurance plans with respect to which the Employee
participates, provided the Employee remains eligible to
participate thereunder. Further, the Company shall pay to the
Employee, two-thirds (2/3) of the Employee's Base Annual
Salary, reduced by any payments for which the Employee is
eligible from any disability insurance programs maintained by
the Company.
11. Death. If the Employee dies during the term of this
Agreement, the Company shall pay to the Employee's Beneficiary (or if
there is no named Beneficiary, the estate of the Employee), the
compensation as set forth in Section<0- 32>4 of this Agreement, for the
period up to the date of the Employee's death. In no event shall the
Company be obligated to pay to any person any other compensation with
respect to any period following the date of the Employee's death.
12. Termination of Employment.
12.1. Termination for Cause. The Company may
terminate the Employee's employment under this Section of the
Agreement for Cause. Cause shall be defined as:
12.1.1. The Employee's failure or refusal to
perform the Employee's duties as provided for in this
Agreement, occasioned by reason other than sickness
or other disability of the Employee, which is not
cured within ten (10) business days after written
notice from the Company specifying such failure or
refusal has been delivered to the Employee;
12.1.2. Commission by the Employee of any
materially fraudulent, dishonest or other act of
misconduct in the performance of the Employee's
duties hereunder, other than at the specific
direction of the Board; or,
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<PAGE> 4
12.1.3. Conviction for any felony or crime
involving moral turpitude.
12.1.4. Following a Termination for Cause, the
Company shall pay to the Employee the Base Annual
Salary provided in Section 4.1 accrued up to the date
of termination. In no event shall the Company be
obligated to pay any other compensation with respect
to any period before or after the date of such
termination.
12.2. Termination Following a Change of Control. If,
during a period of two (2) years following a Change of
Control, the employment of the Employee is terminated by the
Company for any reason other than Cause, or if the Employee is
subject to Constructive Termination, benefits shall be payable
under this Section 12.2.
12.2.1. The Employee shall receive within
thirty (30) days of termination a single payment
equal to two (2) times the sum of (i) the Employee's
highest Base Annual Salary during the Employee's
employment with the Company and (ii) the Employee's
highest target annual incentive award opportunity.
12.3. Other Termination at the Election of the
Company. The Company may elect to terminate the employment of
the Employee for any reason other than Cause or following a
Change of Control, upon written notice to the Employee,
accompanied by payment in a lump sum of:
12.3.1. All compensation accrued up to the date
of termination;
12.3.2. An amount equal to one (1) times the
Employee's Base Annual Salary of record on the date
of termination.
13. Restrictive Covenants.
13.1. Employee understands that the Company's
business involves the design, improvement, development,
testing, manufacturing, marketing and sale of products, and
that this business requires substantial investments in capital
and substantial commitments of time and effort by the
Company's employees. The Employee further understands that, as
a result, certain of the Company's personnel, including the
Employee, acquire information with respect to customer
goodwill, trade secrets and Confidential Information, which,
of itself and apart from the Employee's abilities, could be of
great value to a competitor of the Company, potential
competitors of the Company, and to others.
13.2. The Employee further understands that
employment with the Company is conditioned upon the Company's
being able to place complete trust and confidence in the
Employee and to rely on the Employee's doing everything
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<PAGE> 5
possible to avoid the disclosure or use of Confidential
Information to persons, corporations, organizations and others
outside the Company, which may become known to, or subject to
the control of the Employee during the term of employment
hereunder. The Employee also understands that competition in
the manufacture, sale, and development of products is not
local in nature or scope, but involves various corporations,
organizations and others located within the United States and
throughout the world.
13.3. In recognition of these circumstances and for
the purpose of inducing the Company to employ the Employee (or
continue the employment of the Employee with appropriate
compensation reviews) to repose trust and confidence in the
Employee, and to make Confidential Information available to
the Employee, the Employee agrees that the following
restrictive covenants are necessary and proper for the
protection of the Company.
13.4. Subject to Section<0- 32>13.6 below, the
Employee will promptly disclose and assign to the Company,
without the right to any form of compensation therefore, every
invention that the Employee, individually or jointly with
others, during the term of the Employee's employment with the
Company and for a period of one (1) year following termination
of such employment for any reason, may discover, invent,
conceive or originate, relating in any way to the present or
contemplated scope of the Company's business with regard to
any of its clients, customers or vendors or to any Product,
Technology, process, or device dealt in, used or under
development or manufacture by the Company for itself or others
or that results from or may be suggested by any work the
Employee may do for the Company or at the Company's request.
The Employee will fully cooperate with the Company in applying
for and securing in the name of the Company or its designee
patents or copyrights with respect to said Inventions in each
country in which the Company may desire to secure patent or
copyright protection. The Employee will promptly execute all
proper documents presented to the Employee for signature by
the Company to enable the Company or its designee to secure
such patent or copyright protection and to transfer legal
title therein, together with any patents or copyrights that
may be issued thereon or in connection therewith, to the
Company or its designee. The Employee will give such true
information and testimony as may be requested of the Employee
by the Company relative to any of said Inventions.
13.5. Subject to Section 13.6 below, the Company
shall have the exclusive right to use in its business, and to
make, use and sell products, processes, and/or services
arising out of any Invention, whether or not patentable, which
is assignable by the Employee to the Company pursuant to
Section 13.4 above.
13.6. Pursuant to Section 2(3) of the Illinois
Employee Patent Act, the Employee is hereby notified that
Sections 13.4 and 13.5 above do not apply to an Invention for
which no equipment, supplies, facility, technology,
confidential
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<PAGE> 6
information, or trade secret information of the
Company was used and which was developed entirely on
the Employee's own time, unless:
13.6.1. The Invention was related:
13.6.1.1. To the business of the
Company; or
13.6.1.2. To the Company's actual or
demonstrably anticipated research or
development;
or;
13.6.2. The Invention results from any work
performed by the Employee for the Company.
13.7. The Employee agrees that all financial data,
customer lists, plans, contracts, agreements, literature,
manuals, catalogues, brochures, books, records, computer files
or applications, maps, correspondence, and other materials
furnished or made available to the Employee by the Company or
an Affiliate, or any of its clients, or created, prepared or
secured through the efforts of the Employee, relating to the
business conducted by the Company or an Affiliate, whether or
not containing any Confidential Information, are and shall
remain the property of the Company, and the Employee agrees to
deliver all such materials, including all copies thereof, to
the Company upon termination of the Employee's employment
hereunder, or at any other time at the Company's request.
13.8. Other than as expressly directed by the Company
and in the performance of duties to the Company or with the
expressed permission of the Company, the Employee shall never,
during or following the Employee's employment with the
Company, directly or indirectly, sell, use, disclose, lecture
upon, or publish data of information containing or relating to
any Confidential Information or Technology of the Company or
its Affiliates or any Invention assignable to the Company
pursuant to the terms of Section<0- 32>13.4 above.
13.9. During the term of the Employee's employment
with the Company and for a period of two (2) years after the
termination thereof, the Employee agrees that the Employee
will not:
13.9.1. Own or have any interest, directly or
indirectly, in or act as an officer, director, agent,
employee, or consultant of, or assist in any way or
in any capacity, any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere within the
world where any Confidential Information acquired by
the Employee would reasonably be considered
advantageous to such other competing entity, or
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<PAGE> 7
13.9.2. Directly or indirectly entice, induce
or in any manner influence any person who is, or
shall be, in the service of the Company or its
Affiliates to leave such service for the purpose of
engaging in business or being employed by or
associated with any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere in the world.
If any court shall finally hold that the time,
territory or any other provision of this Section 13.9
constitutes an unreasonable restriction against the
Employee, the Employee agrees that the provisions
hereof shall not be rendered null and void, but shall
apply as to such time, territory, and other extent as
such court may determine to be a reasonable
restriction under the circumstances involved.
13.10. The Employee understands that if there is a
breach by the Employee of any duty to the Company with respect
to any Confidential Information or Invention, the Company may
suffer irreparable injury and may not have adequate remedy at
law. As a result, the Employee agrees that if a breach of this
Agreement occurs, the Company may, in addition to any other
remedies available to it, bring an action or actions for
injunction, specific performance, or both, and have entered
into a temporary restraining order, preliminary or permanent
injunction, or other action compelling specific performance.
14. Definitions.
14.1. "Affiliate" means any entity in which the
Company, or any entity which owns, directly or indirectly, a
majority ownership interest in the Company, owns, directly or
indirectly, at least a twenty percent (20%) interest in such
entity.
14.2. "Base Annual Salary" means the annualized value
of the Employee's salary, based on the most recent pay period.
14.3. "Board" means the Board of Directors of the
Company.
14.4. "Change in Duties" means:
14.4.1. A significant reduction in the nature
or scope of the Employee's authority or duties from
those immediately prior to the date on which a Change
of Control occurs;
14.4.2. A material reduction in the Employee's
Base Annual Salary;
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<PAGE> 8
14.4.3. Exclusion from any incentive program
from which the Employee was previously eligible, or
which other executives with comparable duties
participate in;
14.4.4. A change in location of the Employee's
principal place of employment by more than fifty (50)
miles;
14.5. "Change of Control" means:
14.5.1. Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Exchange Act, other than James N. Farley, his spouse,
descendants, or any Trust for the benefit of James N.
Farley, his spouse or descendants, who is, or
becomes, the beneficial owner of securities of the
Company representing more than fifty percent (50%) of
the combined voting power of the Company's then
outstanding securities, other than by reason of any
redemption of stock resulting from the death of James
N. Farley or his spouse;
14.5.2. As a result of, or in connection with,
any tender offer or exchange offer, merger or other
business combination, sale of assets or contested
election, or any combination of the foregoing
transactions (a "Transaction") the persons who
constituted the Board of the Company prior to the
Transaction shall cease to constitute a majority of
the Board of the Company or any successor to the
Company.
14.5.3. The Company is merged or consolidated
with another corporation and as a result of the
merger or consolidation, less than seventy percent
(70%) of the outstanding voting securities of the
surviving or resulting corporation shall then be
owned in the aggregate by the former stockholders of
the Company;
14.5.4. A tender offer or exchange offer is
made and consummated for the ownership of securities
of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's
then outstanding voting securities; or,
14.5.5. The Company transfers substantially all
of its assets to another corporation of which the
Company owns less than fifty percent (50%) of the
outstanding voting securities.
14.6. "Code" means the Internal Revenue Code of 1986,
as from time to time amended.
14.7. "Company" means SpeedFam International, Inc., an
Illinois corporation.
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<PAGE> 9
14.8. "Confidential Information" means any and all
Technology and/or information which:
14.8.1. Is provided to the Employee by the
Company;
14.8.2. Is created, developed, or otherwise
generated by or on behalf of the Company;
14.8.3. Concerns or relates to any aspect of
the Company's business; or
14.8.4. Is, for any reason, identified by the
Company as confidential.
14.8.5. Notwithstanding the foregoing
provisions of this Section 14.8, Confidential
Information shall not include such information which
the Employee can show, clearly and convincingly:
14.8.5.1. Is publicly and openly known
and in the public domain;
14.8.5.2. Becomes publicly and openly
known and in the public domain through no fault
of the Employee; or
14.8.5.3. Is in the Employee's
possession and documented prior to this
Agreement, lawfully obtained from a source
other than from the Company, and not subject to
any obligation of confidentiality or restricted
use.
14.9. "Constructive Termination" means the voluntary
termination of employment by the Employee following a Change
in Duties following a Change of Control.
14.10. "Exchange Act" means the Securities Exchange
Act of 1934, as from to time amended.
14.11. "Invention" means any new or useful art,
discovery, or improvement (including any technologies, tests,
programs, products, concepts, ideas, apparatus, equipment,
machinery, processes, methods, formulae, designs or
techniques), whether or not related to a Product and whether
or not patentable, and all the know-how related thereto.
14.12. "Product" means any product or service which
is, or may in the reasonable future, be manufactured, sold,
designed, developed, considered by, or of interest to the
Company or an Affiliate (including, but not limited to, any
product or service involving CMP planarization technology,
such as CMP-V tools or any free-abrasive machining, lapping,
polishing and grinding).
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<PAGE> 10
14.13. "Technology" means prototypes, models,
concepts, inventions, circuit designs, drawings, hardware,
technological developments and improvements, methods,
techniques, systems, documentation, data, works of authorship,
products, and related information whether or not patentable,
copyrightable, and whether or not presently used or used in
the future.
14.14. "Voting Securities" mean any securities which
ordinarily possess the power to vote in the election of
directors without the happening of any precondition or
contingency.
15. Miscellaneous.
15.1. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Company
and any of its Affiliates or their respective directors,
officers, shareholders, employees, attorneys, agents, or
representatives, including any Severance Agreement, Employment
Letter, Employment Terms, Non-Disclosure Agreement and/or
Employment Agreement and constitutes the entire agreement
between the parties, respecting the subject matter hereof and
there are no representations, warranties or other commitments
other than those expressed herein.
15.2. The Employee represents and warrants to the
Company that the Employee is not a party to or bound by, and
the employment of the Employee by the Company or the
Employee's disclosure of any information to the Company or its
use of such information will not violate or breach any
employment, retainer, consulting, license, non-competition,
non-disclosure, trade secrets or other agreement between the
Employee and any other person, partnership, corporation, joint
venture, association or other entity.
15.3. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing
and signed by the Employee and an appropriate officer of the
Company, pursuant to expressed authority of the Board.
15.4. The Employee agrees to indemnify the Company and
its Affiliates against, and to hold the Company and its
Affiliates harmless from, any and all claims, lawsuits,
losses, damages, expenses, costs and liabilities, including,
without limitation, court costs and attorney's fees, which the
Company or any of its Affiliates may sustain as a result of,
or in connection with, either directly or indirectly, the
Employee's breach or violation of any of the provisions of
this Agreement.
15.5. The Employee hereby agrees that if the Employee
violates any provision of this Agreement, the Company will be
entitled, if it so elects, to institute and prosecute
proceedings at law or in equity to obtain damages with respect
to such violation or to enforce the specific performance of
this
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<PAGE> 11
Agreement by the Employee or to enjoin the Employee from
engaging in any activity in violation hereof.
15.6. The waiver by either party to this Agreement of
a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent
breach.
15.7. Any communication which may be required under
this Agreement shall be deemed to have been properly given
when delivered personally at the address set forth below for
the intended party during normal business hours, when sent by
facsimile or other electronic transmission to the respective
facsimile transmission numbers of the parties set forth below
with telephone confirmation of receipt, or when sent by U.S.
registered or certified mail, return receipt requested,
postage prepaid as follows:
If to the Company: SpeedFam International, Inc.
305 N. 54th Street
Chandler, AZ 85226-2416
Attention: Chief Executive Officer
Facsimile: 602-705-2122
Confirm: 602-705-2100
If to the Employee: Roger K. Marach
8309 E. La Juanita Rd.
Scottsdale, AZ 85255
Facsimile: (602) 585-2379
Confirm: (602) 585-2316
Notices shall be given to such other addressee or address, or
both, or by way of such other facsimile transmission number,
as a particular party may from time to time request by written
notice to the other party to the Agreement. Each notice,
request, demand, approval or other communication which is sent
in accordance with this Section shall be deemed to be
delivered, given and received for all purposes of this
Agreement as of two (2) business days after the date of
deposit thereof for mailing in a duly constituted U.S. post
office or branch thereof, one (1) business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice
given to a party hereto by any other method shall only be
deemed to be delivered, given and received when actually
received in writing by such party.
15.8. This Agreement shall inure to the benefit of and
be binding upon the Company and the Employee and their
respective heirs, personal representatives, successors and
assigns.
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<PAGE> 12
15.9. All claims, disputes and other matters in
question arising out of, or relating to this Agreement, or the
breach thereof, shall be decided by arbitration, pursuant to
the rules established by the American Arbitration Association
for the arbitration of such disputes, and such arbitration
shall occur in Chandler, Arizona.
15.10. This Agreement may be signed in multiple
counterparts which when taken together shall constitute the
entire Agreement.
15.11. This Agreement shall be governed and construed
in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPEEDFAM INTERNATIONAL, INC. an Illinois
Corporation
By /s/ Makoto Kouzuma
-------------------------------------
Title President/CEO
----------------------------------
Employee
/s/ Roger K. Marach
----------------------------------------
Roger K. Marach
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<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of June, 1997, by
and between SPEEDFAM INTERNATIONAL, INC., an Illinois corporation (hereinafter
referred to as the "Company") and CHRISTOPHER E. AUGUR (hereinafter referred to
as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee in
the capacities set forth herein, and the Employee desires to be employed by the
Company in such capacities;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth and subject to the policies as
published in the Company's Employee Handbook, as from time to time
amended.
2. Term. Subject to the provisions for earlier termination
hereinafter set forth in Section 12 of this Agreement, the term of
employment hereunder shall commence on the date hereof and end on the
first May 31st after the date hereof.
3. Automatic Extension. The term of employment of the Employee
hereunder shall automatically continue for additional one (1) year
terms upon the same terms and conditions contained herein unless either
the Company or the Employee shall notify the other at least six (6)
months prior to the expiration of the initial one (1) year term or any
renewal term of its or his intention to terminate the term of
employment of the Employee as of the end of the initial one (1) year
term or any such renewal term, as the case may be.
4. Compensation. The Company agrees to provide the Employee
with the following compensation for all services rendered under this
Agreement:
4.1. Salary. During the term hereof, the Company
shall pay to the Employee a Base Annual Salary of TWO HUNDRED
TWENTY FIVE THOUSAND DOLLARS ($225,000), payable in accordance
with the standard payroll practices of the Company (including
any salary-reduction contributions to plans or programs
maintained by the Company). Further, the Base Annual Salary of
the Employee shall be reviewed annually by the Company and
adjusted as appropriate.
4.2. Annual Incentive Opportunity. During the term of
this Agreement, the Employee shall participate in the annual
incentive plan maintained by the Company for its executives.
<PAGE> 2
4.3. Long-term Incentive Opportunity. During the term
of this Agreement, the Employee shall participate in any
long-term incentive plan maintained by the Company, including,
but not limited to, stock options, performance shares,
restricted stock and long-term cash incentive plans, in a
manner consistent with other executives of the Company, as
determined by the Board.
4.4. Other Benefits. To the extent the Employee is
eligible under the appropriate laws, the Employee shall be
entitled to participate in and receive benefits under any and
all pension, profit-sharing, health, disability and insurance
plans, if any, which the Company may maintain. The Employee
shall also receive an allowance of SIX THOUSAND EIGHT HUNDRED
THIRTY EIGHT DOLLARS ($6,838) annually for automobile
expenses.
5. Duties. The Employee shall, subject to election and removal
by the Board of Directors of SpeedFam Corporation, an Illinois
corporation and subsidiary of the Company in their sole discretion,
serve as PRESIDENT of SpeedFam Corporation. As such, the Employee's
duties and responsibilities shall include, but shall not be limited to
overseeing all corporate functions and directing SpeedFam Corporation
to ensure the attainment of agreed-upon profit and operations goals.
The President of SpeedFam Corporation shall establish objectives, plans
and budgets for SpeedFam Corporation. The President of SpeedFam
Corporation is accountable for SpeedFam Corporation's profit and loss
and for the attainment of preestablished current and long-range
objectives. The President of SpeedFam Corporation shall report to the
President/Chief Executive Officer of the Company. The Employee shall
also be responsible for the performance of such other duties and
responsibilities as may be prescribed from time to time by the
President/Chief Executive Officer of the Company or the Board of
Directors of SpeedFam Corporation.
6. Extent of Service. The Employee shall devote the Employee's
full business time, attention, and energies to the business of SpeedFam
Corporation and its Affiliates and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or not
such activity is pursued for gain, profit, or other pecuniary
advantage, unless written approval is first secured from the Board of
Directors of SpeedFam Corporation.
7. Working Facilities. The Employee shall be furnished with
office space, furnishings, secretarial support and such other
facilities and services which are reasonably necessary for the
performance of the Employee's duties.
8. Expenses. The Company will reimburse the Employee for all
reasonable business expenses which are incurred by the Employee in the
promoting of the interests of the Company upon presentation by the
Employee from time to time (at least monthly) of an itemized account of
such expenses containing such detail as may reasonably be required by
the Board of Directors of SpeedFam Corporation.
9. Vacation. The Employee shall be entitled to paid vacation
in accordance with Company policy. All vacation time shall be taken by
the Employee at such times
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<PAGE> 3
as shall be mutually agreed upon by the Employee and the
President/Chief Executive Officer of the Company.
10. Disability. If, as a result of sickness or other
disability, the Employee is not able to perform the Employee's duties,
this Section 10 shall apply as follows:
10.1. For the first ninety (90) consecutive days of
sickness or other disability the Company shall continue to pay
the Employee full Base Annual Salary (reduced by any payments
from any short-term disability plan which may be maintained by
the Company), and shall continue to pay premiums on then
existing group life, health, disability and other insurance
plans with respect to which the Employee participates,
provided the Employee remains eligible to participate
thereunder.
10.2. If the disability or other sickness continues
past ninety (90) consecutive days, the Company, in its sole
discretion, may elect to place the Employee on Disability
Leave of Absence. During such period, the Company shall, for
the remainder of the contract term, or until the Employee
returns from such Disability Leave of Absence, continue to pay
premiums on then existing group life, health, disability and
other insurance plans with respect to which the Employee
participates, provided the Employee remains eligible to
participate thereunder. Further, the Company shall pay to the
Employee, two-thirds (2/3) of the Employee's Base Annual
Salary, reduced by any payments for which the Employee is
eligible from any disability insurance programs maintained by
the Company.
11. Death. If the Employee dies during the term of this
Agreement, the Company shall pay to the Employee's Beneficiary (or if
there is no named Beneficiary, the estate of the Employee), the
compensation as set forth in Section 4 of this Agreement, for the
period up to the date of the Employee's death. In no event shall the
Company be obligated to pay to any person any other compensation with
respect to any period following the date of the Employee's death.
12. Termination of Employment.
12.1. Termination for Cause. The Company may
terminate the Employee's employment under this Section of the
Agreement for Cause. Cause shall be defined as:
12.1.1. The Employee's failure or refusal to
perform the Employee's duties as provided for in this
Agreement, occasioned by reason other than sickness
or other disability of the Employee, which is not
cured within ten (10) business days after written
notice from the Company specifying such failure or
refusal has been delivered to the Employee;
12.1.2. Commission by the Employee of any
materially fraudulent, dishonest or other act of
misconduct in the performance of the
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<PAGE> 4
Employee's duties hereunder, other than at the
specific direction of the Board; or,
12.1.3. Conviction for any felony or crime
involving moral turpitude.
12.1.4. Following a Termination for Cause, the
Company shall pay to the Employee the Base Annual
Salary provided in Section 4.1 accrued up to the
date of termination. In no event shall the Company be
obligated to pay any other compensation with respect
to any period before or after the date of such
termination.
12.2. Termination Following a Change of Control. If,
during a period of two (2) years following a Change of
Control, the employment of the Employee is terminated by the
Company for any reason other than Cause, or if the Employee is
subject to Constructive Termination, benefits shall be payable
under this Section 12.2.
12.2.1. The Employee shall receive within
thirty (30) days of termination a single payment
equal to two (2) times the sum of (i) the Employee's
highest Base Annual Salary during the Employee's
employment with the Company and (ii) the Employee's
highest target annual incentive award opportunity.
12.3. Other Termination at the Election of the
Company. The Company may elect to terminate the employment of
the Employee for any reason other than Cause or following a
Change of Control, upon written notice to the Employee,
accompanied by payment in a lump sum of:
12.3.1. All compensation accrued up to the date
of termination;
12.3.2. An amount equal to one (1) times the
Employee's Base Annual Salary of record on the date
of termination.
13. Restrictive Covenants.
13.1. Employee understands that the Company's
business involves the design, improvement, development,
testing, manufacturing, marketing and sale of products, and
that this business requires substantial investments in capital
and substantial commitments of time and effort by the
Company's employees. The Employee further understands that, as
a result, certain of the Company's personnel, including the
Employee, acquire information with respect to customer
goodwill, trade secrets and Confidential Information, which,
of itself and apart from the Employee's abilities, could be of
great value to a competitor of the Company, potential
competitors of the Company, and to others.
13.2. The Employee further understands that
employment with the Company is conditioned upon the Company's
being able to place complete trust
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<PAGE> 5
and confidence in the Employee and to rely on the Employee's
doing everything possible to avoid the disclosure or use of
Confidential Information to persons, corporations,
organizations and others outside the Company, which may become
known to, or subject to the control of the Employee during the
term of employment hereunder. The Employee also understands
that competition in the manufacture, sale, and development of
products is not local in nature or scope, but involves various
corporations, organizations and others located within the
United States and throughout the world.
13.3. In recognition of these circumstances and for
the purpose of inducing the Company to employ the Employee (or
continue the employment of the Employee with appropriate
compensation reviews) to repose trust and confidence in the
Employee, and to make Confidential Information available to
the Employee, the Employee agrees that the following
restrictive covenants are necessary and proper for the
protection of the Company.
13.4. Subject to Section 13.6 below, the Employee
will promptly disclose and assign to the Company, without the
right to any form of compensation therefore, every invention
that the Employee, individually or jointly with others, during
the term of the Employee's employment with the Company and for
a period of one (1) year following termination of such
employment for any reason, may discover, invent, conceive or
originate, relating in any way to the present or contemplated
scope of the Company's business with regard to any of its
clients, customers or vendors or to any Product, Technology,
process, or device dealt in, used or under development or
manufacture by the Company for itself or others or that
results from or may be suggested by any work the Employee may
do for the Company or at the Company's request. The Employee
will fully cooperate with the Company in applying for and
securing in the name of the Company or its designee patents or
copyrights with respect to said Inventions in each country in
which the Company may desire to secure patent or copyright
protection. The Employee will promptly execute all proper
documents presented to the Employee for signature by the
Company to enable the Company or its designee to secure such
patent or copyright protection and to transfer legal title
therein, together with any patents or copyrights that may be
issued thereon or in connection therewith, to the Company or
its designee. The Employee will give such true information and
testimony as may be requested of the Employee by the Company
relative to any of said Inventions.
13.5. Subject to Section 13.6 below, the Company
shall have the exclusive right to use in its business, and to
make, use and sell products, processes, and/or services
arising out of any Invention, whether or not patentable, which
is assignable by the Employee to the Company pursuant to
Section 13.4 above.
13.6. Pursuant to Section 2(3) of the Illinois
Employee Patent Act, the Employee is hereby notified that
Sections 13.4 and 13.5 above do not apply to an Invention for
which no equipment, supplies, facility, technology,
confidential
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<PAGE> 6
information, or trade secret information of the Company was
used and which was developed entirely on the Employee's own
time, unless:
13.6.1. The Invention was related:
13.6.1.1. To the business of the
Company; or
13.6.1.2. To the Company's actual or
demonstrably anticipated research or
development;
or;
13.6.2. The Invention results from any work
performed by the Employee for the Company.
13.7. The Employee agrees that all financial data,
customer lists, plans, contracts, agreements, literature,
manuals, catalogues, brochures, books, records, computer files
or applications, maps, correspondence, and other materials
furnished or made available to the Employee by the Company or
an Affiliate, or any of its clients, or created, prepared or
secured through the efforts of the Employee, relating to the
business conducted by the Company or an Affiliate, whether or
not containing any Confidential Information, are and shall
remain the property of the Company, and the Employee agrees to
deliver all such materials, including all copies thereof, to
the Company upon termination of the Employee's employment
hereunder, or at any other time at the Company's request.
13.8. Other than as expressly directed by the Company
and in the performance of duties to the Company or with the
expressed permission of the Company, the Employee shall never,
during or following the Employee's employment with the
Company, directly or indirectly, sell, use, disclose, lecture
upon, or publish data of information containing or relating to
any Confidential Information or Technology of the Company or
its Affiliates or any Invention assignable to the Company
pursuant to the terms of Section 13.4 above.
13.9. During the term of the Employee's employment
with the Company and for a period of two (2) years after the
termination thereof, the Employee agrees that the Employee
will not:
13.9.1. Own or have any interest, directly or
indirectly, in or act as an officer, director, agent,
employee, or consultant of, or assist in any way or
in any capacity, any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere within the
world where any Confidential Information acquired by
the Employee would reasonably be considered
advantageous to such other competing entity, or
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<PAGE> 7
13.9.2. Directly or indirectly entice, induce
or in any manner influence any person who is, or
shall be, in the service of the Company or its
Affiliates to leave such service for the purpose of
engaging in business or being employed by or
associated with any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere in the world.
If any court shall finally hold that the time,
territory or any other provision of this Section 13.9
constitutes an unreasonable restriction against the
Employee, the Employee agrees that the provisions
hereof shall not be rendered null and void, but shall
apply as to such time, territory, and other extent as
such court may determine to be a reasonable
restriction under the circumstances involved.
13.10. The Employee understands that if there is a
breach by the Employee of any duty to the Company with respect
to any Confidential Information or Invention, the Company may
suffer irreparable injury and may not have adequate remedy at
law. As a result, the Employee agrees that if a breach of this
Agreement occurs, the Company may, in addition to any other
remedies available to it, bring an action or actions for
injunction, specific performance, or both, and have entered
into a temporary restraining order, preliminary or permanent
injunction, or other action compelling specific performance.
14. Definitions.
14.1. "Affiliate" means any entity in which the
Company, or any entity which owns, directly or indirectly, a
majority ownership interest in the Company, owns, directly or
indirectly, at least a twenty percent (20%) interest in such
entity.
14.2. "Base Annual Salary" means the annualized value
of the Employee's salary, based on the most recent pay period.
14.3. "Board" means the Board of Directors of the
Company.
14.4. "Change in Duties" means:
14.4.1. A significant reduction in the nature
or scope of the Employee's authority or duties from
those immediately prior to the date on which a Change
of Control occurs;
14.4.2. A material reduction in the Employee's
Base Annual Salary;
14.4.3. Exclusion from any incentive program
from which the Employee was previously eligible, or
which other executives with comparable duties
participate in;
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<PAGE> 8
14.4.4. A change in location of the Employee's
principal place of employment by more than fifty (50)
miles;
14.5. "Change of Control" means:
14.5.1. Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Exchange Act, other than James N. Farley, his spouse,
descendants, or any Trust for the benefit of James N.
Farley, his spouse or descendants, who is, or
becomes, the beneficial owner of securities of the
Company representing more than fifty percent (50%) of
the combined voting power of the Company's then
outstanding securities, other than by reason of any
redemption of stock resulting from the death of James
N. Farley or his spouse;
14.5.2. As a result of, or in connection with,
any tender offer or exchange offer, merger or other
business combination, sale of assets or contested
election, or any combination of the foregoing
transactions (a "Transaction") the persons who
constituted the Board of the Company prior to the
Transaction shall cease to constitute a majority of
the Board of the Company or any successor to the
Company.
14.5.3. The Company is merged or consolidated
with another corporation and as a result of the
merger or consolidation, less than seventy percent
(70%) of the outstanding voting securities of the
surviving or resulting corporation shall then be
owned in the aggregate by the former stockholders of
the Company;
14.5.4. A tender offer or exchange offer is
made and consummated for the ownership of securities
of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's
then outstanding voting securities; or,
14.5.5. The Company transfers substantially all
of its assets to another corporation of which the
Company owns less than fifty percent (50%) of the
outstanding voting securities.
14.6. "Code" means the Internal Revenue Code of 1986,
as from time to time amended.
14.7. "Company" means SpeedFam International, Inc.,
an Illinois corporation.
14.8. "Confidential Information" means any and all
Technology and/or information which:
14.8.1. Is provided to the Employee by the
Company;
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<PAGE> 9
14.8.2. Is created, developed, or otherwise
generated by or on behalf of the Company;
14.8.3. Concerns or relates to any aspect of
the Company's business; or
14.8.4. Is, for any reason, identified by the
Company as confidential.
14.8.5. Notwithstanding the foregoing
provisions of this Section 14.8, Confidential
Information shall not include such information which
the Employee can show, clearly and convincingly:
14.8.5.1. Is publicly and openly known
and in the public domain;
14.8.5.2. Becomes publicly and openly
known and in the public domain through no fault
of the Employee; or
14.8.5.3. Is in the Employee's
possession and documented prior to this
Agreement, lawfully obtained from a source
other than from the Company, and not subject to
any obligation of confidentiality or restricted
use.
14.9. "Constructive Termination" means the voluntary
termination of employment by the Employee following a Change
in Duties following a Change of Control.
14.10. "Exchange Act" means the Securities Exchange
Act of 1934, as from to time amended.
14.11. "Invention" means any new or useful art,
discovery, or improvement (including any technologies, tests,
programs, products, concepts, ideas, apparatus, equipment,
machinery, processes, methods, formulae, designs or
techniques), whether or not related to a Product and whether
or not patentable, and all the know-how related thereto.
14.12. "Product" means any product or service which
is, or may in the reasonable future, be manufactured, sold,
designed, developed, considered by, or of interest to the
Company or an Affiliate (including, but not limited to, any
product or service involving CMP planarization technology,
such as CMP-V tools or any free-abrasive machining, lapping,
polishing and grinding).
14.13. "Technology" means prototypes, models,
concepts, inventions, circuit designs, drawings, hardware,
technological developments and improvements, methods,
techniques, systems, documentation, data, works of authorship,
products, and related information whether or not patentable,
copyrightable, and whether or not presently used or used in
the future.
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<PAGE> 10
14.14. "Voting Securities" mean any securities which
ordinarily possess the power to vote in the election of
directors without the happening of any precondition or
contingency.
15. Miscellaneous.
15.1. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Company
and any of its Affiliates or their respective directors,
officers, shareholders, employees, attorneys, agents, or
representatives, including any Severance Agreement, Employment
Letter, Employment Terms, Non-Disclosure Agreement and/or
Employment Agreement and constitutes the entire agreement
between the parties, respecting the subject matter hereof and
there are no representations, warranties or other commitments
other than those expressed herein.
15.2. The Employee represents and warrants to the
Company that the Employee is not a party to or bound by, and
the employment of the Employee by the Company or the
Employee's disclosure of any information to the Company or its
use of such information will not violate or breach any
employment, retainer, consulting, license, non-competition,
non-disclosure, trade secrets or other agreement between the
Employee and any other person, partnership, corporation, joint
venture, association or other entity.
15.3. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing
and signed by the Employee and an appropriate officer of the
Company, pursuant to expressed authority of the Board.
15.4. The Employee agrees to indemnify the Company
and its Affiliates against, and to hold the Company and its
Affiliates harmless from, any and all claims, lawsuits,
losses, damages, expenses, costs and liabilities, including,
without limitation, court costs and attorney's fees, which the
Company or any of its Affiliates may sustain as a result of,
or in connection with, either directly or indirectly, the
Employee's breach or violation of any of the provisions of
this Agreement.
15.5. The Employee hereby agrees that if the Employee
violates any provision of this Agreement, the Company will be
entitled, if it so elects, to institute and prosecute
proceedings at law or in equity to obtain damages with respect
to such violation or to enforce the specific performance of
this Agreement by the Employee or to enjoin the Employee from
engaging in any activity in violation hereof.
15.6. The waiver by either party to this Agreement of
a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent
breach.
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<PAGE> 11
15.7. Any communication which may be required under
this Agreement shall be deemed to have been properly given
when delivered personally at the address set forth below for
the intended party during normal business hours, when sent by
facsimile or other electronic transmission to the respective
facsimile transmission numbers of the parties set forth below
with telephone confirmation of receipt, or when sent by U.S.
registered or certified mail, return receipt requested,
postage prepaid as follows:
If to the Company: SpeedFam International, Inc.
305 N. 54th Street
Chandler, AZ 85226-2416
Attention: Chief Executive Officer
Facsimile: 602-705-2122
Confirm: 602-705-2100
If to the Employee:
10037 N. 56th Street
Paradise Valley, AZ 85253
Facsimile: (602) 705-2122
Confirm: (602) 705-2100
Notices shall be given to such other addressee or address, or
both, or by way of such other facsimile transmission number,
as a particular party may from time to time request by written
notice to the other party to the Agreement. Each notice,
request, demand, approval or other communication which is sent
in accordance with this Section shall be deemed to be
delivered, given and received for all purposes of this
Agreement as of two (2) business days after the date of
deposit thereof for mailing in a duly constituted U.S. post
office or branch thereof, one (1) business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice
given to a party hereto by any other method shall only be
deemed to be delivered, given and received when actually
received in writing by such party.
15.8. This Agreement shall inure to the benefit of and
be binding upon the Company and the Employee and their
respective heirs, personal representatives, successors and
assigns.
15.9. All claims, disputes and other matters in
question arising out of, or relating to this Agreement, or the
breach thereof, shall be decided by arbitration, pursuant to
the rules established by the American Arbitration Association
for the arbitration of such disputes, and such arbitration
shall occur in Chandler, Arizona.
15.10. This Agreement may be signed in multiple
counterparts which when taken together shall constitute the
entire Agreement.
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15.11. This Agreement shall be governed and construed
in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPEEDFAM INTERNATIONAL, INC. an Illinois
Corporation
By /s/ Makoto Kuzuma
----------------------------------------
Title President/CEO
-------------------------------------
Employee
/s/ Christopher E. Augur
-------------------------------------------
Christopher E. Augur
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of July, 1997, by
and between SPEEDFAM INTERNATIONAL, INC., an Illinois corporation (hereinafter
referred to as the "Company") and ROBERT R. SMITH (hereinafter referred to as
the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee in
the capacities set forth herein, and the Employee desires to be employed by the
Company in such capacities;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth and subject to the policies as
published in the Company's Employee Handbook, as from time to time
amended.
2. Term. Subject to the provisions for earlier termination
hereinafter set forth in Section 12 of this Agreement, the term of
employment hereunder shall commence on the date hereof and end on the
first May 31st after the date hereof.
3. Automatic Extension. The term of employment of the Employee
hereunder shall automatically continue for additional one (1) year
terms upon the same terms and conditions contained herein unless either
the Company or the Employee shall notify the other at least six (6)
months prior to the expiration of the initial one (1) year term or any
renewal term of its or his intention to terminate the term of
employment of the Employee as of the end of the initial one (1) year
term or any such renewal term, as the case may be.
4. Compensation. The Company agrees to provide the Employee
with the following compensation for all services rendered under this
Agreement:
4.1. Salary. During the term hereof, the Company
shall pay to the Employee a Base Annual Salary of Ninety-Six
Thousand Seven Hundred Twenty Nine (96,729) BRITISH POUNDS
STERLING, payable in accordance with the standard payroll
practices of the Company (including any salary-reduction
contributions to plans or programs maintained by the
Company). Further, the Base Annual Salary of the Employee
shall be reviewed annually by the Company and adjusted as
appropriate.
<PAGE> 2
4.2. Annual Incentive Opportunity. During the term of
this Agreement, the Employee shall participate in the annual
incentive plan maintained by the Company for its executives.
4.3. Long-term Incentive Opportunity. During the term
of this Agreement, the Employee shall participate in any
long-term incentive plan maintained by the Company, including,
but not limited to, stock options, performance shares,
restricted stock and long-term cash incentive plans, in a
manner consistent with other executives of the Company, as
determined by the Board.
4.4. Other Benefits. To the extent the Employee is
eligible under the appropriate laws, the Employee shall be
entitled to participate in and receive benefits under any and
all pension, profit-sharing, health, disability and insurance
plans, if any, which the Company may maintain. The Employee
shall also receive an allowance of Fifteen Thousand (15,000)
BRITISH POUNDS STERLING annually for automobile expenses.
5. Duties. The Employee shall, subject to election and removal
by the Board of Directors of SpeedFam Limited, a United Kingdom
corporation and subsidiary of the Company in their sole discretion,
serve as MANAGING DIRECTOR of SpeedFam Limited. As such, the Employee's
duties and responsibilities shall include, but shall not be limited to,
establishing objectives, plans and budgets for the European operations
of the Company. The Managing Director will be accountable for meeting
preestablished profit and loss goals and the attainment of current and
long-range objectives. The Managing Director shall report to the
President/Chief Operating Officer of the Company. The Employee shall
also be responsible for the performance of such other duties and
responsibilities as may be prescribed from time to time by the
President/Chief Operating Officer of the Company or the Board Directors
of SpeedFam Limited.
6. Extent of Service. The Employee shall devote the Employee's
full business time, attention, and energies to the business of SpeedFam
Limited and its Affiliates and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or not
such activity is pursued for gain, profit, or other pecuniary
advantage, unless written approval is first secured from the Board of
Directors of SpeedFam Limited.
7. Working Facilities. The Employee shall be furnished with
office space, furnishings, secretarial support and such other
facilities and services which are reasonably necessary for the
performance of the Employee's duties.
8. Expenses. The Company will reimburse the Employee for all
reasonable business expenses which are incurred by the Employee in the
promoting of the interests of the Company upon presentation by the
Employee from time to time (at
-2-
<PAGE> 3
least monthly) of an itemized account of such expenses containing such
detail as may reasonably be required by the Board of Directors of
SpeedFam Limited.
9. Vacation. The Employee shall be entitled to paid vacation
in accordance with Company policy. All vacation time shall be taken by
the Employee at such times as shall be mutually agreed upon by the
Employee and the President/Chief Executive Officer of the Company.
10. Disability. If, as a result of sickness or other
disability, the Employee is not able to perform the Employee's duties,
this Section 10 shall apply as follows:
10.1. For the first ninety (90) consecutive days of
sickness or other disability the Company shall continue to pay
the Employee full Base Annual Salary (reduced by any payments
from any short-term disability plan which may be maintained by
the Company), and shall continue to pay premiums on then
existing group life, health, disability and other insurance
plans with respect to which the Employee participates,
provided the Employee remains eligible to participate
thereunder.
10.2. If the disability or other sickness continues
past ninety (90) consecutive days, the Company, in its sole
discretion, may elect to place the Employee on Disability
Leave of Absence. During such period, the Company shall, for
the remainder of the contract term, or until the Employee
returns from such Disability Leave of Absence, continue to pay
premiums on then existing group life, health, disability and
other insurance plans with respect to which the Employee
participates, provided the Employee remains eligible to
participate thereunder. Further, the Company shall pay to the
Employee, two-thirds (2/3) of the Employee's Base Annual
Salary, reduced by any payments for which the Employee is
eligible from any disability insurance programs maintained by
the Company.
11. Death. If the Employee dies during the term of this
Agreement, the Company shall pay to the Employee's Beneficiary (or if
there is no named Beneficiary, the estate of the Employee), the
compensation as set forth in Section 4 of this Agreement, for the
period up to the date of the Employee's death. In no event shall the
Company be obligated to pay to any person any other compensation with
respect to any period following the date of the Employee's death.
12. Termination of Employment.
12.1. Termination for Cause. The Company may
terminate the Employee's employment under this Section of the
Agreement for Cause. Cause shall be defined as:
12.1.1. The Employee's failure or refusal to
perform the Employee's duties as provided for in this
Agreement, occasioned by reason other than
-3-
<PAGE> 4
sickness or other disability of the Employee, which
is not cured within ten (10) business days after
written notice from the Company specifying such
failure or refusal has been delivered to the
Employee;
12.1.2. Commission by the Employee of any
materially fraudulent, dishonest or other act of
misconduct in the performance of the Employee's
duties hereunder, other than at the specific
direction of the Board; or,
12.1.3. Conviction for any felony or crime
involving moral turpitude.
12.1.4. Following a Termination for Cause, the
Company shall pay to the Employee the Base Annual
Salary provided in Section<0- 32>4.1 accrued up to
the date of termination. In no event shall the
Company be obligated to pay any other compensation
with respect to any period before or after the date
of such termination.
12.2. Termination Following a Change of Control. If,
during a period of two (2) years following a Change of
Control, the employment of the Employee is terminated by the
Company for any reason other than Cause, or if the Employee is
subject to Constructive Termination, benefits shall be payable
under this Section 12.2.
12.2.1. The Employee shall receive within
thirty (30) days of termination a single payment
equal to two (2) times the sum of (i) the Employee's
highest Base Annual Salary during the Employee's
employment with the Company and (ii) the Employee's
highest target annual incentive award opportunity.
12.3. Other Termination at the Election of the
Company. The Company may elect to terminate the employment of
the Employee for any reason other than Cause or following a
Change of Control, upon written notice to the Employee,
accompanied by payment in a lump sum of:
12.3.1. All compensation accrued up to the date
of termination;
12.3.2. An amount equal to one (1) times the
Employee's Base Annual Salary of record on the date
of termination.
13. Restrictive Covenants.
13.1. Employee understands that the Company's
business involves the design, improvement, development,
testing, manufacturing, marketing and sale of products, and
that this business requires substantial investments in capital
and substantial commitments of time and effort by the
Company's employees. The
-4-
<PAGE> 5
Employee further understands that, as a result, certain of the
Company's personnel, including the Employee, acquire
information with respect to customer goodwill, trade secrets
and Confidential Information, which, of itself and apart from
the Employee's abilities, could be of great value to a
competitor of the Company, potential competitors of the
Company, and to others.
13.2. The Employee further understands that
employment with the Company is conditioned upon the Company's
being able to place complete trust and confidence in the
Employee and to rely on the Employee's doing everything
possible to avoid the disclosure or use of Confidential
Information to persons, corporations, organizations and others
outside the Company, which may become known to, or subject to
the control of the Employee during the term of employment
hereunder. The Employee also understands that competition in
the manufacture, sale, and development of products is not
local in nature or scope, but involves various corporations,
organizations and others located within the United States and
throughout the world.
13.3. In recognition of these circumstances and for
the purpose of inducing the Company to employ the Employee (or
continue the employment of the Employee with appropriate
compensation reviews) to repose trust and confidence in the
Employee, and to make Confidential Information available to
the Employee, the Employee agrees that the following
restrictive covenants are necessary and proper for the
protection of the Company.
13.4. Subject to Section 13.6 below, the
Employee will promptly disclose and assign to the Company,
without the right to any form of compensation therefore, every
invention that the Employee, individually or jointly with
others, during the term of the Employee's employment with the
Company and for a period of one (1) year following termination
of such employment for any reason, may discover, invent,
conceive or originate, relating in any way to the present or
contemplated scope of the Company's business with regard to
any of its clients, customers or vendors or to any Product,
Technology, process, or device dealt in, used or under
development or manufacture by the Company for itself or others
or that results from or may be suggested by any work the
Employee may do for the Company or at the Company's request.
The Employee will fully cooperate with the Company in applying
for and securing in the name of the Company or its designee
patents or copyrights with respect to said Inventions in each
country in which the Company may desire to secure patent or
copyright protection. The Employee will promptly execute all
proper documents presented to the Employee for signature by
the Company to enable the Company or its designee to secure
such patent or copyright protection and to transfer legal
title therein, together with any patents or copyrights that
may be issued thereon or in connection therewith, to the
Company or its designee. The Employee will give such true
information and testimony as may be requested of the Employee
by the Company relative to any of said Inventions.
-5-
<PAGE> 6
13.5. Subject to Section 13.6 below, the Company
shall have the exclusive right to use in its business, and to
make, use and sell products, processes, and/or services
arising out of any Invention, whether or not patentable, which
is assignable by the Employee to the Company pursuant to
Section 13.4 above.
13.6. Pursuant to Section 2(3) of the Illinois
Employee Patent Act, the Employee is hereby notified that
Sections 13.4 and 13.5 above do not apply to an Invention for
which no equipment, supplies, facility, technology,
confidential information, or trade secret information of the
Company was used and which was developed entirely on the
Employee's own time, unless:
13.6.1. The Invention was related:
13.6.1.1. To the business of the
Company; or
13.6.1.2. To the Company's actual or
demonstrably anticipated research or
development; or;
13.6.2. The Invention results from any work
performed by the Employee for the Company.
13.7. The Employee agrees that all financial data,
customer lists, plans, contracts, agreements, literature,
manuals, catalogues, brochures, books, records, computer files
or applications, maps, correspondence, and other materials
furnished or made available to the Employee by the Company or
an Affiliate, or any of its clients, or created, prepared or
secured through the efforts of the Employee, relating to the
business conducted by the Company or an Affiliate, whether or
not containing any Confidential Information, are and shall
remain the property of the Company, and the Employee agrees to
deliver all such materials, including all copies thereof, to
the Company upon termination of the Employee's employment
hereunder, or at any other time at the Company's request.
13.8. Other than as expressly directed by the Company
and in the performance of duties to the Company or with the
expressed permission of the Company, the Employee shall never,
during or following the Employee's employment with the
Company, directly or indirectly, sell, use, disclose, lecture
upon, or publish data of information containing or relating to
any Confidential Information or Technology of the Company or
its Affiliates or any Invention assignable to the Company
pursuant to the terms of Section 13.4 above.
-6-
<PAGE> 7
13.9. During the term of the Employee's employment
with the Company and for a period of two (2) years after the
termination thereof, the Employee agrees that the Employee
will not:
13.9.1. Own or have any interest, directly or
indirectly, in or act as an officer, director, agent,
employee, or consultant of, or assist in any way or
in any capacity, any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere within the
world where any Confidential Information acquired by
the Employee would reasonably be considered
advantageous to such other competing entity, or
13.9.2. Directly or indirectly entice, induce
or in any manner influence any person who is, or
shall be, in the service of the Company or its
Affiliates to leave such service for the purpose of
engaging in business or being employed by or
associated with any person, firm, association,
partnership, corporation or other entity which sells
or provides products or services in competition with
the Company or its Affiliates anywhere in the world.
If any court shall finally hold that the time,
territory or any other provision of this Section 13.9
constitutes an unreasonable restriction against the
Employee, the Employee agrees that the provisions
hereof shall not be rendered null and void, but shall
apply as to such time, territory, and other extent as
such court may determine to be a reasonable
restriction under the circumstances involved.
13.10. The Employee understands that if there is a
breach by the Employee of any duty to the Company with respect
to any Confidential Information or Invention, the Company may
suffer irreparable injury and may not have adequate remedy at
law. As a result, the Employee agrees that if a breach of this
Agreement occurs, the Company may, in addition to any other
remedies available to it, bring an action or actions for
injunction, specific performance, or both, and have entered
into a temporary restraining order, preliminary or permanent
injunction, or other action compelling specific performance.
14. Definitions.
14.1. "Affiliate" means any entity in which the
Company, or any entity which owns, directly or indirectly, a
majority ownership interest in the Company, owns, directly or
indirectly, at least a twenty percent (20%) interest in such
entity.
14.2. "Base Annual Salary" means the annualized value
of the Employee's salary, based on the most recent pay period.
-7-
<PAGE> 8
14.3. "Board" means the Board of Directors of the
Company.
14.4. "Change in Duties" means:
14.4.1. A significant reduction in the nature
or scope of the Employee's authority or duties from
those immediately prior to the date on which a Change
of Control occurs;
14.4.2. A material reduction in the Employee's
Base Annual Salary;
14.4.3. Exclusion from any incentive program
from which the Employee was previously eligible, or
which other executives with comparable duties
participate in;
14.4.4. A change in location of the Employee's
principal place of employment by more than fifty (50)
miles;
14.5. "Change of Control" means:
14.5.1. Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Exchange Act, other than James N. Farley, his spouse,
descendants, or any Trust for the benefit of James N.
Farley, his spouse or descendants, who is, or
becomes, the beneficial owner of securities of the
Company representing more than fifty percent (50%) of
the combined voting power of the Company's then
outstanding securities, other than by reason of any
redemption of stock resulting from the death of James
N. Farley or his spouse;
14.5.2. As a result of, or in connection with,
any tender offer or exchange offer, merger or other
business combination, sale of assets or contested
election, or any combination of the foregoing
transactions (a "Transaction") the persons who
constituted the Board of the Company prior to the
Transaction shall cease to constitute a majority of
the Board of the Company or any successor to the
Company.
14.5.3. The Company is merged or consolidated
with another corporation and as a result of the
merger or consolidation, less than seventy percent
(70%) of the outstanding voting securities of the
surviving or resulting corporation shall then be
owned in the aggregate by the former stockholders of
the Company;
14.5.4. A tender offer or exchange offer is
made and consummated for the ownership of securities
of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's
then outstanding voting securities; or,
-8-
<PAGE> 9
14.5.5. The Company transfers substantially all
of its assets to another corporation of which the
Company owns less than fifty percent (50%) of the
outstanding voting securities.
14.6. "Code" means the Internal Revenue Code of 1986,
as from time to time amended.
14.7. "Company" means SpeedFam International, Inc.,
an Illinois corporation.
14.8. "Confidential Information" means any and all
Technology and/or information which:
14.8.1. Is provided to the Employee by the
Company;
14.8.2. Is created, developed, or otherwise
generated by or on behalf of the Company;
14.8.3. Concerns or relates to any aspect of
the Company's business; or
14.8.4. Is, for any reason, identified by the
Company as confidential.
14.8.5. Notwithstanding the foregoing
provisions of this Section 14.8, Confidential
Information shall not include such information which
the Employee can show, clearly and convincingly:
14.8.5.1. Is publicly and openly known
and in the public domain;
14.8.5.2. Becomes publicly and openly
known and in the public domain through no fault
of the Employee; or
14.8.5.3. Is in the Employee's
possession and documented prior to this
Agreement, lawfully obtained from a source
other than from the Company, and not subject to
any obligation of confidentiality or restricted
use.
14.9. "Constructive Termination" means the voluntary
termination of employment by the Employee following a Change
in Duties following a Change of Control.
14.10. "Exchange Act" means the Securities Exchange
Act of 1934, as from to time amended.
-9-
<PAGE> 10
14.11. "Invention" means any new or useful art,
discovery, or improvement (including any technologies, tests,
programs, products, concepts, ideas, apparatus, equipment,
machinery, processes, methods, formulae, designs or
techniques), whether or not related to a Product and whether
or not patentable, and all the know-how related thereto.
14.12. "Product" means any product or service which
is, or may in the reasonable future, be manufactured, sold,
designed, developed, considered by, or of interest to the
Company or an Affiliate (including, but not limited to, any
product or service involving CMP planarization technology,
such as CMP-V tools or any free-abrasive machining, lapping,
polishing and grinding).
14.13. "Technology" means prototypes, models,
concepts, inventions, circuit designs, drawings, hardware,
technological developments and improvements, methods,
techniques, systems, documentation, data, works of authorship,
products, and related information whether or not patentable,
copyrightable, and whether or not presently used or used in
the future.
14.14. "Voting Securities" mean any securities which
ordinarily possess the power to vote in the election of
directors without the happening of any precondition or
contingency.
15. Miscellaneous.
15.1. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Company
and any of its Affiliates or their respective directors,
officers, shareholders, employees, attorneys, agents, or
representatives, including any Severance Agreement, Employment
Letter, Employment Terms, Non-Disclosure Agreement and/or
Employment Agreement and constitutes the entire agreement
between the parties, respecting the subject matter hereof and
there are no representations, warranties or other commitments
other than those expressed herein.
15.2. The Employee represents and warrants to the
Company that the Employee is not a party to or bound by, and
the employment of the Employee by the Company or the
Employee's disclosure of any information to the Company or its
use of such information will not violate or breach any
employment, retainer, consulting, license, non-competition,
non-disclosure, trade secrets or other agreement between the
Employee and any other person, partnership, corporation, joint
venture, association or other entity.
15.3. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing
and signed by the Employee and an appropriate officer of the
Company, pursuant to expressed authority of the Board.
-10-
<PAGE> 11
15.4. The Employee agrees to indemnify the Company
and its Affiliates against, and to hold the Company and its
Affiliates harmless from, any and all claims, lawsuits,
losses, damages, expenses, costs and liabilities, including,
without limitation, court costs and attorney's fees, which the
Company or any of its Affiliates may sustain as a result of,
or in connection with, either directly or indirectly, the
Employee's breach or violation of any of the provisions of
this Agreement.
15.5. The Employee hereby agrees that if the Employee
violates any provision of this Agreement, the Company will be
entitled, if it so elects, to institute and prosecute
proceedings at law or in equity to obtain damages with respect
to such violation or to enforce the specific performance of
this Agreement by the Employee or to enjoin the Employee from
engaging in any activity in violation hereof.
15.6. The waiver by either party to this Agreement of
a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent
breach.
15.7. Any communication which may be required under
this Agreement shall be deemed to have been properly given
when delivered personally at the address set forth below for
the intended party during normal business hours, when sent by
facsimile or other electronic transmission to the respective
facsimile transmission numbers of the parties set forth below
with telephone confirmation of receipt, or when sent by U.S.
registered or certified mail, return receipt requested,
postage prepaid as follows:
If to the Company: SpeedFam Limited
c/o SpeedFam International, Inc.
7406 West Detroit
Chandler, AZ 85226
United States of America
Attention: Chief Executive Officer
Facsimile: 602-961-2171
Confirm: 602-961-1600
If to the Employee: 34 Bullimore Grove
Kenilworth
England CV8 2QF
Facsimile: 011-444-556-11360
Confirm: 011-441-455-631707
Notices shall be given to such other addressee or address, or
both, or by way of such other facsimile transmission number,
as a particular party may from time to time request by written
notice to the other party to the Agreement. Each
-11-
<PAGE> 12
notice, request, demand, approval or other communication which
is sent in accordance with this Section shall be deemed to be
delivered, given and received for all purposes of this
Agreement as of two (2) business days after the date of
deposit thereof for mailing in a duly constituted U.S. post
office or branch thereof, one (1) business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice
given to a party hereto by any other method shall only be
deemed to be delivered, given and received when actually
received in writing by such party.
15.8. This Agreement shall inure to the benefit of
and be binding upon the Company and the Employee and their
respective heirs, personal representatives, successors and
assigns.
15.9. All claims, disputes and other matters in
question arising out of, or relating to this Agreement, or the
breach thereof, shall be decided by arbitration, pursuant to
the rules established by the American Arbitration Association
for the arbitration of such disputes, and such arbitration
shall occur in Chandler, Arizona.
15.10. This Agreement may be signed in multiple
counterparts which when taken together shall constitute the
entire Agreement.
15.11. This Agreement shall be governed and construed
in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPEEDFAM INTERNATIONAL, INC. an Illinois
Corporation
By /s/ Makoto Kouzuma
---------------------------------------
Title President/CEO
------------------------------------
Employee
/s/ Robert R. Smith
------------------------------------------
Robert R. Smith
-12-
<PAGE> 1
EXHIBIT 11.1
SPEEDFAM INTERNATIONAL, INC.
COMPUTATION OF COMMON STOCK EARNINGS PER SHARE
FOR THE YEARS ENDED MAY 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net earnings (loss)......................... $ (490) $2,351 $1,644 $11,821 $20,219
====== ====== ====== ======= =======
Average number of common shares outstanding
during the year........................... 7,471 7,475 7,468 9,344 11,349
Add dilutive impact of stock options........ 144 144 68 815 778
------ ------ ------ ------- -------
Weighted average common and common
equivalent shares......................... 7,615 7,619 8,146 10,159 12,127
====== ====== ====== ======= =======
Net earnings (loss) per share............... $(0.06) $ 0.31 $ 0.20 $ 1.16 $ 1.67
====== ====== ====== ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
We consent to incorporation by reference in the registration statements
(No. 33-98026, 33-98566, 33-98568 and 333-16891) on Forms S-8 of SpeedFam
International, Inc. of our reports dated June 27, 1997, relating to the
consolidated balance sheets of SpeedFam International, Inc. and consolidated
subsidiaries as of May 31, 1996 and 1997, and the related consolidated
statements of earnings, retained earnings, and cash flows for each of the years
in the three-year period ended May 31, 1997, and related schedules, and the
consolidated balance sheets of SpeedFam Co., Ltd. and 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, which reports appear in the 1997 annual report on
Form 10-K of SpeedFam International, Inc.
KPMG Peat Marwick LLP
August 22, 1997
Chicago, Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1
<CASH> 76,895
<SECURITIES> 0
<RECEIVABLES> 38,021
<ALLOWANCES> 1,144
<INVENTORY> 35,849
<CURRENT-ASSETS> 155,715
<PP&E> 24,582
<DEPRECIATION> 7,096
<TOTAL-ASSETS> 206,500
<CURRENT-LIABILITIES> 48,893
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 156,532
<TOTAL-LIABILITY-AND-EQUITY> 206,500
<SALES> 160,994
<TOTAL-REVENUES> 173,424
<CGS> 103,501
<TOTAL-COSTS> 151,938
<OTHER-EXPENSES> 298
<LOSS-PROVISION> 817
<INTEREST-EXPENSE> 203
<INCOME-PRETAX> 21,188
<INCOME-TAX> 8,037
<INCOME-CONTINUING> 13,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,219
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 0
</TABLE>