SPEEDFAM INTERNATIONAL INC, 424B4, 1997-02-14

SPEEDFAM INTERNATIONAL INC
424B4, 1997-02-14
SPECIAL INDUSTRY MACHINERY, NEC

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<PAGE>

Filed Pursuant to Rule No. 424(B)(4)
Registration No. 333-20679

PROSPECTUS
3,000,000 SHARES

LOGO
SPEEDFAM INTERNATIONAL, INC.

COMMON STOCK

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Of the 3,000,000 shares of Common Stock (the "Common Stock") offered hereby,
2,050,000 shares are being sold by SpeedFam International, Inc. ("SpeedFam" or
the "Company") and 950,000 shares are being sold by certain shareholders of
the Company (the "Selling Shareholders"). The Company will not receive any of
the proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders."

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SFAM." The last sale price for the Common Stock on February 13, 1997,
as reported on the Nasdaq National Market, was $33.25 per share. See "Price
Range of Common Stock and Dividend Policy."

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.

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

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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
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<S> <C> <C> <C> <C>
Per Share.................. $32.875 $1.61 $31.265 $31.265
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Total(3)................... $98,625,000 $4,830,000 $64,093,250 $29,701,750
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the offering of $290,000 payable by
the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $113,418,750, $5,554,500 and $78,162,500, respectively. See
"Underwriting."

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The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery
of the shares will be made at the offices of Lehman Brothers Inc., New York,
New York on or about February 20, 1997.

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LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
NEEDHAM & COMPANY, INC.

February 13, 1997
<PAGE>

(ARTWORK TO COME)

SpeedFam's high throughput semiconductor CMP system, the Auriga, processes five
wafers simultaneously. The Auriga incorporates up to two polishing tables,
post-CMP rinsing, PVA brush cleaning, full cassette-to-cassette automation,
internal airflow management for Class 1 cleanroom compatibility, and is
available for both oxide and metal CMP applications.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-
6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>

SpeedFam is a leading supplier of high throughput surface
processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers,
generalindustrial components and advanced semiconductor
devices. The Company offers abroad range of processing
solutions incorporating equipment, slurries and processes
necessary to perform chemical mechanical polishing,
grinding, lapping, and cleaning ina production setting.

The CMP-V
planarization system
enables one or two
step planarization of
oxide and metal layers
in advanced
semiconductor
fabrication.

The SP silicon
polishing systems
perform a range
of critical
polishing steps
on silicon and
other advanced
semiconductor
wafers.

The EP automated edge
polishing line enables
semiconductor manufacturers
to reduce contamination and
increase yields by
polishing the edge of
thesemiconductor substrate.

A wide variety of polishing
slurries are provided to
create the surface finish
and flatness required in
the polishing process.
<PAGE>

The DSM products are used
to polish thin film
memory disk media.

Aqueous cleaning systems
are used for precision
cleaning of thin film
memory
disk media, semiconductor wafers,
LCD glass and other components in a
cleanroom environment.

The through-feed
grinder and
other general industrial
systems process a
variety of
industrial components which
require precision surface
tolerances.
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site at http:\\www.sec.gov that contains reports, proxy
statements and other information filed by the Company.

This prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Company and the securities offered
hereby. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described above. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed by the Company with the Commission
are incorporated in this Prospectus by reference: (i) the Company's Annual
Report on Form 10-K/A for the year ended May 31, 1996; (ii) the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1996 and
November 30, 1996; and (iii) the Company's Current Report on Form 8-K filed on
July 8, 1996.

In addition, all documents filed by the Company with the Commission after
the date of this Prospectus pursuant to Section 13(a), 13(c), 14 and 15(d) of
the Exchange Act and prior to the termination of the offering made hereby
shall be deemed to be incorporated in this Prospectus by reference and to be a
part hereof from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which is incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus. Certain information incorporated by reference herein
contains forward-looking statements as such term is defined in Section 27A of
the Securities Act and Section 21E of the Exchange Act. Certain factors as
discussed therein could cause actual results to differ materially from those
in the forward-looking statements.

THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, INCLUDING EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS BUT EXCLUDING ALL OTHER EXHIBITS TO SUCH DOCUMENTS. REQUESTS
SHOULD BE MADE TO THE COMPANY AT ITS GENERAL MAILING ADDRESS: SPEEDFAM
INTERNATIONAL, INC., 7406 WEST DETROIT, CHANDLER, ARIZONA 85226, TELEPHONE
NUMBER (602) 961-2285, ATTN: INVESTOR RELATIONS DEPARTMENT.

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<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's consolidated financial
statements appearing elsewhere or incorporated by reference in this Prospectus.
Unless the context otherwise requires, the "Company" and "SpeedFam" refer only
to SpeedFam International, Inc. and its wholly owned subsidiaries.

THE COMPANY

SpeedFam designs, develops, manufactures, markets and services chemical
mechanical polishing, or "CMP," systems used in the fabrication of
semiconductor devices and other high throughput precision surface processing
systems used in the fabrication of thin film memory disk media, semiconductor
wafers and general industrial components. In addition, the Company markets and
distributes polishing liquids (or slurry) and parts and expendables used in its
customers' manufacturing processes. The Company's array of processing systems
includes polishing, grinding, lapping and pre-deposition cleaning equipment.
The process steps performed by the Company's equipment are an integral part of
and occur repeatedly throughout the fabrication cycles of advanced
semiconductors, thin film memory disk media and semiconductor wafers. Major
customers of the Company include AMD, Akashic, Digital Equipment, Hewlett-
Packard, IBM, Komag, MEMC, Mitsubishi Siltec, Mosel Vitelic, Motorola, Rockwell
International, Seagate, Siemens, StorMedia and Wacker Siltronic.

Semiconductor and thin film memory disk manufacturers are rapidly adopting
new technologies in response to increasing demand by end users for improved
system performance and processing capacity and new features in computing and
other electronics applications. Semiconductor device manufacturers are
producing devices with smaller geometries and multi-level metal processes.
Similarly, thin film memory disk media manufacturers are continually increasing
the density of disk media by increasing coercivity (magnetic density) and
reducing head flying heights in order to satisfy end user demand for greater
storage capacity. In order to meet these evolving specifications, both
semiconductor and thin film memory disk manufacturers must tighten tolerances
and improve certain surface characteristics of their products. These tightened
tolerances necessitate improvements in the semiconductor and thin film memory
disk media manufacturing processes in order to increase planarity (flatness)
and provide a number of new surface characteristics.

The Company has developed the Auriga, a multiple head, two polishing table
CMP system for use in the manufacture of advanced semiconductor devices. The
Company's CMP system is designed to provide high throughput, low cost of
ownership and attractive levels of process flexibility. The objective of CMP is
to reestablish a flat or planar surface that has been degraded by prior
deposition steps to a point where it is not possible or feasible to deposit
additional levels without first restoring the surface to a planar condition.
Reestablishing a planar surface allows semiconductor device manufacturers to
produce denser, more complex devices by allowing the addition of a greater
number of metal levels and can lead to significant yield and reliability
improvements for the device manufacturer. Because of the depth of focus
limitations of existing photolithography equipment, global planarization
becomes particularly important for devices with design geometries of 0.35
micron or less and three or more metal levels. According to Dataquest
Incorporated, the CMP polishing equipment market was estimated at $179 million
in 1995 and it currently projects the market to be approximately $905 million
in the year 2001.

The Company's strategy is to establish and maintain market leadership in high
throughput surface processing of advanced semiconductors, thin film memory disk
media, semiconductor wafer and other high value-added products. The Company
employs dedicated business units focusing on each such market. The Company
provides an entire processing solution including process expertise, training,
cooperative development, slurry and expendables, along with equipment. During
the Company's fiscal years ended May 31, 1995, 1996 and the six months ended
November 30, 1996, 54.5%, 78.5% and 84.0%, respectively, of the Company's total
revenue was derived from the sale of capital equipment, parts and expendables
(including commissions) and 45.5%, 21.5% and 16.0%, respectively, was derived
from the sale of slurry and slurry components.

The Company owns a 50% interest in SpeedFam Co., Ltd., a joint venture that
conducts operations in the Far East (together with its subsidiaries and joint
ventures, the "Far East Joint Venture"). Generally, the Far East Joint Venture
designs, produces and markets in the Far East equipment similar to that
produced by the Company in the U.S. The Far East Joint Venture, which the
Company accounts for on the equity method, has had a substantial influence on
the results of operations of the Company in the past.

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<PAGE>

THE OFFERING
<TABLE>
<C> <S>
Common Stock to be Offered:
By the Company........................... 2,050,000 shares
By the Selling Shareholders.............. 950,000 shares
-----------
3,000,000 shares
Common Stock Outstanding after the Offering. 12,662,485 shares(1)
Use of Proceeds............................. To pay the costs of constructing
and equipping a new manufacturing
and office facility; to fund
additional capital expenditures;
to repay certain indebtedness;
for working capital and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............... SFAM
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION (in thousands, except per share
data)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED NOVEMBER
YEAR ENDED MAY 31, 30,
----------------------------- ----------------
1994 1995 1996 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Total revenue........................... $51,381 $59,778 $120,170 $43,254 $78,847
Gross margin............................ 12,436 14,284 41,509 12,068 28,974
Operating profit........................ 1,181 1,596 11,091 1,709 7,598
Interest expense........................ (697) (959) (691) (525) (124)
Other income (expense), net............. 974 6 483 (304) (342)
Income tax expense (benefit)............ (160)(3) 186 4,266 386 2,766
Earnings from consolidated companies.... 1,618 457 6,617 494 4,366
Equity in net earnings of affiliates(2). 655 1,187 5,204 1,835 4,455
Net earnings ........................... $ 2,351 (4) $ 1,644 $ 11,821 $ 2,329 $ 8,821
Net earnings per share.................. $ 0.31 $ 0.20 $ 1.16 $ 0.26 $ 0.78
Weighted average common and common
equivalent shares outstanding.......... 7,619 8,146 10,159 9,084 11,296
</TABLE>

<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $ 32,009 $ 93,612
Total assets........................................... 111,743 172,696
Long-term debt, less current maturities................ 2,200 --
Shareholders' equity................................... 68,145 131,948
</TABLE>
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(1) Based on shares of Common Stock outstanding at November 30, 1996. Excludes
an aggregate of 2,802,216 shares of Common Stock reserved for issuance
under the Company's employee benefit plans, of which options to acquire
1,216,880 shares of Common Stock were outstanding at November 30, 1996.
(2) Includes $450,000, $1,100,000, $4,759,000, $1,752,000 and $3,623,000 for
the 1994 through 1996 fiscal years and the six months ended November 30,
1995 and 1996, respectively, attributable to the Company's share of net
earnings from the Far East Joint Venture, accounted for on the equity
method. See "Joint Venture Arrangements," the consolidated financial
statements of the Far East Joint Venture and the unaudited interim
consolidated financial statements of the Company included elsewhere herein.
The remainder represents the Company's share of net earnings from a
separate joint venture.
(3) Reflects income tax benefit of $740,000 related to the bankruptcy of a
subsidiary operating in Switzerland.
(4) Includes benefit of cumulative effect of accounting change of $78,000.

(5) Adjusted to give effect to the sale of the 2,050,000 shares of Common Stock
offered by the Company hereby (at a public offering price of $32.875 per
share) and the application of the estimated proceeds therefrom, after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
----------------
Unless otherwise indicated, the information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option and (ii) has been adjusted
to reflect a twenty-for-one split of the Common Stock effective as of July 31,
1995.

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<PAGE>

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. In addition
to the other information included or incorporated by reference in this
Prospectus, the following factors should be considered carefully in evaluating
the Company and its business before purchasing shares of Common Stock offered
hereby. Certain statements in this Prospectus, including without limitation
certain of those contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Industry
Background, --The SpeedFam CMP Solution, and --SpeedFam Strategy," constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed below.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results have historically and may in the
future vary significantly due to a number of factors. Factors that may
influence the Company's operating results in a given quarter include: (i)
customer demand, such as economic conditions in the semiconductor and memory
disk industries, market acceptance of products of both the Company and its
customers, changes in product mix, and the timing, cancellation or delay of
customer orders and shipments; (ii) 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, as well as increased operating
expenses associated with the Company's recent growth, limit the Company's
ability to reduce expenses in the near-term.

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. However, the Company does
not expect that the third and fourth quarters of fiscal 1997 will have as
disproportionate an impact on the results of operations of the Company as has
historically been the case.

In addition, in recent quarters the equity in net earnings of affiliates
attributable to the Company's joint ventures has increased substantially,
primarily as a result of increased earnings of the Far East Joint Venture
which have increased for a number of reasons, including a high level of sales
of polishing machines into the

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<PAGE>

glass disk market and edge polishing machines into the semiconductor wafer
market, increased shipments of manual disk polishing machines into the U.S.
market and increased commission revenue resulting from the sale in the Far
East of CMP systems manufactured by the Company. The Company does not expect
that sales of glass disk polishing machines and edge polishing machines will
remain at such levels. Further, the Company expects that sales into the U.S.
of manual disk polishing machines manufactured by the Far East Joint Venture
will decrease as a result of the evolution from manual polishing machines to
automated polishing machines. As a result, the Company expects that the Far
East Joint Venture's revenues and earnings may decline in the next few
quarters as compared to recent quarters, which could have a material adverse
effect on the results of operations of the Company.

In addition, the Company believes that a manual disk polishing machine that
has comprised a significant percentage of its equipment sales to the thin film
memory disk market will, in the future, represent a smaller percentage of net
sales as the Company's customers replace such machine with an alternative
manual machine or an automated disk polishing machine, neither of which
product is manufactured by the Company in the U.S., resulting in a material
adverse effect on the Company's results of operations. See "--Dependence on
New Product Development; Rapid Technological Change," "--Management of Growth"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Quarterly Results of Operations."

DEPENDENCE ON THE COMPANY'S CMP SYSTEMS

Through November 30, 1996, the Company had shipped 46 CMP systems. The
Company's CMP systems accounted for 7.9%, 34.7% and 44.5% of net sales for
fiscal 1995, 1996 and the six months ended November 30, 1996, respectively.
The Company has recently commenced shipments of the Auriga, an enhanced
version of the CMP-V, its original CMP system. The Company has limited
experience with the production of, and market response to, the Auriga, having
shipped four such systems through November 30, 1996. The Company believes that
its future growth, if any, depends in large part upon its ability to gain
customer acceptance of its enhanced CMP system and its technology. Market
acceptance of the Company's CMP system depends upon numerous factors,
including cost of ownership, throughput, process flexibility, performance and
reliability and availability of customer support. The Company intends to
periodically develop and introduce enhanced versions of its CMP system.
Failure to continually enhance the Company's CMP system may impact its future
market acceptance. There can be no assurance that the Company will be
successful in obtaining broad market acceptance of the Auriga system or any
future enhanced version of the system. Any technical or manufacturing
difficulties with the Auriga (or subsequent enhancements of the CMP system),
or the failure to gain customer acceptance thereof, would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Competition," "--Dependence on New Product Development;
Rapid Technological Change" and "--Adoption of CMP Process."

CYCLICAL NATURE OF THE COMPANY'S BUSINESS

The Company's business depends substantially on the capital expenditures of
semiconductor and thin film memory disk media manufacturers, which, in turn,
depend upon the current and anticipated market demand for semiconductor
devices and memory disks. 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 device industry is
currently experiencing a downturn which has led many semiconductor device
manufacturers to delay or cancel capital expenditures. In addition, the
Company believes that the semiconductor wafer industry is presently in a
slowdown which may lead semiconductor wafer manufacturers to delay or cancel
capital expenditures. The thin film memory disk market has recently
experienced strong growth; however, there are no assurances that this recent
growth will continue or that any growth will have a positive impact on the
Company's future business or results of operations. The Company's business and
results of operations will be materially adversely affected by continued
downturns in the semiconductor device market and the semiconductor wafer
market or downturns in the thin film memory disk market.

-7-
<PAGE>

Sales of the Company's capital equipment depend, in large part, upon the
decision of a prospective customer to increase manufacturing capacity or
respond to advances in technology by upgrading or expanding existing
manufacturing facilities or constructing new manufacturing facilities, all of
which typically involve a significant capital commitment. Certain of the
Company's capital equipment have lengthy sales cycles while the customer
evaluates and receives approvals for the purchase of the Company's systems and
completes the upgrading or expansion of existing facilities or the
construction of new facilities. The Company may expend substantial funds and
management effort during the sales cycle. The cyclicality and rapid
technological change present in certain of the industries served by the
Company may also cause prospective customers to postpone decisions regarding
major capital expenditures, including purchases of the Company's equipment. In
the past, certain of the Company's customers have delayed or canceled orders
and shipments due to a variety of factors, including the cyclicality of the
industries in which the customers compete. In addition, the need for continued
investment in research and development, marketing and customer support, as
well as increased operating expenses associated with the Company's recent
growth, limit the Company's ability to reduce expenses in the near-term.

COMPETITION

The Company's markets are highly competitive. In each of the markets the
Company serves, the Company faces intense competition from established
competitors, some of which have substantially greater financial, engineering,
manufacturing and marketing resources, and, in some markets, greater name
recognition than the Company, as well as long-standing customer relationships.
In the CMP market, the Company faces significant competition from current
competitors and expects other competitors to enter this market in the future.
IPEC currently has the largest installed base of CMP equipment. Other
companies have entered the CMP market and 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. These
longer-standing relationships may make it more difficult for the Company to
sell its CMP system to such device manufacturers. Consolidation among CMP
equipment suppliers or the acquisition of one or more CMP equipment suppliers
by large, established suppliers of non-CMP capital equipment to semiconductor
device manufacturers or others could materially adversely affect the Company's
ability to compete and could have a material adverse effect on the Company's
results of operations. In the thin film memory disk and semiconductor wafer
equipment markets, the Company competes with a relatively small number of
entities.

In order to remain competitive, the Company will be required to make a high
level of investment in research, development and engineering, marketing and
customer service and support. There can be no assurance that the Company will
have sufficient resources to make such investments or, even if they are made,
that the Company's products will be competitive given technological advances
by competitors or changes in processing technology in the industries the
Company serves. In the past, competitors of the Company have developed and
marketed products having similar design and functionality to the Company's
products. The Company's competitors can be expected to improve the performance
of their products and to introduce new products with competitive
price/performance characteristics. The Company's competitors may also increase
their efforts to gain and retain market share through competitive pricing.
These competitive pressures may necessitate price reductions by the Company or
render the Company less competitive.

In the memory disk slurry market, the Company competes primarily with
Praxair, a large chemical company. The Company has experienced intense
competition in the sale of slurry from Praxair, which manufactures and sells
its own products. In response, the Company has in the past reduced its prices.
At the same time, the supplier of substantially all of the Company's slurry,
Fujimi Incorporated, a Japanese company, has raised the prices paid by the
Company for slurry. As a result, in recent years the Company has experienced a
decline in gross margins in the sale of slurry. Slurry has historically
comprised a significant portion of the Company's total revenue, and in fiscal
1995, 1996 and the six months ended November 30, 1996, accounted for 43.1%,
19.7% and 14.6%, respectively, of total revenue. The Company expects that
competition in the slurry market will remain intense in the future. In
addition, fluctuations in exchange rates have in the past resulted, and may in
the future result, in increases in the costs of slurry for the Company.
Decreased slurry selling prices or

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increased slurry costs could have a material adverse effect on the Company's
results of operations. See "--Sole or Limited Sources of Supply," "Business--
Manufacturing and Suppliers," "--Competition" and "--International Business."

RELIANCE ON THE PERFORMANCE OF AND RELATIONSHIP WITH FAR EAST JOINT VENTURE

The Company owns a 50% interest in SpeedFam Co., Ltd., a joint venture that
conducts operations in the Far East (together with its subsidiaries and joint
ventures, the "Far East Joint Venture"). During fiscal 1994, 1995, 1996 and the
six months ended November 30, 1996, the Company's share of the net earnings of
the Far East Joint Venture was $450,000, $1.1 million, $4.8 million and $3.6
million, respectively, representing 19.1%, 66.9%, 40.3% and 41.1%,
respectively, of the Company's net earnings. The Company accounts for the Far
East Joint Venture on the equity method. During fiscal 1994, 1995, 1996 and the
six months ended November 30, 1996, 4.0%, 4.5%, 5.2% and 5.8%, respectively, of
the Company's total revenue was attributable to commissions earned by the
Company on the distribution in the U.S. and Europe of products of the Far East
Joint Venture. The Far East Joint Venture has not paid significant dividends to
the Company in the past and is expected to retain substantially all of its
earnings in the foreseeable future. At November 30, 1996, the Company's equity
interest in the Far East Joint Venture was $20.3 million, representing 18.2% of
the Company's total assets and 29.8% of shareholders' equity. The results of
operations of the Company in the past have been substantially influenced by the
results of operations of the Far East Joint Venture and can be expected to
continue to be so influenced in the future. The term of the joint venture is
indefinite. In the event that either the Company or its joint venture partner
desires to sell its interest in the Far East Joint Venture, it must first offer
its interest to the other party. The Company believes that for a number of
reasons, including the fact that the Company does not own a controlling
interest in the Far East Joint Venture, the Company's ability to effect a sale
of its interest is limited and the proceeds the Company would receive from a
sale of its interest in the Far East Joint Venture may be reduced.

Certain of the equipment produced and sold by the Far East Joint Venture is
similar to that produced in the U.S. by the Company. In addition, the Far East
Joint Venture produces and sells cleaning and automated polishing machines for
the thin film memory disk market and polishing machines for the semiconductor
wafer market, including machines that are distributed by the Company in the
U.S. and Europe. Each of the Company and the Far East Joint Venture generally
sell to customers in the same end markets. Because of the similarity between
the business of the Company and that of the Far East Joint Venture,
substantially all of the risks described herein with respect to the Company's
business are also generally applicable to the business of the Far East Joint
Venture. This includes the economic and political risks associated with
conducting international business, as most sales by the Far East Joint Venture
occur outside the U.S. and a material portion of the products sold by the Far
East Joint Venture are shipped across international borders. Also, the business
of the Far East Joint Venture is substantially influenced by general economic
conditions in the regions in which it operates, particularly Japan. A majority
of the net sales of the Far East Joint Venture are generated in Japan. Periods
of weak or declining economic conditions in Japan, such as those recently
experienced, could have a material adverse effect on the business and operating
results of the Far East Joint Venture and, in turn, the Company.

The Company does not have the legal right or practical ability to control the
Far East Joint Venture. The historic business relationship between the Company
and its joint venture partner has been based to a significant degree on
personal relationships of the individuals involved. If those individuals or
relationships were to change, it could result in a material adverse effect on
the relationship between the Company and the Far East Joint Venture and, in
turn, on the results of operations of the Company. In many instances,
management decisions regarding the relationship between the Company and the Far
East Joint Venture have not been made on the basis of arms-length negotiations.
Instead, the business of the Far East Joint Venture and the business
relationship between the Company and the Far East Joint Venture have been
influenced by personal relationships between members of management of the two
joint venture partners, the previous dealings of the entities and an underlying
business intention to improve the mutual interests of the Company and the Far
East Joint Venture, even if one party in a particular circumstance could
negotiate a transaction with more favorable terms with a third party. For
example, even though the agreements between the parties originally called for
the payment of royalties for

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licensed technology, the parties amended the agreements to remove the royalty
requirements, and it is not currently anticipated that either the Company or
the Far East Joint Venture will pay royalties to the other in connection with
the transfer of technology in the foreseeable future, including with respect to
the Company's CMP technology. Makoto Kouzuma, President and Chief Operating
Officer of the Company, is the Executive Vice President and General Manager of
SpeedFam Co., Ltd. and is responsible for its day-to-day operations and
therefore spends a significant portion of his time engaged in its business.
These responsibilities have placed a heavy demand on Mr. Kouzuma's time, and
have precluded him from spending all of his time with either the Company or the
Far East Joint Venture. Both James N. Farley, the Chairman and Chief Executive
Officer of the Company, and Mr. Kouzuma serve as directors of the Far East
Joint Venture and have management responsibilities in connection with
affiliates of the Far East Joint Venture. Mr. Kouzuma is compensated directly
by the Far East Joint Venture for such services. As a result of this
relationship between the Company and the Far East Joint Venture, management
decisions in particular instances may tend to favor the Far East Joint Venture
relative to decisions that would be made if the Far East Joint Venture were an
unaffiliated third party.

The Company's partner in the Far East Joint Venture is a privately-held
Japanese corporation that supplies products to the automotive industry. Given
the differences in the companies' ownership structure and products, there can
be no assurance that the Company and its Far East Joint Venture partner will
have similar interests with respect to the financial performance of the Far
East Joint Venture.

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

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

The Company believes that, to date, the relationship between the Company and
its joint venture partner has been good. However, no assurance can be given
that the relationship will continue to be satisfactory or that the joint
venture will not terminate. In addition, changes in management of the Company
or its joint venture partner could negatively impact the relationship between
the joint venture partners. Any decline in the Far East Joint Venture's results
of operations, termination of the joint venture or difficulties between the
Company and its joint venture partner would have a material adverse effect on
the Company's business, prospects and results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Joint Ventures," "Joint Venture
Arrangements--Far East Joint Venture" and the consolidated financial statements
of SpeedFam Co., Ltd.

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

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existing products and its process technologies or develop new products and
technologies. The Company has recently commenced shipments of the Auriga, an
enhanced version of the CMP-V, its original system. The Company has limited
experience with the production of, and market response to, the Auriga, having
shipped four such systems through November 30, 1996. The Company intends to
periodically develop and introduce enhanced versions of its CMP system. Any
technical or manufacturing difficulties with the Auriga (or subsequent
enhancements of the CMP system), or the failure to gain customer acceptance
thereof, would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has also recently
introduced a post-CMP cleaning system, the Capella. There can be no assurance
that the Company's development of new or enhanced products, such as the Auriga
or the post-CMP cleaning system, will be cost-effective or introduced in a
timely manner or accepted in the marketplace. Failure by the Company to
develop or introduce new products and product enhancements in a timely manner
would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company believes that the market for thin film memory disk equipment is
evolving from manual load/unload machines to automated load/unload machines.
In addition, the Company believes that a manual disk polishing machine that
has comprised a significant percentage of its equipment sales to the thin film
memory disk market will, in the future, represent a smaller percentage of net
sales as the Company's customers replace such machine with an alternative
manual machine or an automated disk polishing machine, neither of which
product is manufactured by the Company in the U.S., resulting in a material
adverse effect on the Company's results of operations. The Company currently
offers both manual and automated machines; however, the automated machines
marketed by the Company have only recently been introduced and are currently
manufactured exclusively by the Far East Joint Venture and there can be no
assurance that such machine will gain customer acceptance. The Company is
currently evaluating whether to begin producing automated machines in the
U.S., although it expects that any decision to do so will take a substantial
period of time to implement. Further, there are no assurances that the Company
will decide to produce such machines in the U.S. As a result, in the near term
and for so long as the Company does not produce automated machines in the
U.S., revenue attributable to the sale of automated machines by the Company,
if any, will be recognized as commission revenue which represents a small
percentage of the total sales price. As a result, customer decisions to
purchase automated machines from the Company instead of manual machines will
result in lower revenues than would be the case if such machines were
manufactured by the Company in the U.S. In addition, the Company has recently
completed shipment of a large order of manual disk polishing machines to
Komag, its largest customer. Komag is currently evaluating whether to purchase
the automated machines recently introduced by the Far East Joint Venture.
There can be no assurance that Komag will order such machines through the
Company and any failure to do so will materially adversely affect the
Company's 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.

Certain manufacturers of thin film memory disk media have begun using slurry
formulations to achieve the desired surface characteristics that the Company
does not currently sell. Although the Company is working with Fujimi
Incorporated, its supplier of memory disk slurry, to develop new slurry
formulations there is no assurance that it will be able to do so. Further,
there is no assurance that any new slurry product introduced will be
acceptable to memory disk manufacturers or, even if acceptable, that such
manufacturers would substitute such product for those currently in use. As a
result, the Company expects that sales of slurries to the thin film memory
disk media market will decline in the near-term, which will have an adverse
effect on the results of operations of the Company. See "--Dependence on the
Company's CMP Systems," "--Dependence on Key Customers" and "Business--
Research, Development and Engineering."

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ADOPTION OF CMP PROCESS

The CMP process is an emerging technology and there can be no assurance that
the process will be utilized on a widespread basis in the manufacture of
semiconductor devices. Although the market for CMP equipment has grown rapidly
in recent years, there are no assurances that the CMP market will continue to
grow in the future, if at all. To date, CMP has been used primarily in the
manufacture of advanced semiconductor logic devices. A small number of CMP
process systems are currently being used in the manufacture of advanced
semiconductor memory devices. There can be no assurance that the process will
be widely adopted by semiconductor memory device manufacturers. Currently, the
number of suppliers for polishing pads used in the CMP process is limited and
an insufficient supply of such products could impact or impede the adoption of
the CMP process. Further, alternative technologies may be developed that
achieve the results required by semiconductor device manufacturers. There are a
number of patents relating to the CMP process held by third parties.
Accordingly, CMP equipment manufacturers, including the Company, and
semiconductor manufacturers that use the CMP process, may be required to
attempt to obtain licenses from the holders of one or more of such patents,
which may impede the adoption or use of CMP technology by semiconductor
manufacturers. If the CMP process is not adopted on a widespread basis, or if
alternatives to the CMP process emerge, or current non-CMP planarization
technologies are improved to serve the industry's requirements, the Company's
prospects and results of operations would be materially adversely affected.
See "--Dependence on the Company's CMP Systems," "--Dependence on New Product
Development; Rapid Technological Change," "--Intellectual Property Rights,"
"Business--Industry Background" and "--Products."

MANAGEMENT OF GROWTH

The Company has recently experienced a period of rapid growth. The number of
employees of the Company has increased 114% from 195 at May 31, 1995 to 417 at
November 30, 1996. This growth has resulted in, and is expected to continue to
create, new and increased responsibilities for management personnel, as well as
added
pressures on the Company's operating and financial systems. If the Company is
required to manufacture its systems in larger volumes, it may become more
difficult for the Company to maintain its standards of quality and reliability,
and delivery times for its systems may grow longer. Further, if the Company
were to be unable to expand its manufacturing capacity to meet demand, orders
in backlog may be cancelled and orders lost to competitors. The Company
currently plans to hire a significant number of additional employees during
fiscal 1997 and 1998. The Company's ability to manage future growth effectively
and accomplish its overall goals will depend on its ability to hire additional
management, technical and manufacturing personnel, to integrate its new
employees into its overall operations and culture, and to continue to improve
its operational, financial and management systems. If the Company is unable to
manage growth effectively or hire or retain qualified personnel, the Company's
business and results of operations would be materially adversely affected.

To provide additional manufacturing capacity, the Company is constructing a
manufacturing and office facility, consisting of approximately 135,000 square
feet, in Chandler, Arizona. The new building, located on 13.5 acres recently
purchased by the Company, will also include laboratory facilities and will
serve as the Company's corporate headquarters. The Company expects to begin
moving its operations into the new facility during the fourth quarter of fiscal
1997 and expects to complete the move by the end of the first quarter of fiscal
1998. As the Company transfers manufacturing capacity to its new facility,
there is a possibility that normal operations of the Company may be
interrupted. Although the Company has planned to continue manufacturing at its
existing facility until its new facility is fully operational, there can be no
assurances that the transfer of manufacturing and other operations to the new
facility will not result in operational difficulties, such as delayed shipments
or increased operating expenses, that could have a material adverse effect on
the Company's results of operation. The transfer to the new facility will also
result in higher operating costs and other fixed expenses related to the
facility. There can be no assurances that the Company's future sales will
increase sufficiently to compensate for these higher operating expenses. In
addition, the Company's leases on its existing facilities in Chandler expire in
August 1999 and April 2000. Pursuant to such leases, the Company is subject to
certain provisions regarding termination of the leases. The Company may incur
ongoing lease-related expenses, including penalty payments, until such time as
it is released from the provisions. See "--Dependence on Key Personnel,"
"Business--Properties" and "--Employees."

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SOLE OR LIMITED SOURCES OF SUPPLY

The Company is dependent upon Fujimi Incorporated, a Japanese company, as
the sole supplier of substantially all of the slurry and slurry components
sold by the Company, consisting primarily of thin film memory disk polishing
slurry. Approximately 47.1%, 43.4%, 19.7% and 15.6% of the Company's total
revenue in fiscal 1994, 1995, 1996 and the six months ended November 30, 1996,
respectively, was derived from the sale of products, including both slurry and
slurry components, consisting of vehicles (liquids) and abrasives (slurry and
slurry components are collectively referred to as "slurries") supplied by
Fujimi Incorporated. The inability of the Company to obtain products from
Fujimi Incorporated on a timely basis or the termination of the relationship
with Fujimi Incorporated would have a material adverse effect on the Company.
The Company has the exclusive right to distribute Fujimi Incorporated thin
film memory disk polishing slurry in North America until October 1, 1999.

In addition, the Company has entered into a joint venture (the "Fujimi Joint
Venture") with Fujimi Incorporated to sell certain products in North and South
America, including slurries for the manufacture of silicon wafers and other
products. The Company distributes thin film memory disk polishing slurry and
related products supplied by Fujimi Incorporated in North America, while the
Fujimi Joint Venture distributes other products supplied by Fujimi
Incorporated. The Company accounts for its investment in the Fujimi Joint
Venture on the equity method. During fiscal 1994, 1995, 1996 and the six
months ended November 30, 1996, the Company's share of the net earnings of the
Fujimi Joint Venture was $205,000, $87,500, $445,000 and $832,000,
respectively. The Company does not have the legal right or practical ability
to control the Fujimi Joint Venture. A termination of or deterioration in the
relationship between the Company and Fujimi Incorporated or any reduction in
the supply or increase in the cost of slurries from Fujimi Incorporated to the
Company or the Fujimi Joint Venture would have a material adverse effect on
the Company's business, prospects, results of operations and financial
condition.

The Company earns commissions on the distribution in the U.S. and Europe of
products supplied by the Far East Joint Venture. During fiscal 1994, 1995,
1996 and the six months ended November 30, 1996, $2.1 million, $2.8 million,
$6.3 million and $4.6 million, respectively, of the Company's total revenue
was attributable to the distribution of such products. In addition, the
Company purchases certain components used in its machines from the Far East
Joint Venture. During fiscal 1994, 1995, 1996 and the six months ended
November 30, 1996, purchases of components from the Far East Joint Venture
totaled $2.6 million, $3.0 million, $5.6 million and $2.9 million,
respectively. A termination of or deterioration in the relationship between
the Company and its Far East Joint Venture partner would have a material
adverse effect on the Company's business prospects, results of operations and
financial condition. See "--Reliance on the Performance of and Relationship
with Far East Joint Venture."

The Company relies to a substantial extent on outside suppliers to
manufacture many of the components and subassemblies used in the Company's
capital equipment, some of which are obtained from a single supplier or a
limited group of suppliers. The Company's reliance on outside suppliers
generally, and a sole or a limited group of suppliers in particular, involves
several risks, including a potential inability to obtain an adequate supply of
required components and reduced control over quality, pricing and timing of
delivery of components. In the past, the Company has experienced delays in
receiving materials from suppliers, sometimes resulting in delays in the
delivery of products by the Company. Such delays, or other significant
supplier or supply quality issues, may occur in the future, which could result
in a material adverse effect on the Company. Because the manufacture of
certain of these components and subassemblies is specialized and requires long
lead times, there can be no assurance that delays or shortages caused by
suppliers will not reoccur. Any inability to obtain adequate deliveries, or
any other circumstance that would require the Company to seek alternative
sources of supply or to manufacture such components internally, could delay
shipment of the Company's products, increase its cost of goods sold and have a
material adverse effect on the Company's business and results of operations.
See "Business--Manufacturing and Suppliers."

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DEPENDENCE ON KEY CUSTOMERS

The Company's largest customer, Komag (a manufacturer of thin film memory
disks), accounted for 20.8%, 20.6%, 17.8% and 13.6% of the Company's total
revenue in fiscal years 1994, 1995, 1996 and the six months ended November 30,
1996, respectively. The Company has recently completed shipment of a large
order of manual disk polishing machines to Komag, its largest customer. Komag
is currently evaluating whether to purchase the automated machines recently
introduced by the Far East Joint Venture. There can be no assurance that Komag
will order such machines through the Company and any failure to do so will
materially adversely affect the Company's results of operations. Hewlett-
Packard (a CMP system customer) accounted for 11.2% of the Company's total
revenue for the six months ended November 30, 1996. Two other customers
accounted for 10% or more of the Company's total revenue in recent fiscal
years: Akashic (a manufacturer of thin film memory disk media), represented
10.1% and 10.9% of the Company's total revenue for fiscal years 1994 and 1995,
respectively, and Seagate (a manufacturer of disk drives), represented 11.3% of
total revenue in fiscal 1994. The Company's ten largest customers accounted
for, in the aggregate, 69.3%, 66.9%, 64.4% and 64.2% of the Company's total
revenue in fiscal years 1994, 1995, 1996 and the six months ended November 30,
1996, respectively. The loss of, or a significant curtailment of purchases by,
one or more of the Company's key customers would materially adversely affect
the Company's business and results of operations. See "--Dependence on New
Product Development; Rapid Technological Change," "Business--Customers" and "--
Sales and Marketing."

The Company expects that sales of its products to relatively few customers
will continue to account for a high percentage of its revenue in the
foreseeable future. In addition, in certain of the markets the Company targets,
such as the CMP, thin film memory disk and silicon wafer markets, there are
relatively few potential customers. Generally, the Company has not entered into
long-term agreements with its customers. In addition, as purchases related to a
particular new, expanded or upgraded facility are completed, sales to that
customer may decrease sharply. If completed orders are not replaced on a timely
basis by new orders from the same or other customers, the Company's revenue
could be materially adversely affected. See "--Fluctuations in Quarterly
Operating Results" and "Business--Customers."

INTERNATIONAL BUSINESS

In fiscal 1994, 1995, 1996 and the six months ended November 30, 1996, 16.7%,
17.3%, 21.7% and 28.2%, 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. The results of
operations of the Company's foreign subsidiaries and its equity in the net
earnings of the Far East Joint Venture are translated for financial statement
purposes based upon average exchange rates during the period covered. As a
result, fluctuations in exchange rates may have an adverse effect on the
Company's results of operations. 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, fluctuations in exchange
rates may have an adverse effect on the Company's shareholders' equity. See "--
Reliance on the Performance of and Relationship with Far East Joint Venture"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon certain senior
management and technical personnel. The loss of the services of one or more of
these key persons could have a material adverse effect on the Company. Although
the Company has employment agreements with certain of these key employees, such
agreements are terminable at will by the employee. The Company's future success
will depend in large part upon its ability to attract and retain highly skilled
technical, managerial, and marketing personnel. Competition for such personnel
in the Company's industry is intense and the companies with which the Company
competes are often larger and more established than the Company. There can be
no assurance that the Company will be successful in attracting and retaining
qualified personnel. See "Business--Employees" and "Management."

INTELLECTUAL PROPERTY RIGHTS

Although the Company currently holds numerous United States patents and
additional foreign patents in Japan and several Asian and European countries
and has several United States patent applications and foreign patent
applications pending, the Company believes that patents are of less
significance in its industry than such factors as continued innovation,
technical expertise and know-how of its personnel and other factors. Moreover,
there can be no assurance that the Company will be able to protect its
technology or that competitors will not be able to develop similar technology
independently. No assurance can be given that the claims allowed on any patents
held or acquired by the Company will be sufficiently broad to protect the
Company's technologies. In addition, no assurance can be given that any
existing or future patents issued to the Company will not be challenged,
invalidated, or circumvented or that the rights granted thereunder will provide
competitive advantages to the Company. In that event, the Company's results of
operations could be adversely affected. Moreover, the Company may choose to
incur significant costs in an attempt to defend its patent rights.

In addition, although the Company believes that its products do not infringe
any valid existing proprietary rights of others, there can be no assurance that
third parties will not assert infringement claims in the future. There also may
be pending patent applications or issued patents of which the Company is not
aware, and which would require the Company to license or challenge such
patents, at significant expense to the Company. There can be no assurance that
any such license would be available on acceptable terms, if at all, or that the
Company would prevail in any such challenge. See "Business--Intellectual
Property."

ENVIRONMENTAL REGULATIONS

The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals used in research and development. In addition, a number of
slurries and other materials sold by the Company and used by the Company's
customers on equipment manufactured by the Company are substances subject to
such regulation. Public attention has increasingly been focused on the
environmental impact of operations that use hazardous materials. Failure to
comply with present or future regulations could result in substantial liability
to the Company. In addition, new laws, rules and regulations could be adopted
that could result in significant expense to the Company in the conduct of its
business.

CONTROL BY EXISTING SHAREHOLDERS

Following the offering, Mr. Farley, his spouse and adult children will, in
the aggregate beneficially own approximately 34.2% of the Company's outstanding
shares (approximately 33.0% assuming the full exercise of the Underwriters'
over allotment option). Further, following this offering, the Company's
executive officers, directors and principal shareholders (exclusive of shares
beneficially owned by Mr. Farley's adult children) will, in the aggregate,
beneficially own approximately 30.1% of the Company's outstanding shares of
Common Stock (approximately 29.0% assuming the full exercise of the
Underwriters' over allotment option). As a result, these shareholders, if
acting together, would be able to determine the outcome of most matters
requiring approval by the shareholders of the Company, including the election
of the directors and other actions by shareholders with

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<PAGE>

respect to the business and affairs of the Company. In addition, the voting
power of these shareholders under certain circumstances could have the effect
of delaying or preventing a change in control of the Company. See
"Management," "Principal and Selling Shareholders" and "Description of Capital
Stock."

POSSIBLE ISSUANCE OF PREFERRED STOCK

The Board of Directors has authority to issue up to 1,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further
vote or action by the shareholders. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company, thereby delaying or preventing a change in
control of the Company. Furthermore, such Preferred Stock may have other
rights, including economic rights senior to the Common Stock, and, as a
result, the issuance thereof could have a material adverse effect on the
market value of the Common Stock. The Company has no present plans to issue
shares of Preferred Stock. See "Description of Capital Stock."

VOLATILITY OF STOCK PRICE

The market price of the Common Stock is subject to significant fluctuations
in response to the Company's operating results and other factors, including:
announcements of developments related to the Company's business; fluctuations
in the Company's order levels; general conditions in the technology industries
or the worldwide economy; announcements of technological innovations; new
products or product enhancements by the Company or its competitors;
developments in patents or other intellectual property rights; and
developments in the Company's relationships with its joint venture partners,
customers, distributors and suppliers. In addition, in recent years the stock
market in general, and the shares of technology companies in particular, have
experienced extreme price fluctuations, and such extreme price fluctuations
may continue. These broad market and industry fluctuations may adversely
affect the market price of the Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of shares in the public market following this
offering could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have 12,662,485 shares of Common
Stock outstanding. Of these shares, 8,487,492 shares, including the 3,000,000
shares sold in this offering, will generally be freely tradeable without
restriction, including shares that are freely tradeable pursuant to Rule
144(k) under the Securities Act of 1933, as amended (the "Securities Act"). In
addition, 4,174,993 shares of Common Stock are tradeable pursuant to the
provisions of Rule 144 under the Securities Act. Under certain lock-up
agreements with the underwriters, certain shareholders, owning 5,613,883
shares in the aggregate after the offering, have agreed that they will not,
without the prior written consent of Lehman Brothers Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them for a period of 90 days after the effective date of
the Registration Statement of which this Prospectus forms a part. See
"Underwriting."

THE COMPANY

The Company was incorporated in Illinois in 1959 as SpeedLap Corporation.
SpeedFam International, Inc. is a holding company operating through three
wholly owned subsidiaries, and also owns interests in two joint ventures. The
Company operates through SpeedFam Corporation in the U.S. ("SpeedFam U.S.")
and SpeedFam Limited ("SpeedFam U.K.") and SpeedFam GmbH ("SpeedFam Germany")
in Europe. SpeedFam International, Inc. owns 50% of each of two joint
ventures, the Far East Joint Venture and the Fujimi Joint Venture. The Far
East Joint Venture primarily produces and sells products in the Far East
similar to those produced by the Company, and the Fujimi Joint Venture sells
slurries and pads in North America.

-16-
<PAGE>

Unless the context otherwise requires, the "Company" and "SpeedFam" refer
only to SpeedFam International, Inc., an Illinois corporation, and its wholly
owned subsidiaries. The Company's principal executive offices are located at
7406 West Detroit, Chandler, Arizona 85226 and its telephone number is (602)
961-2175.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,050,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$63.8 million ($77.9 million if the Underwriters' over-allotment option is
exercised in full), after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company. The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders.

A portion of the net proceeds will be used by the Company to fund the
construction and equipping of a new corporate headquarters and manufacturing
facility in Chandler, Arizona. The Company presently estimates that the total
costs to be incurred for this project will be approximately $20.4 million.
Through February 11, 1997, the Company has spent approximately $8.5 million in
land and costs to construct the new facility. In addition, approximately $8.0
million of net proceeds is estimated to be used for capital expenditures.

The Company intends to use $2.2 million of the net proceeds to repay
borrowings under a working capital revolving line of credit, bearing interest
at 6.73%, at February 11, 1997 and approximately $600,000 to repay long-term
debt bearing interest at 9.25%.

The Company expects to use the remaining net proceeds of this offering for
working capital and for other general corporate purposes. The Company may also
use a portion of the net proceeds to fund acquisitions of businesses,
divisions of companies or technologies complementary to those of the Company,
although there are no current agreements or commitments with respect to any
such transactions. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, interest-bearing securities. The
Company continually evaluates its financial position and financing
alternatives. The Company may, in the future, raise additional funds through
bank financing and the sale of equity securities.

-17-
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SFAM." Public trading of the Common Stock commenced on October 10,
1995. Prior to that time, there was no public market for the Company's Common
Stock. The following table sets forth the high and low closing sale prices for
the Common Stock as reported by Nasdaq for the periods indicated:

<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Fiscal 1996
Second Quarter (from October 10, 1995)................. $18 1/4 $11 1/8
Third Quarter.......................................... 16 1/2 9 1/2
Fourth Quarter......................................... 22 12
Fiscal 1997
First Quarter.......................................... $20 1/8 11 1/8
Second Quarter......................................... 23 5/16 10 7/8
Third Quarter (through February 13, 1997).............. 39 3/8 20 7/8
</TABLE>

On February 13, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $33.25 per share. As of February 11, 1997, there
were 119 holders of record of the Common Stock.

The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. Payment of dividends
in the future, if any, will be made at the discretion of the Board of Directors
of the Company. Such decisions will depend on a number of factors, including
the future earnings, capital requirements, financial condition and future
prospects of the Company and such other factors as the Board of Directors may
deem relevant.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
November 30, 1996 and as adjusted to reflect the sale of the 2,050,000 shares
of Common Stock offered by the Company hereby and the application of a portion
of the estimated net proceeds therefrom (after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company) as described under "Use of Proceeds."

<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt, net of current portion..................... $ 2,200 $ --
------- --------
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized;
no shares issued or outstanding........................... -- --
Common Stock, no par value, 20,000,000 shares authorized;
10,612,485 shares issued and outstanding, actual;
12,662,485 shares issued
and outstanding, as adjusted(1)........................... 1 1
Additional paid-in capital................................. 26,787 90,590
Retained earnings.......................................... 38,068 38,068
Foreign currency translation adjustment.................... 3,289 3,289
------- --------
Total shareholders' equity............................... 68,145 131,948
------- --------
Total capitalization................................... $70,345 $131,948
======= ========
</TABLE>
- --------
(1) Based on shares of Common Stock outstanding at November 30, 1996. Excludes
an aggregate of 2,802,216 shares of Common Stock reserved for issuance
under the Company's employee benefit plans, of which options to acquire
1,216,880 shares of Common Stock were outstanding at November 30, 1996.

-18-
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of earnings data for the years ended May 31,
1994, 1995 and 1996 and the consolidated balance sheet data as of May 31, 1995
and 1996 are derived from the Company's consolidated financial statements and
notes thereto which have been audited by KPMG Peat Marwick LLP, independent
public accountants and are included elsewhere in this Prospectus. The
consolidated statement of earnings data for the years ended May 31, 1992 and
1993 and the consolidated balance sheet data as of May 31, 1992, 1993 and 1994
are derived from the Company's consolidated financial statements which have
been audited by KPMG Peat Marwick LLP but are not included herein. The
consolidated balance sheet data at November 30, 1996, and the statements of
operations data for the six months ended November 30, 1995 and November 30,
1996, have been derived from unaudited consolidated financial statements
which, in the opinion of the Company, reflect all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
financial position and results of operations of the Company for those periods.
The statements of operations data for interim periods are not necessarily
indicative of results for subsequent periods or the full year. The selected
consolidated financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements,
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Net sales............... $36,178 $42,542 $49,247 $57,021 $113,880 $42,270 $74,283
Commissions............. 3,431 772 2,134 2,757 6,290 984 4,564
------- ------- ------- ------- -------- ------- -------
Total revenue........... 39,609 43,314 51,381 59,778 120,170 43,254 78,847
Cost of sales........... 28,059 32,472 38,945 45,494 78,661 31,186 49,873
------- ------- ------- ------- -------- ------- -------
Gross margin.......... 11,550 10,842 12,436 14,284 41,509 12,068 28,974
OPERATING EXPENSES:
Research, development
and engineering........ 1,032 1,778 2,267 2,740 11,496 3,497 7,895
Selling, general and
administrative
expenses............... 10,687 8,545 8,988 9,948 18,922 6,862 13,481
------- ------- ------- ------- -------- ------- -------
Operating profit (loss). (169) 519 1,181 1,596 11,091 1,709 7,598
Interest expense........ (878) (824) (697) (959) (691) (525) (124)
Other income (expense),
net..................... 442 433(2) 974 6 483 (304) (342)
------- ------- ------- ------- -------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes and
cumulative effect of
change in accounting
principle.............. (605) 128 1,458 643 10,883 880 7,132
Income tax expense
(benefit)............... 171 573 (160)(3) 186 4,266 386 2,766
------- ------- ------- ------- -------- ------- -------
Earnings (loss) from
consolidated companies
before cumulative
effect of change in
accounting principle... (776) (445) 1,618 457 6,617 494 4,366
Equity in net earnings
(loss) of
affiliates(1).......... 1,830 (45) 655 1,187 5,204 1,835 4,455
Cumulative effect of
change in accounting
principle for income
taxes.................. -- -- 78 -- -- -- --
------- ------- ------- ------- -------- ------- -------
Net earnings (loss)..... $ 1,054 $ (490) $ 2,351 $ 1,644 $ 11,821 $ 2,329 $ 8,821
======= ======= ======= ======= ======== ======= =======
Net earnings (loss) per
share................... $ 0.14 $ (0.06) $ 0.31 $ 0.20 $ 1.16 $ 0.26 $ 0.78
======= ======= ======= ======= ======== ======= =======
Weighted average common
and common equivalent
shares................. 7,632 7,615 7,619 8,146 10,159 9,084 11,296
======= ======= ======= ======= ======== ======= =======
</TABLE>

-19-
<PAGE>

<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
---------------------------------------- ------------
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital.......... $ 6,503 $ 5,944 $ 9,980 $11,072 $ 31,193 $ 32,009
Total assets............. 35,136 35,715 45,709 60,029 107,984 111,743
Long-term obligations,
less current maturities. 8,358 8,133 9,716 10,362 2,593 2,200
Shareholders' equity..... 14,339 15,669 18,576 23,037 60,039 68,145
</TABLE>
- --------
(1) Includes $1,584,000, ($285,000), $450,000, $1,100,000, $4,759,000,
$1,752,000 and $3,623,000 for the 1992 through 1996 fiscal years and the
six months ended November 30, 1995 and 1996, respectively, attributable to
the Company's share of net earnings (loss) from the Far East Joint Venture,
accounted for on the equity method. See "Joint Venture Arrangements," the
consolidated financial statements of the Far East Joint Venture and the
unaudited interim consolidated financial statements of the Company included
elsewhere herein. The remainder represents the Company's share of net
earnings from the Fujimi Joint Venture.

(2) Reflects charges of $300,000 related to the bankruptcy of a subsidiary
operating in Switzerland.

(3) Reflects income tax benefit of $740,000 related to the bankruptcy of a
subsidiary operating in Switzerland.

-20-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

SpeedFam designs, develops, manufactures, markets and services chemical
mechanical polishing, 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 of the Far East Joint Venture.
Sales of the Company's products are recorded upon shipment or when the product
is accepted by the customer, provided that no significant obligations remain
outstanding and collection of the related receivable is deemed probable. The
Company accrues estimated warranty and installation expenses for each
equipment and system order at the time the order is shipped.

Equipment, parts and expendables consist of capital equipment manufactured
by the Company, spare parts for that equipment and expendable products, such
as bearings, grinding stones, lapping plates, workpiece carriers, seals,
retaining rings, workholders and polishing pads. During fiscal year 1994,
1995, 1996 and the six months ended November 30, 1996, 49.4%, 52.3%, 77.3% and
83.0%, 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
November 30, 1996, the Company had shipped four Auriga systems. The Company's
CMP systems accounted for 7.9%, 34.7% and 44.5% of net sales for fiscal 1995,
1996 and the six months ended November 30, 1996, respectively. The Company's
CMP systems generally have gross margins higher than those of the Company's
other capital equipment products.

Slurries consist of polishing slurry and slurry components (including
vehicles and abrasives) used in surface processing. During fiscal year 1994,
1995, 1996 and the six months ended November 30, 1996, 50.6%, 47.7%, 22.7% and
17.0%, respectively, of the Company's net sales was attributable to sales of
slurries. Substantially all of the slurries sold by the Company are
manufactured by Fujimi Incorporated. Historically, the gross margin for
slurries has been significantly lower than that for equipment, parts and
expendables. In recent years, the Company has experienced severe competitive
pressure in the sale of slurries and has been required to reduce prices. In
addition, the Company has experienced increased slurry costs.

Commissions from affiliate ("commissions") consist primarily of revenue
derived from the distribution by the Company in the U.S. and Europe of
products of the Far East Joint Venture for which the Company acts as sales
agent. Certain capital equipment marketed and distributed by the Company is
produced solely by the Far East Joint Venture. The Company distributes such
products throughout the U.S. and Europe and receives commissions thereon. Such
amount reflects the difference between the imported equipment's cost to the
Company and sales price to the customer. For fiscal 1995, 1996 and the six
months ended November 30, 1996, commissions accounted for 4.6%, 5.2%, 5.8%,
respectively, of total revenue.

In fiscal 1994, 1995, 1996 and the six months ended November 30, 1996,
16.7%, 17.3%, 21.7% and 28.2%, respectively, of the Company's total revenue
was attributable to sales outside the United States. In particular, in the six
months ended November 30, 1996, 16.0% of the Company's total revenue was
attributable to sales made to European markets and 12.2% was attributable to
sales to markets in the Far East. In fiscal 1993, the Company incurred charges
of $300,000 related to the bankruptcy of a subsidiary of the Company, FamTec
AG, operating in Switzerland. In fiscal 1994, the Company wrote off its
investment in FamTec AG. The net liabilities of FamTec AG and the removal of
the foreign currency translation adjustment from consolidated shareholders'
equity resulted in a pretax gain of $303,000 and an income tax benefit of
$740,000 in fiscal 1994. See "Business--Legal Proceedings."

-21-
<PAGE>

The Company generally enters into foreign exchange contracts to hedge
certain firm commitments denominated in foreign currencies, principally in
Japanese yen. The terms of the contracts are rarely more than one year.
Currency variations have had an immaterial effect on the Company's results of
operations for the periods presented. The results of operations of the
Company's foreign subsidiaries and its equity in the net earnings of the Far
East Joint Venture are translated for financial statement purposes based upon
average exchange rates during the period covered. As a result, fluctuations in
exchange rates may have an adverse effect on the Company's results of
operations. Net assets of the Company's foreign subsidiaries and 50% of the
net assets of the Far East Joint Venture were approximately $24.1 million at
October 31, 1996 (the end of the second quarter 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 interests in the joint ventures are
accounted for on the equity method. As a result, the Company's share of the
net earnings of the Far East Joint Venture and the Fujimi Joint Venture appear
in the "Equity in net earnings of affiliates" caption on the Company's
consolidated statements of earnings. Neither the Far East Joint Venture nor
the Fujimi Joint Venture has paid significant dividends in the past and both
are expected to retain substantially all earnings in the foreseeable future.
The Company's share of the net earnings of the Far East Joint Venture has not
in the past resulted and is not expected in the future to result in a like
effect on the cash flows of the Company. At November 30, 1996, the Company's
equity interest in the Far East Joint Venture was $20.3 million, representing
18.2% of the Company's total assets and 29.8% 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. In addition, in recent quarters
the equity in net earnings of affiliates attributable to the Company's joint
ventures has increased substantially, primarily as a result of increased
earnings of the Far East Joint Venture which has increased for a number of
reasons, including a high level of sales of polishing machines into the glass
disk market and edge polishing machines into the semiconductor wafer market,
increased shipments of manual disk polishing machines into the U.S. market and
increased commission revenue resulting from the sale in the Far East of CMP
systems manufactured by the Company. The Company does not expect that sales of
glass disk polishing machines and edge polishing machines will remain at such
levels. Further, the Company expects that sales into the U.S. of manual disk
polishing machines manufactured by the Far East Joint Venture will decrease as
a result of the evolution from manual polishing machines to automated
polishing machines. As a result, the Company expects that the Far East Joint
Venture's revenues and earnings may decline in the next few quarters as
compared to recent quarters, which could have a material adverse effect on the
results of operations of the Company. See "Joint Venture Arrangements" and the
consolidated financial statements of SpeedFam Co., Ltd. included elsewhere
herein.

-22-
<PAGE>

Certain manufacturers of thin film memory disk media have begun using slurry
formulations to achieve the desired surface characteristics that the Company
does not currently sell. Although the Company is working with Fujimi
Incorporated, its supplier of memory disk slurry, to develop new slurry
formulations there is no assurance that it will be able to do so. Further,
there is no assurance that any new slurry product introduced will be acceptable
to memory disk manufacturers or, even if acceptable, that such manufacturers
would substitute such product for those currently in use. As a result, the
Company expects that sales of slurries to the thin film memory disk media
market will decline in the near-term, which will have an adverse effect on the
results of operations of the Company.

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>
SIX MONTHS
ENDED
YEARS ENDED MAY NOVEMBER
31, 30,
------------------- ------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Net sales................................... 95.8% 95.4% 94.8% 97.7% 94.2%
Commissions................................. 4.2 4.6 5.2 2.3 5.8
----- ----- ----- ----- -----
Total revenue............................... 100.0 100.0 100.0 100.0 100.0
Cost of sales............................... 75.8 76.1 65.5 72.1 63.3
----- ----- ----- ----- -----
Gross margin.............................. 24.2 23.9 34.5 27.9 36.7
OPERATING EXPENSES:
Research, development and engineering....... 4.4 4.6 9.6 8.1 10.0
Selling, general and administrative
expenses.................................... 17.5 16.6 15.7 15.9 17.1
----- ----- ----- ----- -----
Operating profit............................ 2.3 2.7 9.2 3.9 9.6
Interest expense............................ (1.4) (1.6) (0.6) (1.2) (0.2)
Other income (expense), net................. 1.9 -- 0.4 (0.7) (0.4)
----- ----- ----- ----- -----
Earnings from consolidated companies before
income taxes and cumulative effect of
change in accounting principle............. 2.8 1.1 9.0 2.0 9.0
Income tax expense (benefit)................ (0.3) 0.3 3.5 0.9 3.5
----- ----- ----- ----- -----
Earnings from consolidated companies before
cumulative effect of change in accounting
principle.................................. 3.1 0.8 5.5 1.1 5.5
Equity in net earnings of affiliates........ 1.3 2.0 4.3 4.2 5.7
Cumulative effect of change in accounting
principle for income tax................... 0.2 -- -- -- --
----- ----- ----- ----- -----
Net earnings................................ 4.6% 2.8% 9.8% 5.3% 11.2%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED NOVEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED NOVEMBER 30,
1995

Net Sales. Net sales for the six months ended November 30, 1996 were $74.3
million, up 75.7% over net sales of $42.3 million for the similar period in
fiscal 1996. Equipment, parts and expendables accounted for 83.0% of net sales
in the first six months of fiscal 1997 compared to 70.9% in the same period of
fiscal 1996. CMP planarization equipment accounted for a significant portion of
this sales growth. In addition to the significant increase in CMP equipment
sales to semiconductor manufacturers, net sales for the six month period have
increased due to higher levels of equipment shipments to the thin film memory
disk media market. As a result, sales of related equipment, parts and
expendables have also increased in fiscal 1997 over fiscal 1996. Sales of
slurries as a percent of net sales decreased to 17.0% in the first six months
of fiscal 1997 from 29.1% in the comparable period of fiscal 1996.

Commissions from Affiliate. Commissions from affiliate increased to $4.6
million in the first six months of fiscal 1997 compared to $984,000 in the
first six months of fiscal 1996. The increase, as compared to the

-23-
<PAGE>

respective period in fiscal 1996, was due primarily to the expanding demands
in the silicon wafer industry for edge 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 the first
six months of fiscal 1997 over the same period in the prior year.

Gross Margin. For the first six months of fiscal 1997, gross margin was
$29.0 million or 36.7% of total revenue compared to $12.1 million or 27.9% of
total revenue for the first six months of fiscal 1996. The increase in gross
margin is attributable to a continued shift in revenue mix to higher-margin
equipment, especially systems for CMP planarization of semiconductor devices.
Other factors which have increased gross margin included higher commission
revenue as well as continued improvement in manufacturing efficiencies in the
U.S. manufacturing plants.

Research, Development and Engineering. In the six months ended November 30,
1996, research, development and engineering expense increased to $7.9 million
or 10.0% of total revenue compared to $3.5 million or 8.1% of total revenue in
the first six months of fiscal 1996. The increase in both the dollar amount
and the expense as a percent of total revenue is a result of the continued
investment in the development of the CMP process and other products for key
markets. Such expenditures have resulted in the development and sale of the
Auriga machine and the recent introduction of the Company's post-CMP cleaning
system, the Capella.

Selling, General and Administrative. Selling, general and administrative
expense increased 96.5% to $13.5 million in the first six months of fiscal
1997 from $6.9 million in the corresponding period in the prior year. As a
percentage of total revenue, selling, general and administrative expense
increased to 17.1% from 15.9% in the first six months of fiscal 1996. Higher
levels of spending were required to support the sales growth in the first six
months of fiscal 1997. This increase in selling, general and administrative
expense as a percentage of revenue reflects continued investments in sales,
support and service organizations and administrative infrastructure, as well
as increased commissions paid to the Far East Joint Venture as a result of
increased sales of equipment manufactured by the Company and exported to Far
East customers through the Far East Joint Venture.

Interest Expense. The decrease in interest expense for the six months ended
November 30, 1996, was due to the significant reduction of long-term debt
since the end of the first quarter of fiscal 1996 using funds received
primarily from the initial public offering completed in October 1995.

Other Income (Expense), Net. Other expense increased to $342,000 in the
first six months of fiscal 1997 from $304,000 in the comparable period of
fiscal 1996. Other expense for the first six months of fiscal 1997 consists
primarily of charges associated with a proposed secondary offering which was
subsequently canceled. These charges were partially offset by interest income.

Equity in Net Earnings of Affiliates. Equity in net earnings of affiliates
increased to $4.5 million in the first six months of fiscal 1997 from $1.8
million in the corresponding period in the prior year. Demand continued to be
strong for products sold to the thin film memory and semiconductor wafer
industries by the Far East Joint Venture. In addition, the Company's share of
the net earnings of the Fujimi Joint Venture were significantly higher than in
the comparable period of fiscal 1996 due to increased sales and improved
margins realized during the first half of 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, up 99.7% over net sales of $57.0 million 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 accounted for 34.7% of net sales in
fiscal 1996, 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. The
Company's backlog as of May 31, 1996 was $72.8 million, an increase of 56.2%
from $46.6 million as of May 31, 1995.

-24-
<PAGE>

Commissions from Affiliate. Commissions from affiliate increased to $6.3
million in the year ended May 31, 1996, compared to $2.8 million in the year
ended May 31, 1995. The increase in fiscal 1996, as compared to fiscal 1995,
was due primarily to the increasing demand of the silicon wafer industry to
meet that industry's capacity requirements, and increased demand for certain
technologies developed and manufactured by the Far East Joint Venture.

Gross Margin. In fiscal 1996, gross margin was $41.5 million or 34.5% of
total revenue compared to $14.3 million or 23.9% of total revenue in fiscal
1995. In addition to higher sales levels, gross margin has increased due to a
considerable shift towards higher margin products in the equipment, parts and
expendables segment, particularly the CMP-V planarization system.

Research, Development and Engineering. In the year ended May 31, 1996,
research, development and engineering expense increased to $11.5 million or
9.6% of total revenue compared to $2.7 million or 4.6% of total revenue in
fiscal 1995. The Company has committed significant resources to the continued
development of the CMP process and other related technologies. The Company
believes that increased spending in research, development and engineering,
including providing required technical support services for needs of customers,
are all major factors to continued CMP-V 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.

Interest Expense. In the year ended May 31, 1996, interest expense decreased
to $691,000 from $959,000 in fiscal 1995. The decrease was due to the
retirement of the outstanding balance of a revolving line of credit and the
retirement of long-term debt payable to a former director.

Other Income, Net. Other income increased to $483,000 in fiscal 1996 from
$6,000 in fiscal 1995. In fiscal 1995, the Company incurred a $350,000 foreign
exchange loss on several import equipment orders. The remaining increase is due
primarily to additional interest income earned on the investment of proceeds
received upon completion of the Company's initial public offering of Common
Stock in October 1995.

Provision for Income Taxes. The Company's effective tax rate in fiscal 1996
was 39%, compared to 29% in fiscal 1995. The Company's effective income tax
rate in fiscal 1996 differs from the Federal statutory rate primarily as a
result of state taxes, net of the U.S. federal benefit.

Equity in Net Earnings of Affiliate. For the year ended May 31, 1996, equity
in net earnings of affiliates increased to $5.2 million compared to $1.2
million in the year ended May 31, 1995. The increase is attributed to a
continued strong demand for products sold to the thin film memory and
semiconductor wafer industries by the Far East Joint Venture. In addition,
profits of the Far East Joint Venture have increased due to improvements in
manufacturing, cost reduction programs and a lower effective tax rate.

FISCAL 1995 COMPARED WITH FISCAL 1994

Net Sales. Net sales increased 15.8% to $57.0 million in fiscal 1995 from
$49.2 million in fiscal 1994. The increase was primarily attributable to a $5.5
million increase in equipment, parts and expendables sales to $29.8 million in
fiscal 1995 from $24.3 million in fiscal 1994. A significant portion of this
increase was due to higher CMP-V sales. The increase also reflects strong
equipment demand from the semiconductor wafer and thin film memory disk
industries due to those industries' expansion of manufacturing capacity.
Slurries sales increased $2.3 million in fiscal 1995 to $27.2 million from
$24.9 million in fiscal 1994 primarily as a result of an increase in unit sales
partially offset by a decrease in unit selling prices. European sales increased
20.9% to

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<PAGE>

$10.4 million in fiscal 1995 from $8.6 million in fiscal 1994, primarily due to
increased sales of slurries to semiconductor wafer manufacturers.

Commissions. Commissions increased 29.2% to $2.8 million in fiscal 1995 from
$2.1 million in fiscal 1994, due to increased shipments of systems produced by
the Far East Joint Venture, primarily to U.S. manufacturers of semiconductor
wafers.

Gross Margin. Gross margin increased to $14.3 million in fiscal 1995 from
$12.4 million in fiscal 1994 due to higher sales volume in both business
segments. As a percentage of total revenue, gross margin decreased to 23.9% in
fiscal 1995 from 24.2% in fiscal 1994. The decrease was primarily attributable
to increased slurries unit costs and decreased unit sale prices. This decline
was partially offset by increased equipment, parts and expendables sales as a
percentage of total revenue, which traditionally have higher gross margins than
slurries.

Research, Development and Engineering. Research, development and engineering
expenses increased 20.9% to $2.7 million in fiscal 1995 from $2.3 million in
fiscal 1994. The majority of the expenses relate to the continued development
of the CMP-V and CMP process technology. In addition, the Company invested in
the development of proprietary slurries and the enhancement of existing
machines for the thin film memory disk and precision optics markets. As a
percentage of total revenue, research, development and engineering expenses
increased to 4.6% in fiscal 1995 from 4.4% in fiscal 1994.

Selling, General and Administrative. Selling, general and administrative
expenses increased 10.7% to $9.9 million in fiscal 1995 from $9.0 million in
fiscal 1994, primarily as a result of increased expenses related to the
expansion of marketing, sales and customer support functions, the addition of
new office and assembly facilities and the upgrading of management information
systems, all of which were primarily related to the CMP-V. As a percentage of
total revenue, selling, general and administrative expenses decreased to 16.6%
in fiscal 1995 from 17.5% in fiscal 1994 as a result of a larger total revenue
base.

Interest Expense. Interest expense increased 37.6% to $959,000 in fiscal 1995
from $697,000 in fiscal 1994. This increase was the result of increased
borrowings under a revolving line of credit and higher short-term interest
rates. As a percentage of total revenue, interest expense increased to 1.6% in
1995 from 1.4% in 1994.

Other Income, Net. Other income, net decreased 99.4% to $6,000 in fiscal 1995
from $974,000 in fiscal 1994. The most significant change resulted from a
$350,000 foreign exchange loss incurred on several import equipment orders.

Provision for Income Taxes. The Company's effective tax rate in fiscal 1995
was 29%, compared to (11%) in fiscal 1994. The Company's effective income tax
rate in fiscal 1995 differs from the Federal statutory rate primarily as a
result of the tax benefit from the foreign sales corporation. The fiscal 1994
effective tax rate differs from the Federal statutory rate primarily as a
result of the tax benefit recognized upon the disposal of FamTec AG. The
benefit arose from the write-off and resulting deduction of the Company's
investment in FamTec AG for U.S. tax purposes.

Equity in Net Earnings (Loss) of Affiliates. Equity in net earnings (loss) of
affiliates increased 81.2% to $1.2 million in fiscal 1995 from $655,000 in
fiscal 1994. The increase was primarily attributable to increased sales of
equipment, parts and expendables to the Far East semiconductor industry by the
Far East Joint Venture. Introduction of new and enhanced equipment and systems
as well as improving conditions in the semiconductor equipment market in the
Far East led to increases in sales and profits.

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<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following table presents certain unaudited consolidated quarterly
financial information for the ten quarters ended November 30, 1996 and such
information expressed as a percentage of total revenue. In the opinion of the
Company's management, this information has been prepared on the same basis as
the consolidated financial statements appearing elsewhere in this Prospectus
and includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information. Results of operations
for any previous quarter are not necessarily indicative of results for any
future period.

<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 FISCAL 1997
----------------------------------- ---------------------------------- ----------------
AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 29 MAY 31 AUG. 31 NOV. 30
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF EARNINGS DATA:
Net sales............. $13,751 $12,918 $12,327 $18,025 $17,633 $24,637 $30,083 $41,527 $38,059 $36,227
Commissions........... 202 162 679 1,714 183 801 3,057 2,249 1,669 2,892
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 13,953 13,080 13,006 19,739 17,816 25,438 33,140 43,776 39,728 39,119
Cost of sales......... 11,180 10,420 9,697 14,197 12,766 18,420 20,295 27,180 25,782 24,092
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 2,773 2,660 3,309 5,542 5,050 7,018 12,845 16,596 13,946 15,027
Research, development
and engineering...... 578 707 706 749 1,195 2,302 3,496 4,503 3,781 4,114
Selling, general and
administrative....... 2,541 2,458 2,405 2,544 3,482 3,380 5,183 6,877 6,805 6,675
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit........ (346) (505) 198 2,249 373 1,336 4,166 5,216 3,360 4,238
Interest expense........ (244) (277) (248) (190) (271) (254) (90) (76) (78) (45)
Other income (expense),
net.................... (37) (44) 154 (67) (225) (79) 172 615 (367) 24
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes.... (627) (826) 104 1,992 (123) 1,003 4,248 5,755 2,915 4,217
Income tax expense
(benefit).............. (208) (287) 11 670 (27) 413 1,616 2,264 1,063 1,703
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies. (419) (539) 93 1,322 (96) 590 2,632 3,491 1,852 2,514
Equity in net earnings
of affiliates.......... 565 106 310 206 800 1,035 1,728 1,641 2,186 2,269
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 146 $ (433) $ 403 $ 1,528 $ 704 $ 1,625 $ 4,360 $ 5,132 $ 4,038 $ 4,783
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUE:
Net sales............. 98.6% 98.8% 94.8% 91.3% 99.0% 96.9% 90.8% 94.9% 95.8% 92.6%
Commissions........... 1.4 1.2 5.2 8.7 1.0 3.1 9.2 5.1 4.2 7.4
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......... 80.1 79.7 74.6 71.9 71.7 72.4 61.2 62.1 64.9 61.6
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 19.9 20.3 25.4 28.1 28.3 27.6 38.8 37.9 35.1 38.4
Research, development
and engineering...... 4.1 5.4 5.4 3.8 6.7 9.0 10.5 10.3 9.5 10.5
Selling, general and
administrative....... 18.2 18.8 18.5 12.9 19.5 13.3 15.7 15.7 17.1 17.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit........ (2.4) (3.9) 1.5 11.4 2.1 5.3 12.6 11.9 8.5 10.8
Interest expense........ (1.7) (2.1) (1.9) (1.0) (1.5) (1.0) (0.3) (0.2) (0.2) (0.1)
Other income (expense),
net.................... (0.3) (0.3) 1.2 (0.3) (1.3) (0.3) 0.5 1.4 (0.9) 0.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies
before income taxes.... (4.4) (6.3) 0.8 10.1 (0.7) 4.0 12.8 13.1 7.4 10.8
Income tax expense
(benefit).............. (1.4) (2.2) 0.1 3.4 (0.2) 1.6 4.9 5.1 2.7 4.4
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
consolidated companies. (3.0) (4.1) 0.7 6.7 (0.5) 2.4 7.9 8.0 4.7 6.4
Equity in net earnings
of affiliates.......... 4.0 0.8 2.4 1.0 4.5 4.1 5.3 3.7 5.5 5.8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... 1.0% (3.3)% 3.1% 7.7% 4.0% 6.5% 13.2% 11.7% 10.2% 12.2%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

-27-
<PAGE>

The Company's results of operations may be subject to significant quarterly
variation. Certain of the Company's systems have relatively high selling
prices. This can cause quarterly variations in equipment sales and have a
significant effect on the Company's results of operations. The results of
operations for a particular quarter may also vary due to a number of factors,
including market conditions in the semiconductor device, thin film memory disk
and semiconductor wafer industries, customer delivery schedules, timing of
orders, the mix of products sold by the Company, competitive pricing
pressures, availability and cost of raw materials and the quarterly operating
results of the Company's joint ventures. Also, customers may reschedule, or in
rare instances cancel shipments, and production difficulties may delay
shipments.

LIQUIDITY AND CAPITAL RESOURCES

For the first six months ended November 30, 1996, $1.2 million in cash was
provided by operating activities primarily from net earnings. Cash from
operating activities was also provided by an increase in customer deposits
since the beginning of the fiscal year, as well as a reduction in both
accounts receivable and inventories. Manufacturing lead times for machines and
equipment are measured in weeks, and result in fluctuating inventory balances
depending on timing of shipments. Cash was used primarily to reduce accounts
payable and amounts due to affiliates, fund construction costs of the new
corporate headquarters and manufacturing facility, and reduce long-term debt.

Through February 11, 1997, the Company had spent approximately $8.5 million
for land and construction costs for a new corporate headquarters and
manufacturing facility in Chandler, Arizona. The Company presently estimates
the total costs to be incurred for the project will be approximately $20.4
million. The current total estimated project cost has increased from previous
estimates due to changes in equipment production capacity and waste
neutralization requirements, power and HVAC demands.

As of September 13, 1996, the Company 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 majority of the remaining costs to construct the new corporate
headquarters and manufacturing facility in Chandler, Arizona. At February 11,
1997, no amounts were outstanding on the term loan as the Company has, to
date, funded the costs of this new building through working capital.

On October 31, 1996, SpeedFam U.K. entered into a (Pounds)950,000 ($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. As of February 11, 1997, no amounts were outstanding on
this line of credit.

The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with anticipated funds provided by operations,
current bank lines of credit and the term loan will be sufficient to meet the
Company's capital requirements during the next 12 months.

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
was issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. Management has reviewed the Statement and determined that
its provisions do not have a material effect upon the financial condition or
results of operations of the Company.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation Plans" was issued in October 1995. The Statement will be
effective for the Company's fiscal year 1997. As allowed by the new Statement,
the Company plans to continue to use Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" in accounting for its stock
options. Certain pro forma and other information will be disclosed in the
annual financial statements as if the Company had measured compensation costs
in a manner consistent with the new Statement. Management has reviewed the
Statement and determined that its provisions do not have a material effect
upon the financial condition or results of operations of the Company.

-28-
<PAGE>

BUSINESS

SpeedFam designs, develops, manufactures, markets and services chemical
mechanical polishing, or "CMP," systems used in the fabrication of
semiconductor devices and other high throughput precision surface processing
systems used in the fabrication of thin film memory disk media, semiconductor
wafers and general industrial components. In addition, the Company markets and
distributes slurries and parts and expendables used in its customers'
manufacturing processes. The Company's processing systems include polishing,
grinding, lapping and pre-deposition cleaning equipment. The process steps
performed by the Company's equipment are an integral part of and occur
repeatedly throughout the fabrication cycles of advanced semiconductors, thin
film memory disk media and semiconductor wafers. The Company has been
utilizing innovative designs, formulas and process technologies to address its
customers' precision surface processing needs since 1959. The Company believes
that the processing expertise it has developed in over 35 years enables it to
provide precision surface processing solutions to leading-edge electronics
manufacturers who require increasingly smaller device geometries and tighter
process tolerances. Major customers of the Company include AMD, Akashic,
Digital Equipment, Hewlett-Packard, IBM, Komag, MEMC, Mitsubishi Siltec, Mosel
Vitelic, Motorola, Rockwell International, Seagate, Siemens, StorMedia and
Wacker Siltronic.

INDUSTRY BACKGROUND

The semiconductor and memory disk industries have experienced rapid growth
as a result of the personal computer, telecommunications and networking
markets and the emergence of consumer-oriented semiconductor applications in
products such as automobiles, electronic games and other consumer electronics.
The computer markets are characterized by the emergence of new operating
systems that require higher processor performance, more memory and increased
disk storage to run effectively. In both the computing and consumer-oriented
markets, end users demand greater system performance, along with product
features such as small size, portability, long battery life and cool
operation.

The heightened requirements of end users for increased system performance,
processing capacity and product features are requiring semiconductor and thin
film memory disk manufacturers to rapidly adopt new technologies. Thus,
semiconductor device manufacturers are producing devices with smaller
geometries and multi-level metal processes. Similarly, thin film memory disk
media manufacturers are continually increasing the density of disk media by
increasing coercivity (magnetic density) and reducing head flying heights in
order to satisfy end user demand for greater storage capacity.

In order to meet these evolving specifications, both semiconductor and thin
film memory disk manufacturers must tighten tolerances and improve certain
surface characteristics. At present, some complex semiconductor devices have
line geometries and feature sizes of less than 0.5 micron, and devices with
geometries of 0.18 micron or less are under development. In the last decade,
coercivity requirements have increased from approximately 800 oersteds to
2,200 oersteds or more and flying height requirements have decreased to less
than 0.5 microinch. Such dramatic increases in coercivity and reductions in
flying heights require improved thin film memory disk media surface quality.
These tightened tolerances necessitate improvements in the semiconductor and
thin film memory disk media manufacturing processes in order to increase
planarity (flatness) and provide a number of new surface characteristics.

Polishing is a process used to change the characteristics of the surface of
a semiconductor wafer or thin film memory disk. Polishing is a complex
science, often involving multiple steps, each at a specified set of process
parameters such as polishing speed, pressure, time, and temperature, as well
as slurry pH and particle size, hardness and shape. Polishing improves the
flatness (planarity), smoothness and optical properties of a surface. A
typical flat polishing system consists of a moving platen that is covered with
a polishing pad, in combination with a polishing liquid (or slurry) containing
minute abrasive particles that impinge on the surface, thereby creating the
desired surface qualities. This liquid slurry can be chemically active such
that the surface of the component being polished is chemically modified, thus
accelerating and improving the polishing process. The combination of chemical
action from the acidic or alkaline slurry and mechanical action from the
abrasive

-29-
<PAGE>

slurry has long been used to process silicon wafers and thin film memory disk
media and is increasingly used in the manufacture of advanced semiconductor
devices.

EMERGENCE OF CMP IN SEMICONDUCTOR PRODUCTION

CMP, or chemical mechanical polishing for plananization of patterned wafers,
was first applied in the manufacture of semiconductor devices by IBM in the
1980's, and has since been adopted by a number of manufacturers of
semiconductor devices. The objective of CMP is to reestablish a flat or planar
surface that has been degraded by prior deposition steps to a point where it
is not possible or feasible to deposit additional levels without first
restoring the surface to a planar condition. For example, after a
microprocessor device has had several levels of metal deposited, the surface
may have become so irregular that the optics of the photolithography equipment
may be unable to maintain proper focus on all areas of the wafer surface.
During the CMP process, the higher points of the dielectric or metal layer are
removed, resulting in a flatter and more even surface. This provides a level
foundation on which to deposit the next level of circuitry. CMP allows the
semiconductor manufacturers to make denser, smaller, faster and more reliable
devices by enabling them to effectively stack many levels of interconnection.

End user performance demands are requiring semiconductor manufacturers to
produce increasingly sophisticated logic and memory devices containing
multiple metal layers. Because of the depth of focus limitations of existing
photolithography equipment, global planarization becomes particularly
important for devices with design geometries of 0.35 micron or less and three
or more metal levels. The Company believes that the CMP process is currently
the most effective method to provide this global planarization. According to
Dataquest Incorporated, the CMP equipment market was estimated at $179 million
in 1995 and it currently projects the market to be approximately $905 million
in the year 2001.

CMP MARKET REQUIREMENTS

The Company believes that manufacturers of semiconductor devices consider
many factors in evaluating a CMP system, including the following:

Cost of Ownership. Cost of ownership refers to the total cost to a
manufacturer of processing a wafer assuming a given set of process parameters.
Key factors that determine cost of ownership include capital equipment and
consumables costs, throughput, yield, reliability and amount of clean room
space occupied by the CMP system.

Throughput. Throughput is determined by measuring the number of wafers
processed per unit of time given a certain set of process conditions, such as
the amount of material requiring removal.

Process Flexibility, Performance and Reliability. Flexibility is determined
by the ability of a CMP system to address the evolving process and application
needs of semiconductor device manufacturers. Specifically, the Company
believes that semiconductor device manufacturers want a common, standardized
CMP system capable of processing various film types, including metal, oxide
and other materials. Performance is primarily characterized by the ability to
repeatedly create precise, uniform film layers while achieving rapid removal
rates. Reliability of a CMP system is analyzed through measures such as "mean
time between failures" (MTBF), "mean wafers between failures" (MWBF) and "mean
wafers between interruptions" (MWBI).

Support and Other Capabilities of the CMP Supplier. Semiconductor device
manufacturers typically review the CMP supplier's support and other
capabilities, including the supplier's management systems, support locations,
training capabilities, research and development capabilities, technology
roadmap and process development activities.

CMP systems typically utilize polishing heads that hold wafers during the
planarization process. Historically, many CMP systems employed either one or
two head system architectures that permitted the processing of only one or two
wafers at a time. The Company believes that the architecture of these one or
two

-30-
<PAGE>

head systems limits their ability to adequately address the CMP objectives of
semiconductor device manufacturers, particularly with respect to cost of
ownership and throughput. The Company believes that multiple head CMP systems
have inherent advantages over one and two head CMP systems. The Company was one
of the earliest manufacturers to develop and ship commercial quantities of a
multiple head CMP system. Recently, a number of CMP equipment manufacturers
have introduced new multiple head systems and the Company expects other such
systems to be introduced in the future.

THE SPEEDFAM CMP SOLUTION

The Company has leveraged its 35 years of experience in precision surface
processing, polishing, wet processing and high-throughput production equipment
to develop its CMP system. The Company began developing the CMP-V in 1990 and
initiated commercial shipments during 1994. The Company recently introduced its
"second generation" CMP system, the Auriga. The enhancements incorporated in
the Auriga include a more simplified design and improved operating software
designed to increase throughput and reliability. Shipments of the Auriga began
in the second quarter of fiscal 1997. The CMP-V and the Auriga systems utilize
a five head, two polishing table architecture that is designed to address the
objectives of semiconductor device manufacturers in the following respects:

Cost of Ownership. The Auriga is designed to provide a favorable combination
of capital equipment and consumables costs, throughput, yield and space
utilization. For example, the Auriga's use of a large polishing table to
process five wafers simultaneously results in enhanced throughput, efficient
consumables usage, and effective clean room space utilization.

Throughput. The Auriga is designed to optimize throughput in a number of
ways. First, the system processes five wafers simultaneously and uses batch
load/unload in order to reduce handling time between process runs. The two
table design of the system allows it to directly perform a secondary polishing
step, important for most metal CMP applications, without having to unload and
load a wafer onto a separate carrier. In addition, the utilization of a
relatively large polishing wheel is designed to enable the Auriga to achieve
relatively high removal rates and throughput while maintaining process
stability and control. Material removal rate is generally proportional to the
relative velocity between the surface of the polishing pad and the
semiconductor wafer. The Company believes its larger polishing wheel provides
higher relative velocities even while the wheel is turning at a relatively low
rotational speed. The Auriga system incorporates certain modifications from the
CMP-V in the control and automation system in order to decrease the time
interval between processes, thereby increasing the number of wafers processed.

Process Flexibility, Performance and Reliability. The Auriga supports a range
of applications, including oxide, metal and emerging CMP applications.
Specifically, the system is designed to provide the uniformity needed for oxide
applications, while providing efficient support for two-step metal applications
through its two table architecture. The Company believes that this ability to
support both oxide and metal applications in a single system provides a
solution to device manufacturers seeking to standardize on a common CMP system
throughout their fabrication facility. The Company believes that the Auriga
achieves the precision and uniformity of film layers typically required in CMP
applications for advanced process technologies, including both oxide and metal
applications. The Company seeks to continually improve the performance of the
Auriga system and, from time to time, engages in joint development projects
with customers from the semiconductor industry as a means to enhance the
system's reliability and process performance.

Support and Other Capabilities of the CMP Supplier. The Company believes that
its United States and European support capabilities, in combination with the
support capabilities of the Far East Joint Venture, provide a network that is
able to support the worldwide CMP operations of semiconductor device
manufacturers. The Company is committed to significant investment in research
and development in order to provide customers with a CMP product and technology
migration strategy consistent with the SIA (Semiconductor Industry Association)
technology roadmap. In this respect, the Company is currently developing a CMP
machine that will incorporate a built-in post-CMP cleaning mechanism. The
Company is also developing end-point detection metrology for measuring the film
thickness of oxide layers.

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<PAGE>

SPEEDFAM STRATEGY

The Company's goal is to establish and maintain market leadership in systems
which provide high throughput precision surface processing of advanced
semiconductors, thin film disk media and other high value-added products. Key
elements of the Company's strategy include:

. Establish a leading position in the CMP market. The Company seeks to
leverage its expertise in precision surface processing systems to establish
a leading position in the CMP market. The Company's multiple head, two
polishing table CMP system is designed to provide high throughput, low cost
of ownership and attractive levels of process flexibility. The Company seeks
to capitalize on the experience gained by being one of the earliest
manufacturers to develop and ship commercial quantities of a multiple head
CMP system. The Company began shipments of the Auriga in the second quarter
of fiscal 1997. The Company has also recently introduced a post-CMP cleaning
system, the Capella. The Company intends to integrate this cleaning system
with the Auriga to provide an integrated CMP polishing/cleaning system. In
addition, the Company is developing end-point detection metrology for
measuring the film thickness of oxide layers.

. Maintain a leading position in the sale of precision surfacing processing
systems to the thin film memory disk media and silicon wafer industries. The
Company intends to maintain a leading position in the thin film memory disk
media and silicon wafer industries by continuing to foster strong
relationships with its customers, participating in cooperative development
programs with them and continuing to provide high-quality systems and
solutions at competitive prices to meet evolving industry requirements.

. Capitalize on the Company's core competence in precision surface processing
and leverage existing customer relationships. The Company intends to
capitalize on its surface processing expertise and its existing customer
relationships to address new market applications, particularly within the
semiconductor industry, and to develop new products.

. Provide a "total solution." The Company seeks to provide a complete solution
to its customers' precision tolerance and surface processing needs,
including process expertise, training, cooperative development, slurries and
expendables, along with equipment. The Company focuses on each market
application by organizing marketing, sales, service and support functions
into separate market-oriented business units to provide responsiveness and
capability specific to each market.

. Capitalize on the Far East Joint Venture. The Far East Joint Venture, which
has been operating for approximately 25 years, designs, manufactures,
markets and services high throughput precision surface processing systems in
the Far East. The Company intends to continue to capitalize on the
opportunities and benefits provided by the Far East Joint Venture. The Far
East is a major market for equipment required by the semiconductor and thin
film memory disk media industries. In addition, because the Far East high
technology markets may adopt certain new technologies prior to the U.S.
markets, the Company may be able to take advantage of the expertise gained
by the Far East Joint Venture prior to the time those new technologies are
introduced into the U.S. markets. The Company believes that the Far East
Joint Venture's long-established presence in the Far East provides the
Company with a significant competitive advantage.

JOINT VENTURES

Since 1971, the Company has owned a 50% interest in the Far East Joint
Venture. The remaining 50% is owned by Obara Corporation, a privately-owned
Japanese company that supplies products to the automotive industry. Generally,
the Far East Joint Venture designs, produces and markets in the Far East
equipment similar to that produced by the Company in the U.S. Prior to 1971,
the Company marketed its products in Japan through Japanese trading companies;
however, the Company believed that the most effective method to further
penetrate the Japanese market was with a Japanese partner. See "Joint Venture
Arrangements--Far East Joint Venture." In 1984, the Company established the
Fujimi Joint Venture with Fujimi Incorporated, a Japanese manufacturer of
slurries. The Fujimi Joint Venture sells slurries manufactured by Fujimi
Incorporated, primarily to silicon wafer manufacturers and general industrial
manufacturers in North America. See "--Manufacturing and Suppliers" and "Joint
Venture Arrangements--Fujimi Joint Venture."

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<PAGE>

LOGO

PRODUCTS

SpeedFam's products include polishing, grinding and lapping equipment; pre-
deposition cleaning machines; other high precision surface processing systems;
and certain other products used in its customers' manufacturing process,
including slurries. During fiscal years 1995, 1996 and the six months ended
November 30, 1996, 54.5%, 78.5% and 84.0%, 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 16.0%, respectively, of
the Company's total revenue was attributable to sales of slurries.

Applications

The areas indicated in the table below set forth the general categories of
processes and certain individual applications performed by products marketed by
SpeedFam:

SpeedFam offers equipment that performs specialized surface processing, such
as polishing, lapping, free abrasive machining and grinding. The Company's
polishing systems generally employ a flat rotating table, covered with a
polishing pad, one or more carriers to hold the parts being processed and
slurry. Processes similar to polishing include lapping (a process where no
polishing pad is used and the workpiece is pressed into the slurry, directly
onto a cast-iron lapping wheel) and free abrasive machining (a process similar
to lapping except that instead of using a cast iron wheel, a high alloy
hardened steel wheel is used). Lapping and free abrasive machining result in
higher removal rates than polishing but produce more coarse surface finishes.
Flat grinding is similar to lapping except that the abrasive particles are
contained within a fixed medium (grinding stones), rather than a liquid.
Grinding results in higher removal rates than lapping but produces a coarser
surface finish. Rotational speed, process type, pressure and the nature of the
chemicals and abrasives used are the primary variables considered in the
determination of the best process for a specific application. Polishing and
other surface treatment processes are typically followed by a cleaning process.
Thin film memory disk cleaning systems offered by SpeedFam incorporate
ultrasonics, PVA (polyvinyl alcohol) brush scrubbing, rinsing and drying in a
Class 1 cleanroom-compatible system.

Equipment

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

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system incorporates certain modifications from the CMP-V in the control and
automation system in order to decrease the time interval between processes,
thereby increasing the number of wafers processed. 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. Depending on specifications, the selling
price of the Auriga in the U.S. ranges from $1.9 million to $2.3 million.

SPEEDFAM CMP PLANARIZATION SYSTEM

[DIAGRAM OF CMP SYSTEM HERE]

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.

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<PAGE>

The following chart describes the major steps in the typical aluminum thin
film memory disk media manufacturing process:

THIN FILM MEMORY DISK MEDIA MANUFACTURING PROCESS
MANUFACTURING PROCESS STEP

Stamp out aluminum blank
^^
Turn the outside and inside diameter
on a lathe to establish the proper
dimensions and shape
^^
Rough grind both sides for thickness
and approximate flatness
requirements
^^
Fine grind for final thickness,
flatness and surface finish
requirements
^^
Clean the disk
^^
Nickel plate the aluminum substrate
^^
Rough polish the plated surface
^^
Final polish the nickel plated
surface
^^
Texture the disk
^^
Clean disk in cleanroom environment
^^
Deposit the magnetic layers and
apply a protective carbon overcoat
^^
Burnish the carbon overcoat layer
^^
Inspect, certify and package the
disk
APPLICABLE SPEEDFAM PRODUCTS

DSM 9B-5SSG; DSM 16B-5SSG;
DSM 18B-5SSG; DSM 9B-14SSG; AUTO 11.8B-10SSG
DSM 9B-5SSG; DSM 16B-5SSG;
DSM 18B-5SSG; AUTO 11.8B-10SSG
MD-03; MD-05

DSM 9B-5P; DSM 16B-5P; DSM 18B-5P; DSM 9B-14P; AUTO 11.8B-10P
DSM 9B-5P; DSM 16B-5P; DSM 18B-5P; DSM 9B-14P; AUTO 11.8B-10P

MD-07; MD-07A; MD-08

The DSM line of machines is used in the manufacture of thin film memory disk
media for grinding the aluminum substrate as well as polishing after
deposition of the nickel plating. The DSM line of machines simultaneously
processes both sides of a disk substrate and is available in various sizes.
The automated machines in the DSM line are manufactured by the Far East Joint
Venture. Typical U.S. selling prices for the DSM line range from $90,000 to
$850,000.

The MD line of cleaning systems is used to clean the substrate at various
stages of the manufacturing process, including the critical cleaning
immediately prior to the deposition of the magnetic layers. Cleaning systems
distributed by the Company are produced by the Far East Joint Venture. Typical
U.S. selling prices for the MD line of cleaning systems range from $200,000 to
$900,000.

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<PAGE>

Semiconductor Wafers. The Company supplies chemical mechanical polishing,
double-sided lapping and, more recently, edge polishing systems to the
semiconductor substrates market.

The following chart describes the major steps in the typical silicon
semiconductor wafer manufacturing process:

SILICON SEMICONDUCTOR WAFER MANUFACTURING PROCESS

MANUFACTURING PROCESS STEP APPLICABLE SPEEDFAM PRODUCTS

Slice the single crystal silicon
ingot into wafers
^^
Bevel the wafer edge
^^
Etch the wafer in a chemical
solution to remove gross surface
damage
^^
Lap the wafer in a double-sided
machine to achieve the required
flatness and thickness
^^
In advanced applications, polish the
edges of the wafer
^^
Rough polish the face of the wafer
^^
Final polish the face of the wafer
^^
Clean and measure the flatness of
the wafer
^^
Inspect and package the wafer

DSM Auto 22B-5L; DSM 22B-5L; DSM
20B-5L; DSM 16B-5L
EP-150; EP-200-IV
Auto 59 SP Line; 59 SP; 50 SP; 50
SP-II; 48 SP
Auto 59 SP Line; 59 SP; 50 SP; 48 SP

The Company's DSM line of double-sided lapping systems is available in
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. Typical U.S. selling prices for
the DSM line range from $300,000 to $1.5 million.

The Company began distributing the EP line of edge polishing systems during
fiscal 1995. Edge polishing is an emerging technology that is beginning to be
incorporated into high volume silicon wafer manufacturing. This technology was
introduced for the purpose of making the wafer's edge easier to clean, thereby
increasing semiconductor device manufacturing yields. The Far East Joint
Venture produces the EP line that is marketed and distributed by the Company.
Typical U.S. selling prices for the EP line range from $400,000 to $800,000.

The SP line utilizes a chemical mechanical polishing process to remove the
shallow damage layer remaining from previous process steps and to attain the
specified flatness and surface finish. A 50-inch model is manufactured by the
Company in the U.S. and a 59-inch model is manufactured by the Far East Joint
Venture. The 50-inch model typically sells in the U.S. for between
approximately $250,000 and $450,000. The 59-inch model typically sells in the
U.S. for between $700,000 and $1 million, but is also available as a fully
automated line integrating four 59-inch models, which can range up to $4.9
million.

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<PAGE>

General Industrial. The Company offers a broad line of lapping, grinding and
polishing systems for the general industrial market. The line includes
approximately 35 models of single-side processing machines, double-side
processing machines, in-line grinding systems, optics polishing machines and
optics curve generating machines. The product offering is available in a wide
range of sizes from a 12 inch plate diameter up to a 150 inch plate diameter.
Each system typically consists of a specialized machining plate, a rotating
spindle, a means to fix and apply pressure to the workpieces, an abrasive
distribution system and a control system. U.S. selling prices of these systems
typically range from $20,000 to $700,000.

Parts and Expendables

The Company markets a broad line of parts and expendables. These products
include general spare parts, bearings, grinding stones, lapping plates,
workpiece carriers, seals, retaining rings, workholders and polishing pads.
These products are typically obtained from outside vendors and are generally
manufactured to the Company's specifications. The Company's parts and
expendables management system provides customer service representatives with
detailed product specifications and availability information. The Company
maintains spare parts inventories at four U.S. locations and two European
locations. The Company believes that its ability to quickly supply parts and
expendables is an important factor in its ability to provide customers with a
total solution.

Slurries

The Company offers a broad line of slurry and slurry components (including
vehicles and abrasives) used in surface treatment processes as part of a total
process solution. Polishing slurry consists of abrasive particles contained in
a liquid vehicle that may contain a suspension agent and may be chemically
active. The slurries marketed by the Company are used by manufacturers of thin
film memory disk media, semiconductor wafers and other products as part of
their polishing processes.

Substantially all of the slurries sold by the Company are manufactured by
Fujimi Incorporated. Typical U.S. selling prices of slurry offered by the
Company range from $500 to $2,000 per 55-gallon drum.

The Company has entered into a joint venture (the "Fujimi Joint Venture")
with Fujimi Incorporated to sell certain products in North and South American
markets, including slurry and slurry components. The Company distributes thin
film memory disk polishing slurry and related products supplied by Fujimi
Incorporated, while the Fujimi Joint Venture distributes other products
supplied by Fujimi Incorporated. To date, no material sales of products have
been made to South American markets by the Fujimi Joint Venture. See "Joint
Venture Arrangements--Fujimi Joint Venture."

The slurry for thin film memory disk media polishing applications is
available in different varieties to address the varying needs of each specific
process. Some formulations allow higher stock removal rates and others
emphasize surface finish results. There are also a variety of slurry
formulations available for silicon wafer processing. Slurry is an essential
process component in chemical mechanical polishing. The chemical action of
this process is implemented by designing the slurry to be chemically active
with the surface to be polished, typically by adjusting the pH of the slurry
vehicle. The mechanical portion of the process is accomplished by abrasive
particles in the slurry.

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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<PAGE>

CUSTOMERS

The Company sells its products to leading manufacturers of semiconductor
devices, thin film memory disks, semiconductor wafers and general industrial
applications. Certain of the Company's top customers in fiscal 1994, 1995,
1996 and the six months ended November 30, 1996 in the semiconductor CMP, thin
film memory disk media, semiconductor wafer, general industrial application
and slurries markets are listed below.

<TABLE>
<CAPTION>
SEMICONDUCTOR GENERAL INDUSTRIAL
SEMICONDUCTOR CMP* WAFER APPLICATIONS
------------------ ----------------- ------------------------
<S> <C> <C>
AMD MEMC Hayward Quartz
Digital Equipment Mitsubishi Siltec Heraeus Amersil
Hewlett-Packard Sumitomo Sitix IBM
Mosel Vitelic Wacker Siltronic Manufacturing Technology
Motorola Motorola
Rockwell Simpson Industries
Siemens
Winbond
</TABLE>

<TABLE>
<CAPTION>
THIN FILM
MEMORY DISK MEDIA SLURRIES
----------------- --------
<S> <C>
Akashic Akashic
IBM HMT
Komag IBM
Seagate Komag
StorMedia Seagate
</TABLE>
- --------
* Through November 30, 1996, the Company had shipped an aggregate of 46 CMP
systems to the eight customers listed.

One customer, Komag, accounted for 20.8%, 20.6%, 17.8% and 13.6% of the
Company's total revenue in fiscal years 1994, 1995, 1996 and the six months
ended November 30, 1996, respectively. Hewlett-Packard accounted for 11.2% of
the Company's total revenue for the six months ended November 30, 1996. In
addition, during fiscal 1994 and 1995, Akashic accounted for 10.1% and 10.9%
of the Company's total revenue, respectively, and, in fiscal 1994, Seagate
accounted for 11.3% of the Company's total revenue. The Company's ten largest
customers accounted for 69.3%, 66.9%, 64.4% and 64.2% of the Company's total
revenue in fiscal years 1994, 1995, 1996 and the six months ended November 30,
1996, respectively.

SALES AND MARKETING

The Company markets and sells its products in North America through a
combination of direct sales personnel and distributors. The Company sells
directly to the thin film memory disk media and semiconductor industries and
uses a network of 15 regional distributors for its general industrial product
lines. In its European operations, the Company uses direct sales personnel and
a small number of distributors.

The Company's sales strategy emphasizes direct interaction with customers,
particularly in the semiconductor and memory disk industries, where ongoing
customer support and service are critical. The Company's direct sales force is
divided into focused units for each of the semiconductor devices, thin film
memory disk media and semiconductor wafer industries.

At November 30, 1996, the U.S. direct sales organization had a total of 43
sales personnel. The Company has sales offices in Chandler, Arizona, Austin,
Texas and Elk Grove Village, Illinois. The Company also had an aggregate of
eight 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."

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<PAGE>

The Company's marketing strategy includes involvement with SEMATECH, Inc., a
consortium of major semiconductor manufacturers and equipment suppliers,
attendance at Semicon, Diskcon, IMTS and other trade shows and the sponsorship
of technical conferences, which include the presentation of technical papers
written 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 process certification, process support, machine repair, providing spare
parts inventories, internal training programs, external customer training,
documentation and formation of customer user groups. At November 30, 1996, the
Company had 99 service employees in the U.S. and Europe. For large users of
the Company's systems, the Company often creates a customized service
arrangement designed to meet the specific requirements of the customer.

The Company generally provides a one year warranty on all equipment it
sells. Field service personnel provide warranty service, post-warranty
service, and equipment installations. Field service engineers are located in
various locations throughout the U.S., including dedicated site-specific
engineers in place at certain customer locations pursuant to contractual
arrangements. The Company also provides service and maintenance training as
well as process application training for its customers' personnel. The Company
maintains an extensive inventory of spare parts at its primary locations and
at its satellite service sites. This provides the Company the ability to
provide same day or overnight delivery for many parts.

BACKLOG

Backlog of orders for capital equipment, parts, expendables and slurries
decreased to approximately $49.5 million at November 30, 1996, from
approximately $59.2 million at November 30, 1995. Approximately $42.0 million,
or 84.8% of the total backlog at November 30, 1996, is comprised of orders for
capital equipment. The Company's backlog does not include orders for capital
equipment or other products manufactured by the Far East Joint Venture and
distributed by the Company in the U.S. and Europe for which the Company
receives commissions. The time between the placing of orders and shipment of
parts, expendables and slurries is significantly less than for capital
equipment and as a result, the Company's backlog consists primarily of orders
for capital equipment. The Company includes in its backlog only those customer
orders for which it has accepted signed purchase orders with assigned delivery
dates within 12 months. Orders generally carry a stipulation that customers
may incur a penalty in the event of cancellation. However, there can be no
assurance that orders will not be cancelled by customers or that the Company
will obtain a meaningful penalty payment. As a result of systems and equipment
ordered and shipped in the same quarter, possible changes in delivery
schedules, occasional cancellation of orders and delays in product shipments,
the Company's backlog at any particular date may not be indicative of actual
sales for any succeeding period.

RESEARCH, DEVELOPMENT AND ENGINEERING

The markets in which the Company competes are characterized by evolving
industry standards and frequent improvements in products and service. To
compete effectively in its markets, the Company must continually improve its
products and its process technologies and develop new technologies and
products that compete effectively on the basis of price and performance and
that adequately address current and future customer requirements. The
Company's research, development and engineering expenditures during fiscal
1994, 1995, 1996 and the six months ended November 30, 1996, were
approximately $2.3 million, $2.7 million, $11.5 million and $7.9 million,
respectively.

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<PAGE>

At November 30, 1996, the Company had an engineering staff of 34 employees
and a research and development staff of 47 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 intends to integrate this cleaning system with the Auriga to
provide an integrated CMP polishing/cleaning system. The Company is also
developing additional products and product enhancements for the thin film
memory disk and silicon wafer markets.

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
developing new processing capability in the CMP area for additional film
layers such as polysilicon, as well as developing end-point detection
metrology for the purpose of measuring the film thickness of oxide layers. In
addition, the Company continues to pursue the development of enhanced
processes for the thin film memory disk media, silicon wafer and industrial
component markets.

MANUFACTURING AND SUPPLIERS

The Company assembles its equipment and systems from components and
fabricated parts manufactured and supplied by others, including stainless
steel plates and gears, frames and weldments, power supplies, process
controllers, robots and polishing heads. Certain of the items manufactured by
others are made to the Company's specifications. All final assembly and system
tests are performed within the Company's manufacturing/assembly facilities.
Quality control is maintained through incoming inspection of components, in-
process inspection during equipment assembly and final inspection and
operation of all manufactured equipment prior to shipment. Substantially all
of the Company's non-CMP manufacturing is located in its 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 47.1%, 43.4%, 19.7% and 15.6% of the
Company's total revenue in fiscal 1994, 1995, 1996 and the six months ended
November 30, 1996, respectively, was derived from the sale of slurries
supplied by Fujimi Incorporated. Accordingly, any disruption in the supply
provided by Fujimi Incorporated or in the overall relationship between the
Company and Fujimi Incorporated would have a material adverse effect upon the
Company. The Company has the exclusive right to distribute Fujimi Incorporated
thin film memory disk polishing slurry in North America until October 1, 1999.
See "Joint Venture Arrangements--Fujimi Joint Venture."

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<PAGE>

COMPETITION

The Company competes in several distinct markets. These markets include the
CMP equipment market, the thin film memory disk media equipment market, the
semiconductor wafer equipment market, the general industrial applications
market, the slurries market and the related parts and expendables market. In
all markets, the Company competes on the basis of technology, overall cost of
ownership, product quality, price, availability, size of installed base,
breadth of product line and customer service and support.

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 CMP market, the Company faces significant competition from
current competitors and expects other competitors to enter this market in the
future. IPEC currently has the largest installed base of CMP equipment. Other
companies have entered the CMP market and 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 device manufacturers.
Consolidation among CMP equipment suppliers or the acquisition of CMP
equipment suppliers by large, established suppliers of non-CMP capital
equipment to semiconductor device manufacturers or others could materially
adversely affect the Company's ability to compete and would have a material
adverse effect on the Company's results of operations. In the thin film memory
disk and semiconductor wafer equipment markets, the Company competes with a
relatively small number of entities.

Competition in the general industrial products markets is fragmented; no one
competitor currently holds a dominant position. The slurries market presents
significant competitive pressure for the Company, particularly with regard to
pricing, resulting in decreased margins for certain products of the Company in
recent periods. In the thin film memory disk slurry market, the Company
competes primarily with Praxair, a large chemical company that manufactures
and sells its own products. In addition, the loss of the Company's
distribution rights to slurry and other products supplied by Fujimi
Incorporated would have a material adverse effect on the Company.

INTELLECTUAL PROPERTY

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

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<PAGE>

business. Adverse determinations in any litigation relating to intellectual
property could possibly subject the Company to significant liabilities to
third parties, require the Company to seek licenses from third parties and
prevent the Company from manufacturing and selling one or more of its
products. Any of these events could have a material adverse effect on the
Company.

SpeedFam, FAM, Spitfire and the SpeedFam logo are registered trademarks of
the Company.

PROPERTY

The Company currently owns or leases buildings containing a total of
approximately 133,000 square feet of space in the U.S. and Europe, including
approximately 82,000 square feet of factory/assembly area and approximately
51,000 square feet of corporate office space. The Company's U.S. operations
(the SpeedFam International, Inc. headquarters and the SpeedFam U.S.
subsidiary) account for approximately 122,000 square feet of the total, of
which approximately 42,000 square feet is owned and the balance of
approximately 80,000 square feet is leased. The Company maintains locations in
the United States in Chandler, Arizona, Des Plaines, Illinois, Elk Grove
Village, Illinois, Austin, Texas, Portland, Oregon and Fremont, California.
SpeedFam U.K. is located in Hinckley, England and it maintains approximately
9,000 square feet of owned space. SpeedFam Germany leases approximately 2,000
square feet of office space in Inglefingin, Germany.

The Company has begun construction of a corporate headquarters and
manufacturing facility, consisting of approximately 135,000 square feet, on
13.5 acres of land purchased by the Company. The Company expects to begin
moving its operations into the new facility during the fourth quarter of
fiscal 1997 and expects to complete the move by the end of the first quarter
of fiscal 1998. The Company believes that its facilities, after the completion
of the new facility, will be adequate to meet its requirements for the
foreseeable future and that suitable additional or substitute space will be
available as needed.

LEGAL PROCEEDINGS

The Company is not presently involved in any material legal proceedings.

The Company's wholly owned subsidiary, FamTec AG, incorporated under the
laws of Switzerland, engaged in the manufacture, sale and service of through-
feed grinding systems for the general industrial market. As a result of
declining sales, the Company decided to terminate Swiss operations and to seek
protection under the bankruptcy laws of Switzerland. A voluntary petition for
bankruptcy was filed with Swiss authorities in November, 1993. Subsequently,
creditors' claims were adjudicated and all Swiss assets liquidated. On July
27, 1995, the Bankruptcy Administrator paid out the liquidation proceeds to
creditors, and the bankruptcy matter was closed. Under the laws of
Switzerland, members of the Board of Directors of an entity have potential
personal liability for the debts of the bankrupt entity. Mr. Farley, Chairman
and Chief Executive Officer of the Company, was a director of FamTec AG.
Because no creditor filed within the ten-day period to reserve rights against
the directors of FamTec AG, no personal liability is expected to result.

EMPLOYEES

At November 30, 1996, the Company had 417 full time employees in the U.S.
and Europe, including 132 in manufacturing, 51 in marketing and sales, 99 in
field service, 34 in engineering, 47 in research and development and 54 in
general administration. In addition, the Company had 33 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.

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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 and
Thailand, and owns a majority interest in a Japanese subcontract manufacturing
organization, Saku Seiki Co. Ltd. ("Saku Seiki"). The Far East Joint Venture
operations in China, Hong Kong, Singapore, Korea and Thailand are primarily
marketing, sales and service functions. The subsidiaries in India and Taiwan
also include manufacturing facilities where certain of the equipment sold by
the subsidiaries is produced. Through a joint venture with Met-Coil Systems
Corporation (a U.S. company), the Far East Joint Venture manufactures and
markets in the Far East sheet metal forming equipment developed by Met-Coil
Systems Corporation.

Background. During the late 1960's, the Company marketed its products in
Japan through Japanese trading companies. At that time, the Company believed
that a presence in the Japanese market would enhance its competitive position
in the U.S. as well as provide additional sources of income and access to
technology. For numerous business and cultural reasons, the Company believed it
could most effectively penetrate the Japanese market with the aid of a Japanese
partner. In 1970 the Company entered into a joint venture with a Japanese
company, Obara Corporation ("Obara"), pursuant to which the Far East Joint
Venture was formed. The Company and Obara each own a 50% interest in the Far
East Joint Venture. Obara, a privately-owned company, principally supplies
welding guns and related products to the automotive industry; its business is
unrelated to that of the Company and the Far East Joint Venture.

Terms of the Joint Venture Agreement. Pursuant to the terms of an agreement
between the Company and Obara dated November 14, 1970 (the "Joint Venture
Agreement"), the Far East Joint Venture will continue as long as SpeedFam Co.,
Ltd. is in corporate existence and both the Company and Obara are shareholders.
Both parties to the Joint Venture Agreement have agreed to refrain from
competing with the joint venture in Japan. The agreement may, however, be
terminated upon 90-days notification by either party in the event of a
substantial breach by the other party if such breach is not cured within the
90-day period. In the event that either the Company or Obara desires to sell
its interest in the Far East Joint Venture, it must first offer its interest to
the other party, which then has 60 days to purchase the interest at a price to
be mutually agreed upon. If the interest is not purchased within the 60-day
period, the party desiring to sell its interest may sell it to a third party
free of the right of first offer provisions, provided that the price is not
less than the price initially offered by the other party.

Pursuant to the terms of a License and Technical Assistance Agreement between
the Company and SpeedFam Co., Ltd. dated November 14, 1970 (the "Technology
Agreement"), the Company licensed to the Far East Joint Venture certain
trademarks and technology, and granted to the Far East Joint Venture the
exclusive right to manufacture and sell in Japan, Korea, Taiwan, Hong Kong,
China, India, the Philippines, Thailand, Vietnam, Malaysia, Singapore and
Indonesia, and such other countries as the parties may agree to from time to
time, products similar to those manufactured and distributed by the Company. In
exchange for such rights, the 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

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<PAGE>

of the Technology Agreement, although the Far East Joint Venture had
transferred technology to the Company, the Company and the Far East Joint
Venture agreed that no royalties would be paid by the Company. By oral
agreement in 1990, the Technology Agreement was extended for a new ten-year
period. By oral agreement in 1991, the Technology Agreement was amended to
eliminate the payment of royalties by either party. On July 24, 1995, the
foregoing oral agreements were confirmed in writing. Unless extended, the
Technology Agreement will expire in November 2000.

Since the inception of the Far East Joint Venture, the Company and the Far
East Joint Venture have worked cooperatively on various research and
development projects and each entity has communicated significant technology
to the other. It is not anticipated that either the Company or the Far East
Joint Venture will pay royalties to the other in connection with the transfer
of technology in the foreseeable future, including with respect to the
Company's CMP technology.

Management. SpeedFam Co., Ltd. currently has eight directors serving on its
Board of Directors, including Messrs. Farley and Kouzuma, the Chairman and
President of the Company, respectively, as well as Hiroshi Obara, Suminori
Suzuki, Ryosuke Tojo, Shinya Iida, Hatsuyuki Arai and Isao Nagahashi. Mr.
Kouzuma is the Executive Vice President and General Manager of SpeedFam Co.,
Ltd. and is responsible for day to day operations and acts as the primary
liaison between the Company and Obara. Mr. Obara is the President of the Far
East Joint Venture. Mr. Suzuki, an employee of Obara, is the senior finance
officer of the Far East Joint Venture. Mr. Tojo is Managing Director of the
Far East Joint Venture and assists in the overall management of operations.
Mr. Kunihiko Watanabe is director of sales for the silicon wafer market and
reports to Mr. Kouzuma. Dr. Iida is the chief technical officer and is
responsible for all research, development and engineering operations. Messrs.
Arai and Nagahashi are the directors of CMP and thin film memory disk
technology, respectively, and report to Dr. Iida. The Joint Venture Agreement
provides limited direction with respect to the relationship between the joint
venture partners and the operation and management of the Far East Joint
Venture. To date, decisions with respect to the strategic direction of the Far
East Joint Venture have been made by the Company and Obara from time to time
on the basis of informal discussions and the relationships forged over time by
the individuals. Business transactions between the Company and the Far East
Joint Venture, including those relating to the absence of payment of royalties
on transfers of certain technology, may not be consistent with business
decisions and results that would exist between two independent entities
dealing at arms-length.

Financial Information. During the Company's 1994, 1995, 1996 fiscal years
and the six months ended November 30, 1996, the Company's share of the net
earnings of the Far East Joint Venture was $450,000, $1.1 million, $4.8
million and $3.6 million, respectively, representing 19.1%, 66.9%, 40.3% and
41.1%, respectively, of the Company's net earnings. The Far East Joint Venture
has not paid significant dividends in the past and is expected to retain
substantially all of its earnings in the foreseeable future to support the
growth of its business. As a result, the Company's share of the net earnings
of the Far East Joint Venture has not in the past resulted and is not expected
in the future to result in a like effect on the cash flows of the Company. In
addition, in recent periods the equity in net earnings of affiliates
attributable to the Company's joint ventures has increased substantially,
primarily as a result of an increase in net earnings of the Far East Joint
Venture. Such increase is primarily attributable to strong demand for products
supplied by the Far East Joint Venture and sold by the Company to the thin
film memory disk and semiconductor wafer industries. However, the Company does
not expect that this trend will continue. As a result, the Company's share of
the net earnings of the Far East Joint Venture is expected to decrease in
future periods. During fiscal 1994, 1995, 1996 and the six months ended
November 30, 1996, 4.0%, 4.5%, 5.2% and 5.8% 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 November 30,
1996, the Company's equity interest in the Far East Joint Venture was $20.3
million, representing 18.2% of the Company's total assets and 29.8% of
shareholders' equity. Set forth below is certain selected financial
information with respect to the Far East Joint Venture which has been derived
from consolidated financial statements which have been audited by KPMG Peat
Marwick LLP with the exception of the selected financial information as of and
for the six months ended October 31, 1996 which is unaudited. Such

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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>
SIX MONTHS
ENDED
YEAR ENDED APRIL 30, OCTOBER 31,
------------------------- -----------
1994 1995 1996 1996
------- -------- -------- -----------
(in thousands)
Consolidated Statement of Earnings
Data:
<S> <C> <C> <C> <C> <C>
Net sales........................... $87,217 $108,664 $161,169 $110,854
Gross profit........................ 23,812 31,576 54,257 36,148
Operating profit.................... 2,908 6,467 19,959 15,340
Net earnings(1)..................... 1,084 2,169 9,637 7,560
Consolidated Balance Sheet Data (at
period end):
Working capital..................... $18,377 $ 23,779 $ 23,526 $ 23,482
Total assets........................ 86,869 110,813 126,551 149,110
Long-term debt, less current
portion............................. 12,387 12,528 9,106 8,357
Stockholders' equity................ 26,641 34,215 37,091 40,656
</TABLE>
- --------
(1) Approximately one-half of such amount is recognized by the Company on the
equity method as "equity in net earnings (loss) of affiliates."

Products and Customers. Generally, the Far East Joint Venture designs,
produces and markets in the Far East equipment similar to that produced by the
Company in the U.S. The Far East Joint Venture's product mix is significantly
different than the Company's primarily because, as a percentage of sales, the
Far East Joint Venture sells substantially less slurry and slurry components
than the Company (Fujimi Incorporated sells slurries directly in the Far East)
and because of differences in the composition of the U.S. and Far East markets.
The Far East Joint Venture also designs, produces and markets edge and flat
polishing machines for the semiconductor wafer market and pre-deposition
cleaning machines for the thin film memory disk market and, more recently, the
flat panel display market. The Company distributes these machines in the U.S.
and Europe. The Far East Joint Venture also markets parts and expendables and,
to a much lesser degree than the Company, slurries (primarily to thin film
memory disk and silicon wafer manufacturers).

The Far East Joint Venture has developed and is currently manufacturing and
marketing a two head CMP system. The rate of adoption of the CMP process in the
fabrication of memory devices, which are predominately the type of
semiconductor devices manufactured in the Far East, has been historically lower
than that for advanced logic devices, which are widely manufactured in the U.S.
Accordingly, the marketing of the CMP system manufactured by the Far East Joint
Venture is substantially dependent on the rate of adoption of the CMP process
by the memory device manufacturing industry in the Far East market.

The Far East Joint Venture's products are sold to semiconductor wafer
(primarily silicon), thin film memory disk and general industrial (primarily
quartz, ceramic and LCD glass) manufacturers. Major end user customers of the
Far East Joint Venture have included: LG Siltron, Inc. (silicon wafer
manufacturer), Niigata Toshiba Ceramics Co., Ltd. (silicon wafer manufacturer),
Wacker Siltron (silicon wafer manufacturer), Asahi Komag Co., Ltd. (thin film
memory disk manufacturer) and Fuji Electric Co., Ltd. (thin film memory disk
manufacturer). During the Far East Joint Venture's fiscal years 1994, 1995,
1996 and the six months ended October 31, 1996, sales to certain customers
through Fujimi Incorporated, acting as a distributor, accounted for
approximately 7%, 11%, 12% and 14% of net sales, respectively.

Competition. The Far East Joint Venture competes in several distinct markets
including the semiconductor substrate equipment market, the thin film memory
disk equipment market and the general industrial equipment applications market
(primarily quartz, ceramic and LCD glass) and the slurries market. The Far East
Joint Venture competes on the basis of technology, overall cost of ownership,
product quality, price, availability, size of installed base, breadth of
product line and customer service and support. The Far East Joint Venture faces

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<PAGE>

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 55 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 57 persons. Research and
development efforts are focused on enhancing existing products as well as
developing new products and generally cover a broader range of products and
technologies than the Company's research and development efforts. The Company
and the Far East Joint Venture have in the past collaborated on various
projects and are expected to do so in the future.

The Far East Joint Venture or manufacturing subcontractors retained by the
Far East Joint Venture typically manufacture equipment and systems from
components and fabricated parts manufactured and supplied by others. Certain
of the items manufactured by others are made to the Company's specifications.
A portion of the products sold by the Far East Joint Venture are manufactured
by the Far East Joint Venture's majority owned subsidiary, Saku Seiki, and a
substantial portion are manufactured by unaffiliated third party
subcontractors for the Far East Joint Venture.

Employees. At October 31, 1996, the Far East Joint Venture had 421 full-time
employees, including 331 in Japan, 4 in Thailand, 17 in Korea, 36 in Taiwan,
17 in India, 12 in Singapore, 2 in Shanghai and 2 in Hong Kong. Of these
employees, 73 are engaged in manufacturing, 61 in marketing and sales, 55 in
field service, 64 in engineering, 57 in research and development, 47 in
management and 64 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 the six months ended November 30, 1996, commissions paid
to the Company relating to such distribution amounted to approximately $2.8
million, $6.3 million and $4.6 million, respectively. Further, the Company
purchases certain components used in its machines from the Far East Joint
Venture. During fiscal 1995, 1996 and the six months ended November 30, 1996,
purchases of components from the Far East Joint Venture totaled approximately
$3.0 million, $5.6 million and $2.9 million, respectively.

Mr. Kouzuma receives certain amounts from the Far East Joint Venture
consisting of directors' fees and bonuses. 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 Limited, SpeedFam Co. Ltd.'s 50%-owned
joint venture. Mr. Kouzuma owns 10.62% of the outstanding capital stock of
Saku Seiki, a majority owned subsidiary of SpeedFam Co., Ltd., and serves as a
director of Saku Seiki. Messrs. Farley and Kouzuma also serve as directors of
several wholly owned subsidiaries of SpeedFam Co. Ltd., namely SpeedFam Korea
Limited, SpeedFam Incorporated in Taiwan and SpeedFam India (Pvt.) Ltd.

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<PAGE>

FUJIMI JOINT VENTURE

Pursuant to a joint venture agreement dated September 7, 1984, the Company
and Fujimi Incorporated formed Fuijimi Corporation, an Illinois corporation
(the "Fujimi Joint Venture"). Each of Fuijimi Incorporated and the Company
owns 50% of the Fujimi Joint Venture's common stock. Fujimi Incorporated, a
publicly traded company in Japan, is a manufacturer of slurry, abrasives and
compounds in Japan. The initial term of the joint venture agreement was for a
period of five years, but the agreement continues in effect until such time as
either party terminates upon written notice delivered to the other party upon
one-year notice. The agreement may also be terminated upon 60-days
notification by either party in the event of a breach by the other party if
such breach is not cured within 60 days.

The Fujimi Joint Venture was organized to sell Fujimi Incorporated products
in North and South America. The Fujimi Joint Venture distributes abrasives,
polishing pads, diamond wheels and other products to the semiconductor wafer
and general industrial markets. Notwithstanding the written terms of the joint
venture agreement, the Company, through SpeedFam U.S., has distributed a
variety of products, primarily slurry, to manufacturers of thin film memory
disks. The Company has the exclusive right to distribute Fujimi Incorporated
memory disk polishing slurry in North America until October 1, 1999. Revenue
from sales of products by the Fujimi Joint Venture were $12.3 million in
fiscal 1994, $15.8 million in fiscal 1995, $19.7 million in fiscal 1996 and
$17.8 million for the six months ended November 30, 1996. For a description of
other business relationships between the Company and Fujimi Incorporated, see
"Business--Manufacturing and Suppliers." The Fujimi Joint Venture imports the
products it sells and purchases such products in non-U.S. dollar denominated
transactions. This business is subject to both foreign exchange rate
fluctuations and has recently experienced increased competition which drives
down selling prices, the result of which is lower gross margins for the Fujimi
Joint Venture.

The Fujimi Joint Venture currently has six directors serving on its Board of
Directors, including Mr. Farley, Chairman of the Company, Mr. Kouzuma,
President of the Company, and Mr. Augur, President of SpeedFam U.S. The other
three directors, Messrs. Isamu Koshiyama, Hidetaka Niinomi and Stuart Sawai,
are representatives of Fujimi Incorporated. Day to day management of the
Fujimi Joint Venture is under the control of its president, Mr. Donald R.
Hixson. The Fujimi Joint Venture employs four full-time sales personnel.

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<PAGE>

MANAGEMENT

The executive officers, key employees and directors of SpeedFam
International, Inc. and their ages as of February 11, 1997 are as follows:

<TABLE>
<CAPTION>
EXECUTIVE OFFICERS,
KEY EMPLOYEES
AND DIRECTORS AGE POSITION WITH THE COMPANY
- ------------------- --- -------------------------
<S> <C> <C>
James N. Farley (1) 68 Chairman, Chief Executive Officer and Director
Makoto Kouzuma (1) 57 President, Chief Operating Officer and Director
Roger K. Marach (1) 51 Treasurer, Chief Financial Officer and Assistant Secretary
Christopher E. Augur (1) 36 President of SpeedFam Corporation
Robert R. Smith (1) 53 Managing Director of SpeedFam Limited
Mukesh Desai 43 Senior Vice President of SpeedFam Corporation--Technology,
Semiconductor Group
Russell E. Douglass 54 Vice President of Operations for Semiconductor Group,
SpeedFam Corporation
Gary F. Emmons 46 Vice President of Sales and Marketing for Semiconductor
Group, SpeedFam Corporation
Mark A. Hredzak 39 Vice President of SpeedFam Corporation--General Manager of
Clean Systems Group
Ellis E. Ponton 35 Senior Vice President of SpeedFam Corporation--General Manager of
Semiconductor Group
Philbin L. Scott 38 Vice President of SpeedFam Corporation--General Manager of
Disk Technology Group
Byron L. Sheets 42 Vice President of SpeedFam Corporation--General Manager of
Industrial Applications Group
Neil R. Bonke (2) 55 Director
Thomas J. McCook (2) (3) 73 Director
Dr. Stuart Meyer (3) 59 Director
Robert M. Miller (2) 70 Director
Carl S. Pedersen (3) 82 Director
</TABLE>
- --------
(1) Messrs. Farley, Kouzuma, Marach, Augur and Smith are executive officers of
SpeedFam International, Inc.
(2) Member of Compensation Committee
(3) Member of Audit Committee

Mr. Farley has been a director of SpeedFam International, Inc. since 1961.
He was appointed Chairman and Chief Executive Officer by the Board of
Directors in 1993. Mr. Farley had been President of SpeedFam International,
Inc. from 1967 to 1993. Prior to that, he was Vice President of Sales and had
served as Business Manager since joining SpeedFam International, Inc. in 1960.
Mr. Farley was instrumental in developing the organization and is presently
responsible for developing and directing the future strategy of SpeedFam
International, Inc. Mr. Farley also serves on the board of two privately-held
companies. He holds a BSEE from Northwestern University.

Mr. Kouzuma has been a director of SpeedFam International, Inc. since 1982.
He was appointed President of SpeedFam International, Inc. in 1993. He was
Executive Vice President of SpeedFam International, Inc. and had the
additional post of President of SpeedFam Corporation from 1990 to 1993. He is
also Executive Vice President and General Manager of the Far East Joint
Venture. He has been responsible for the day to day operations of the Far East
Joint Venture since its founding in 1971. Mr. Kouzuma joined SpeedFam
International, Inc. in 1969 to open a Japanese liaison office. He graduated as
an Electrical Engineer from Chuo University in Tokyo, Japan. Mr. Kouzuma is a
resident of Japan.

Mr. Marach joined SpeedFam International, Inc. in 1988 as Chief Financial
Officer and was elected Treasurer in 1989. Prior to joining SpeedFam
International, Inc., Mr. Marach was the Assistant Treasurer of

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<PAGE>

Ingersoll International, Inc., a capital equipment manufacturer, for eight
years and previously worked for five years in auditing and treasury operations
for G.D. Searle & Co., a major pharmaceutical company. He has a BS in
Economics (Accounting) from the Illinois Institute of Technology, and a
Masters in Management (Finance) from Northwestern University.

Mr. Augur was named President of SpeedFam Corporation in April 1993. He was
the Executive Vice President from June 1992 to March 1993. From 1991 to 1992,
Mr. Augur served as the General Manager of the Electronic Equipment Group of
SpeedFam Corporation. He joined SpeedFam International, Inc. in 1982 and
assisted in establishing its Arizona operations. Prior to joining SpeedFam
International, Inc., Mr. Augur worked for Motorola in the semiconductor
products sector. He has a BS in Computer Systems Engineering from Arizona
State University and a Masters of Business Administration from the University
of Phoenix.

Mr. Smith was appointed Managing Director of SpeedFam Limited in 1974. Mr.
Smith was hired to organize SpeedFam Limited in 1974 and has been responsible
for its day to day operations since that time as well as for SpeedFam
International, Inc.'s other European subsidiary, SpeedFam GmbH. Mr. Smith has
a National Certificate in Mechanical Engineering from Lancaster Polytechnicon
in England.

Mr. Desai was appointed Vice President of SpeedFam Corporation in June 1995
and promoted to Senior Vice President in December 1996. He joined SpeedFam
Corporation as Director of Technology of the Semiconductor Group in February
1994. He has extensive experience in CMP planarization technology and worked
in the CMP area at IBM from 1984 to 1994. From May, 1993 to February, 1994,
Mr. Desai served as an IBM assignee at SEMATECH, Inc. and acted as Project
Leader on CMP research and development. He is currently responsible for
directing the Company's CMP development. He holds a BS in Chemistry from
Bombay University, Bombay, India, and a Masters of Science in Chemistry from
Polytechnic University, Brooklyn, New York.

Mr. Douglass was appointed Vice President of Operations for Semiconductor
Group, SpeedFam Corporation in January 1997. He joined SpeedFam Corporation as
Director of Operations for the Semiconductor Group in April 1995. Previously,
Mr. Douglass was Vice President of Operations for Plasma & Materials
Technologies, Inc. (since November 1992). From 1981 to 1984, he was Director
of Operations of the Etch Division of Applied Materials. Mr. Douglass has a BA
from Ohio State University and a Masters in Human Relations and Organizational
Development from the University of San Francisco.

Mr. Emmons was appointed Vice President of Sales and Marketing for
Semiconductor Group, SpeedFam Corporation in January 1997. He joined SpeedFam
Corporation in 1995 as Director of Sales and Marketing in the Semiconductor
Group. Previously, Mr. Emmons was Director of Sales for ASM America from 1989
to February 1995. He has a BS in Business Administration from Texas A & M
University.

Mr. Hredzak was appointed Vice President of SpeedFam Corporation in June
1995 and is currently General Manager of the Clean Systems Group. From 1993 to
1996, he was General Manager of the Electronics Equipment Group. From 1990 to
1993, Mr. Hredzak was the sales manager for SpeedFam Corporation Cleaning
Equipment Group. Mr. Hredzak started with SpeedFam Corporation in 1988 in the
sales department of the Electronics Equipment Group. Mr. Hredzak received a BS
in Metallurgical and Materials Engineering from the University of Kentucky.

Mr. Ponton was appointed Vice President of SpeedFam Corporation in June 1995
and promoted to Senior Vice President in December 1996. Since 1993, he has
been General Manager of the Semiconductor Group, which focuses entirely on CMP
and the semiconductor device industry. He was the Assistant General Manager
for the Electronics Equipment Group from 1992 to 1993, and its sales manager
from 1988 to 1992. Mr. Ponton started with SpeedFam Corporation in 1986 as a
sales engineer and was promoted to sales manager in 1988. Mr. Ponton has a BS
in Geology and Mathematics from Ball State University.

Mr. Scott was appointed Vice President of SpeedFam Corporation in July 1996
and General Manager of the Disk Technology Group in December 1996. Previously,
he was General Manager of the Consumable Products

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<PAGE>

Group of SpeedFam Corporation (from June 1995) and was responsible for slurry
and slurry component sales. He joined SpeedFam Corporation in May 1992 as the
products manager of disk slurry products. From 1988 to 1992, Mr. Scott worked
at the McDonnell Douglas Helicopter Company where he served as a Manufacturing
Research Engineer, Industrial Engineer and Manager of Production Scheduling. He
has a BA in Biology from UNC-Charlotte, a Masters of Environmental Science from
Miami University and a Masters of Science in Engineering from Arizona State
University.

Mr. Sheets was appointed Vice President of SpeedFam Corporation in June 1995.
Since 1993, he has been General Manager of the Industrial Applications Group,
which services the broad industrial applications market. He was the sales
manager for the Industrial Applications Group from 1990 to 1993. Mr. Sheets was
hired in 1990 when Spitfire Tool and Machine Company ("Spitfire") was acquired
by SpeedFam Corporation from General Signal Corp. Mr. Sheets worked for
Spitfire from 1979 to 1990.

Mr. Bonke has been a director of SpeedFam International, Inc. since August
1996. Mr. Bonke has been Chairman of the Board of Electroglas, Inc. since April
1993, and its Chief Executive Officer from April 1993 through April 1996. He
also serves on the Board of Directors of Sanmina Corp. and FSI International
Inc. Electroglas, Inc., Sanmina Corp. and FSI International Inc., each a public
company, are subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended. Mr. Bonke was a Group Vice President of General Signal
and President of General Signal's Semiconductor Equipment Operations from
September 1991 to July 1993.

Mr. McCook has been a director of SpeedFam International, Inc. since 1979. He
is currently serving as Vice Chairman of the Economic Development Council of
Cape Coral, Florida and was formerly Vice President of Stewart-Warner, an
automotive parts manufacturer.

Dr. Meyer has been a director of SpeedFam International, Inc. since 1982. He
has been an Associate Professor of Management and Strategy at the Kellogg
Graduate School of Management, Northwestern University since 1977.

Mr. Miller has been a director of SpeedFam International, Inc. since 1990. He
is currently Chairman of Okuma Technology Institute in Charlotte, North
Carolina. The Okuma Technology Institute is dedicated to machine tool and
cutting tool research and development. Since 1985, Mr. Miller has been
President of ITMC Inc., a marketing consulting firm providing service to
capital equipment manufacturers.

Mr. Pedersen has been a director of SpeedFam International, Inc. since 1979.
Since 1988, he has been Chairman Emeritus of Luther & Pedersen, a capital
equipment distributor in Aurora, Illinois. He previously served as Chairman of
Luther & Pedersen.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Articles of Incorporation and Bylaws provide for
indemnification by the Company of its directors, officers, employees and agents
to the fullest extent permitted by law for expenses, judgments, penalties,
fines and amounts paid in settlement in connection with any pending, threatened
or completed action, suit or proceeding (other than by the Company), to which
any such person was made a party by reason of the fact that he or she was
acting in such capacity for the Company or was serving as such for another
corporation or enterprise at the Company's request, if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, or, with respect to a criminal proceeding,
had no reasonable cause to believe such conduct was unlawful. In actions by the
Company, such indemnification will be limited to expenses.

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<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of February
11, 1997, and as adjusted to reflect the sale of the Common Stock being
offered hereby (assuming no exercise of the Underwriters' over-allotment
option) by (i) each shareholder who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each Executive Officer, (iv) all directors and executive
officers of the Company as a group, and (v) each Selling Shareholder. Except
as otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
----------------------- -----------------------
NAME AND ADDRESS NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ---------------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
James N. Farley(1)(2)... 2,464,880 23.2% 400,000 1,829,880 14.5%
Nancy J. Farley(1)(3)... 1,129,195 10.6 50,000 1,079,195 8.5
Makoto Kouzuma(1)(4).... 835,420 7.8 100,000 735,420 5.8
SpeedFam Employees
Profit Sharing
Trust(1)(5)............. 307,380 2.9 75,000 232,380 1.8
Roger K. Marach(6)...... 41,726 * -- 41,726 *
Christopher E. Augur.... 38,408 * -- 38,408 *
Robert R. Smith(7)...... 109,455 1.0 10,000 99,455 *
Neil R. Bonke........... 7,500 * -- 7,500 *
Thomas J. McCook........ 21,400 * 10,000 11,400 *
Dr. Stuart Meyer........ 61,580 * -- 61,580 *
Robert M. Miller........ 400 * -- 400 *
Carl S. Pedersen(8)..... 47,400 * -- 47,400 *
James N. and Nancy J.
Farley Foundation(9).... 464,880 4.4 235,000 229,880 1.8
Barbara J. Farley....... 323,845 3.1 10,000 313,845 2.5
James C. Farley......... 295,455 2.8 40,000 255,455 2.0
Timothy P. Farley....... 312,445 2.9 10,000 302,445 2.4
Sarah F. Huskey......... 301,045 2.8 10,000 291,045 2.3
All directors and
executive officers as a
group
(10 persons)........... 3,626,338 33.7% 520,000 2,870,918 22.4%
</TABLE>
- --------
*Less than one percent.
(1) The business address of Messrs. Farley and Kouzuma, Mrs. Farley and the
SpeedFam Employees Profit Sharing Trust is 7406 West Detroit, Chandler,
Arizona 85226.
(2) Of such shares 2,000,000 shares beneficially owned by Mr. Farley are held
in the James N. Farley Trust, of which Mr. Farley acts as sole trustee,
and 464,880 are held by the James N. and Nancy J. Farley Foundation Trust,
of which Mr. Farley acts as sole trustee. Excludes (i) shares beneficially
owned by Nancy J. Farley (Mr. Farley's spouse), (ii) an aggregate of
1,487,725 shares beneficially owned by Mr. Farley's adult children, (iii)
762,780 shares held in the Makoto Kouzuma Trust, a revocable trust, of
which Mr. Farley serves as co-trustee, and (iv) 307,380 shares owned by
the SpeedFam Employees Profit Sharing Trust, of which Mr. Farley acts as
co-trustee. Mr. Farley disclaims beneficial ownership of all shares
referred to (i) through (iv) above.
(3) Of such shares, 707,400 are held in the Nancy J. Farley Trust, a revocable
trust. Charles A. Kelly, Secretary of the Company, acts as co-trustee of
such trust with Mr. Farley (the spouse of Nancy J. Farley). Pursuant to
the trust agreement, Mr. Kelly has sole voting and dispositive power over
shares held in the trust. The Nancy J. Farley Trust may be voluntarily
terminated by Mrs. Farley at any time. Includes 421,795 shares of Common
Stock over which Mrs. Farley has sole voting and dispositive power as
Custodian for eleven minor grandchildren. Mrs. Farley disclaims beneficial
ownership as to such shares. Excludes shares beneficially owned by Mr.
Farley and an aggregate of 1,487,725 shares beneficially owned by Mrs.
Farley's adult children, as to all of which Mrs. Farley disclaims
beneficial ownership.
(4) Of such shares, 762,780 are held in the Makoto Kouzuma Trust, a revocable
trust. Mr. Kelly and Mr. Farley act as co-trustees of such trust and share
voting and dispositive power over shares held in the trust. The Makoto
Kouzuma Trust may be voluntarily terminated by Mr. Kouzuma at any time.
The remaining 72,640 shares are subject to issuance to Mr. Kouzuma upon
the exercise of certain stock options.
(5) Messrs. Farley, Marach and Kelly act as co-trustees of the Plan and share
voting and dispositive power over shares held by the Plan.

-51-
<PAGE>

(6) Excludes 307,380 shares owned by the SpeedFam Employees Profit Sharing
Trust of which Mr. Marach serves as co-trustee. Mr. Marach disclaims
beneficial ownership of such shares.
(7) Includes 26,120 shares beneficially owned by Mr. Smith's spouse.
(8) Of such shares, 47,000 are held in the Pedersen Family Limited
Partnership, of which Pedersen Holdings, Inc. is sole general partner and
Mr. Pedersen serves as sole limited partner. Mr. Pedersen serves as
President of Pedersen Holdings, Inc. and owns 33% of its outstanding
stock. The remaining 400 shares are subject to issuance to Mr. Pedersen
upon the exercise of certain stock options.
(9) The James N. and Nancy J. Farley Foundation is a trust, of which Mr.
Farley acts as sole trustee.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 1,000,000 shares of
Preferred Stock, none of which has been issued, and 20,000,000 shares of
Common Stock, of which 10,770,979 were currently issued and outstanding as of
February 11, 1997.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the shareholders generally, including the election of
directors. Subject to the rights of holders of any Preferred Stock
outstanding, holders of Common Stock are entitled to receive such dividends as
are declared by the Board of Directors out of funds legally available
therefor, and in the event of liquidation, dissolution or winding upon of the
Company, the holders of Common Stock are entitled to share ratably in any
assets remaining after payment of the Company's liabilities. Holders of Common
Stock do not have preemptive or other subscription rights. The Common Stock
currently outstanding is, and the shares of Common Stock offered by the
Company hereby will be, when issued, validly issued, fully paid and non-
assessable.

Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin, is the registrar and
transfer agent for the Common Stock.

PREFERRED STOCK

The Preferred Stock may be issued from time to time in one or more series,
and the Board of Directors, without further approval of the shareholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, special series voting rights and
sinking fund provisions applicable to each such series of Preferred Stock. If
the Company issues a series of Preferred Stock in the future that has special
voting rights or preferences over the Common Stock with respect to the payment
of dividends or upon the Company's liquidation, dissolution or winding up, the
rights of the holders of the Common Stock may be adversely affected. The
issuance of shares of Preferred Stock could be utilized, under certain
circumstances, in an attempt to prevent an acquisition of the Company and may
adversely affect the voting and other rights of the holders of Common Stock.

ANTI-TAKEOVER STATUTES

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

-52-
<PAGE>

Section 11.75 of the BCA provides that a corporation shall not engage in any
business combination with any interested shareholder (generally defined as the
beneficial owner of 15% or more of the outstanding voting shares of the
company) for a period of three years following the date that such shareholder
became an interested shareholder, unless (a) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder, or (b) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding for purposes of determining the
number of shares outstanding those shares owned (i) by persons who are
directors and also officers and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer), or
(c) on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
shareholder.

Section 8.85 of the BCA permits directors and officers of an Illinois
corporation to consider the interests of constituencies other than the
corporation's shareholders when exercising their duties, including in the
consideration of a transaction which could result in a change of control of
the Company.

The Company is automatically subject to Section 8.85 and Section 7.85 and,
depending on the final distribution of the shares offered hereby and certain
shareholder residency requirements with the State of Illinois, Section 11.75.

-53-
<PAGE>

UNDERWRITING

Under the terms of, and subject to the conditions in, the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc., Alex. Brown & Sons Incorporated and Needham &
Company, Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders,
and the Company and the Selling Shareholders have agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
their respective names below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Lehman Brothers Inc. .................................... 1,000,000
Alex. Brown & Sons Incorporated.......................... 1,000,000
Needham & Company, Inc................................... 1,000,000
---------
Total.................................................. 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to certain conditions, and that
if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all the shares of Common
Stock agreed to be purchased by the Underwriters must be so purchased.

The Company and the Selling Shareholders have been advised that the
Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain selected dealers (who may include the Underwriters)
at such public offering price less a selling concession not in excess of $0.95
per share. The selected dealers may reallow a concession not in excess of
$0.10 per share to certain brokers and dealers. After the initial public
offering, the public offering price, the concession to selected dealers and
the reallowance may be changed by the Underwriters.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.

The Company has granted to the Underwriters an option to purchase up to an
aggregate of 450,000 shares of Common Stock, exercisable solely to cover over-
allotments, at the offering price to the public less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.

Certain holders of shares of Common Stock of the Company, owning an
aggregate of 5,613,883 shares, have agreed that they will not, subject to
certain limited exceptions, directly or indirectly, offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares for a period of 90 days after
the effective date of the offering without the prior written consent of Lehman
Brothers Inc. Lehman Brothers Inc. reserves the right to release any or all of
such shareholders from their obligations under such lock-up agreements at any
time without notice. Any such release would increase the number of shares
available for sale into the public market, which could have a material adverse
effect on the price of the Common Stock. In addition, the Company has agreed
that it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable for such shares without the
prior written consent of Lehman Brothers Inc. for 90 days after the effective
date of the offering.

Certain of the underwriting and selling group members (if any) that
currently act as market makers for the Common Stock may engage in "passive
market making" in the Common Stock on Nasdaq in accordance with

-54-
<PAGE>

Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the satisfaction
of certain conditions, underwriters and selling group members participating in
a distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in
passive market making generally from entering a bid or effecting a purchase at
a price that exceeds the highest bid for those securities displayed on Nasdaq
by a market maker that is not participating in the distribution. Under Rule
10b-6A, each underwriter or selling group member engaged in passive market
making is subject to a daily net purchase limitation equal to 30% of such
entity's average daily trading volume during the two full consecutive calendar
months immediately preceeding the date of the filing of the registration
statement under the Securities Act pertaining to the security to be
distributed.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Chapman and Cutler, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, San Diego, California. Mr. Charles A. Kelly, a partner of
Chapman and Cutler, serves as Secretary of the Company and owns 35,000 shares
of the Company's Common Stock. In addition, Mr. Kelly has sole voting and
dispositive power over 707,400 shares of Common Stock held in the Nancy J.
Farley Trust, a revocable trust, of which he serves as co-trustee. Mr. Kelly
also shares voting and dispositive power over 762,780 shares of Common Stock
held in the Makoto Kouzuma Trust, a revocable trust, of which he serves as co-
trustee and over 307,380 shares of Common Stock held in the SpeedFam Employees
Profit Sharing Trust, of which he serves as co-trustee. Mr. David S. Crossett,
also a partner of Chapman and Cutler, owns 500 shares of the Company's Common
Stock.

EXPERTS

The consolidated financial statements and schedules of the Company as of May
31, 1995 and 1996, and for each of the years in the three-year period ended
May 31, 1996 and the consolidated financial statements of the Far East Joint
Venture as of April 30, 1995 and 1996, and for each of the years in the three-
year period ended April 30, 1996, included or incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited
by KPMG Peat Marwick LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are included or
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing.

-55-
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

<S> <C>
ANNUAL
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets--at the end of fiscal years 1995 and 1996..... F-3
Consolidated Statements of Earnings--for the fiscal years 1994, 1995 and
1996..................................................................... F-4
Consolidated Statements of Stockholders' Equity--for the fiscal years
1994, 1995 and 1996...................................................... F-5
Consolidated Statements of Cash Flows--for the fiscal years 1994, 1995 and
1996..................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
INTERIM
Condensed Consolidated Balance Sheets--at May 31, 1996 and November 30,
1996 (unaudited)......................................................... F-20
Condensed Consolidated Statements of Earnings--for the six months ended
November 30, 1995 and November 30, 1996 (unaudited)...................... F-21
Condensed Consolidated Statements of Cash Flows--for the six months ended
November 30, 1995 and November 30, 1996 (unaudited)...................... F-22
Notes to Condensed Consolidated Financial Statements (unaudited).......... F-23

SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES

ANNUAL
Independent Auditors' Report.............................................. F-25
Consolidated Balance Sheets--at the end of fiscal years 1995 and 1996..... F-26
Consolidated Statements of Earnings--for the fiscal years 1994, 1995 and
1996..................................................................... F-27
Consolidated Statements of Shareholders' Equity--for the fiscal years
1994, 1995 and 1996...................................................... F-28
Consolidated Statements of Cash Flows--for the fiscal years 1994, 1995 and
1996..................................................................... F-29
Notes to Consolidated Financial Statements................................ F-30
</TABLE>

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

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
SpeedFam International, Inc.:

We have audited the accompanying consolidated balance sheets of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1995 and 1996,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1996.
These consolidated financial statements are the responsibility of the
management of SpeedFam International, Inc. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended May 31, 1996 in conformity with generally
accepted accounting principles.

As discussed in notes 1 and 5 to the consolidated financial statements, the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," were
adopted in fiscal year 1994.

KPMG Peat Marwick LLP

July 3, 1996
Chicago, Illinois

F-2
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MAY 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS 1995 1996
------ ------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 1,095 $ 10,871
Trade accounts and notes receivable, less allowance for
doubtful accounts of $187 and $495 at May 31, 1995 and
1996, respectively........................................ 16,971 34,693
Inventories................................................ 17,995 27,931
Deferred income taxes...................................... 147 1,229
Prepaid expenses and other current assets.................. 1,067 1,241
------- --------
Total current assets..................................... 37,275 75,965
Investments in affiliates.................................... 18,582 20,450
Property, plant and equipment, net........................... 3,061 9,969
Other assets................................................. 1,111 1,600
------- --------
Total assets............................................. $60,029 $107,984
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.......................... $ 908 $ 727
Accounts payable........................................... 7,138 14,704
Customer deposits.......................................... 5,662 4,814
Due to affiliates.......................................... 8,907 11,756
Accrued expenses........................................... 3,083 8,005
Income taxes payable....................................... 505 4,766
------- --------
Total current liabilities................................ 26,203 44,772
------- --------
Long-term liabilities:
Long-term debt............................................. 10,362 2,593
Deferred income taxes...................................... 427 580
------- --------
Total long-term liabilities.............................. 10,789 3,173
------- --------
Stockholders' equity:
Common stock, no par value, 20,000,000 shares authorized,
7,459,700 and 10,514,868 shares issued and outstanding at
May 31, 1995 and 1996, respectively....................... 1 1
Additional paid-in capital................................. 828 26,174
Retained earnings.......................................... 17,426 29,247
Foreign currency translation adjustment.................... 7,991 4,617
Treasury stock............................................. (3,209) --
------- --------
Total stockholders' equity............................... 23,037 60,039
------- --------
Total liabilities and stockholders' equity............... $60,029 $107,984
======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED MAY 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Revenue:
Net sales....................................... $49,247 $57,021 $113,880
Commissions from affiliate...................... 2,134 2,757 6,290
------- ------- --------
Total revenue................................. 51,381 59,778 120,170
Cost of sales..................................... 38,945 45,494 78,661
------- ------- --------
Gross margin.................................. 12,436 14,284 41,509
------- ------- --------
Operating expenses:
Research, development and engineering........... 2,267 2,740 11,496
Selling, general, and administrative expenses... 8,988 9,948 18,922
------- ------- --------
Total operating expenses...................... 11,255 12,688 30,418
------- ------- --------
Operating profit.................................. 1,181 1,596 11,091
------- ------- --------
Other income (expense):
Gains on sales of assets........................ 19 246 9
Royalty income.................................. 245 264 --
Interest income................................. 34 52 454
Interest expense................................ (697) (959) (691)
Disposal of FamTec AG........................... 303 -- --
Miscellaneous, net.............................. 373 (556) 20
------- ------- --------
277 (953) (208)
------- ------- --------
Earnings from consolidated companies before income
taxes and cumulative effect of change in
accounting principle............................. 1,458 643 10,883
Income tax expense (benefit)...................... (160) 186 4,266
------- ------- --------
Earnings from consolidated companies before
cumulative of effect of change in accounting
principle........................................ 1,618 457 6,617
Equity in net earnings of affiliates.............. 655 1,187 5,204
------- ------- --------
Earnings before cumulative effect of change in
accounting principle............................. 2,273 1,644 11,821
Cumulative effect of change in accounting
principle for income taxes....................... 78 -- --
------- ------- --------
Net earnings...................................... $ 2,351 $ 1,644 $ 11,821
======= ======= ========
Net earnings per share............................ $ 0.31 $ 0.20 $ 1.16
======= ======= ========
Weighted average common and common equivalent
shares........................................... 7,619 8,146 10,159
======= ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED MAY 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993. $ 1 $ 817 $13,431 $4,591 $(3,171) $15,669
Net earnings............ -- -- 2,351 -- -- 2,351
Foreign currency
translation adjustment. -- -- -- 548 -- 548
Purchase of treasury
stock.................. -- -- -- -- (4) (4)
Sale of treasury stock.. -- 11 -- -- 1 12
---- ------- ------- ------ ------- -------
Balance at May 31, 1994. 1 828 15,782 5,139 (3,174) 18,576
Net earnings............ -- -- 1,644 -- -- 1,644
Foreign currency
translation adjustment. -- -- -- 2,852 -- 2,852
Purchase of treasury
stock.................. -- -- -- -- (35) (35)
---- ------- ------- ------ ------- -------
Balance at May 31, 1995. 1 828 17,426 7,991 (3,209) 23,037
Net earnings............ -- -- 11,821 -- -- 11,821
Foreign currency
translation adjustment. -- -- -- (3,374) -- (3,374)
Sale of treasury stock.. -- 16 -- -- 1 17
Retirement of treasury
stock.................. -- (3,208) -- -- 3,208 --
Issuance of common
stock.................. -- 28,284 -- -- -- 28,284
Exercise of stock
options................ -- 254 -- -- -- 254
---- ------- ------- ------ ------- -------
Balance at May 31, 1996. $ 1 $26,174 $29,247 $4,617 $ -- $60,039
==== ======= ======= ====== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MAY 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings....................................... $ 2,351 $1,644 $11,821
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in net earnings of affiliates............. (655) (1,187) (5,204)
Depreciation and amortization.................... 675 635 1,326
Provision for losses on accounts receivable...... 7 3 316
Provision for deferred income taxes.............. (220) (120) (922)
Gains on sale of assets.......................... (19) (246) (10)
Increase in cash surrender value of life
insurance....................................... (119) (138) (142)
Gain on disposal of FamTec AG.................... (298) -- --
Cumulative effect of change in accounting
principle....................................... (78) -- --
Change in assets and liabilities:
Increase in trade accounts and notes
receivable.................................... (7,782) (2,271) (18,226)
Increase in inventories........................ (3,297) (7,067) (10,078)
(Increase) decrease in prepaid expenses and
other assets.................................. 50 (452) 23
Increase in accounts payable and due to
affiliates.................................... 5,569 4,149 10,621
Increase in accrued expenses, customer deposits
and other liabilities......................... 1,670 4,474 4,102
Increase (decrease) in income taxes payable.... (368) 566 4,290
------- ------ -------
Net cash used in operating activities................ (2,514) (10) (2,083)
------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (443) (744) (8,121)
Proceeds from sales of assets...................... 46 431 24
Dividends from affiliates.......................... 77 90 163
Other investing activities......................... (81) (83) (542)
------- ------ -------
Net cash used in investing activities................ (401) (306) (8,476)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions........................ 8 (35) 17
Net proceeds from issuance of common stock......... -- -- 28,284
Proceeds from exercise of stock options............ -- -- 254
Proceeds from long-term debt....................... 3,750 1,500 3,999
Principal payments on long-term debt............... (778) (899) (12,025)
------- ------ -------
Net cash provided by financing activities............ 2,980 566 20,529
------- ------ -------
Effect of foreign currency rate changes on cash...... (21) 36 (194)
------- ------ -------
Net increase in cash and cash equivalents............ 44 286 9,776
Cash and cash equivalents at beginning of year....... 765 809 1,095
------- ------ -------
Cash and cash equivalents at end of year............. $ 809 $1,095 $10,871
======= ====== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest......................................... $ 664 $ 866 $ 810
======= ====== =======
Income taxes..................................... $ 412 $ 125 $ 860
======= ====== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Speedfam International, Inc. (the Company), an Illinois corporation,
designs, develops, manufactures, markets and services high throughput
precision surface processing systems used in the fabrication of thin film
memory disk media, semiconductor wafers, general industrial components and,
more recently, semiconductor devices through chemical mechanical polishing. In
addition, the Company markets and distributes slurries, parts and expendables
used in its customers' manufacturing processes. The Company's customers are
primarily located in the United States, Europe, and the Far East.

(a) Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and the following wholly owned subsidiaries:

<TABLE>
<CAPTION>
SUBSIDIARIES INCORPORATED
------------ --------------
<S> <C>
SpeedFam Corporation....................................... United States
SpeedFam Limited........................................... United Kingdom
SpeedFam GmbH.............................................. Germany
</TABLE>

All significant intercompany balances and transactions have been eliminated.
Non-U.S. subsidiaries are included in the consolidated financial statements
based upon fiscal years ended April 30. The Company's fiscal year ends on May
31.

The Company's investments in the common stock of affiliates, SpeedFam Co.,
Ltd. (a Japanese corporation, 50% owned), and Fujimi Corporation (an Illinois
corporation, 50% owned) are accounted for by the equity method using fiscal
years that end April 30 and May 31, respectively.

(b) Cash and Cash Equivalents

Cash and cash equivalents include deposits in banks and highly liquid short-
term investments with original maturities of three months or less. Short-term
investments are carried at cost which approximates market.

Property, plant and equipment is stated at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the assets.
Depreciation expense was $575, $538 and $1,172 in fiscal years 1994, 1995 and
1996, respectively. The estimated useful lives of the assets are as follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 7 to 40 years
Machinery and equipment..................................... 5 years
Furniture and fixtures...................................... 3 to 5 years
Leasehold improvements...................................... 2 to 10 years
</TABLE>

(d) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

(e) Income Taxes

In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes
(Statement 109)." Statement 109 required a change to the asset

F-7
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
and liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.

Effective June 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that accounting change in the 1994 consolidated
statement of earnings.

(f) Revenue Recognition

Sales of the Company's products are recorded upon shipment or when the
product is accepted by the customer. Commission revenue from affiliates is
recorded upon shipment of product.

(g) Installation and Warranty Costs

Costs to be incurred by the Company related to product installation and
warranty fulfillment are accrued at the date of shipment and are estimated by
the Company based on past experience. The accrual for product installation and
warranty fulfillment, included in accrued expenses in the consolidated balance
sheets, was $200 and $2,485 at the end of fiscal years 1995 and 1996,
respectively.

(h) Foreign Currency Translation

Assets and liabilities of the Company' non-U.S. operations have been
translated using the exchange rates in effect at the balance sheet dates.
Results of operations are translated using the average exchange rates
prevailing throughout the period. Local currencies are considered the
functional currencies of the Company's foreign entities. Foreign currency
exchange rates used to translate the financial statements are summarized
below:

<TABLE>
<CAPTION>
FOREIGN CURRENCY PER U.S. DOLLAR
----------------------------------
1994 1995 1996
----------- ---------- -----------
<S> <C> <C> <C>
Rates at balance sheet date:
Pound sterling ((Pounds))............ .66 .62 .66
Deutsche mark (DM)................... 1.65 1.39 1.53
Japanese yen ((Yen))................. 101.65 84.20 105.07
</TABLE>

(i) Treasury Stock

The Company accounts for treasury stock using the cost method. In fiscal
year 1994, the Company sold 6,000 shares of treasury stock. There were no
sales of treasury stock in fiscal year 1995. The Company sold 8,000 shares of
treasury stock in fiscal year 1996. In fiscal years 1994 and 1995 the number
of shares of treasury stock purchased by the Company amounted to 1,800 and
14,680, respectively. There were no purchases of treasury stock in fiscal year
1996. All of the company's treasury stock was retired upon completion of the
Company's initial public offering of common stock on October 26, 1995 (see
note 15).

(j) Net Earnings Per Share

Net earnings per share data has been computed using the weighted average
number of shares of common stock and common equivalent shares from stock
options (when dilutive using the treasury stock method). Stock options issued
during the twelve month period prior to the Company's initial public offering
have been included in the calculation as if they were outstanding for all
periods presented (even if antidilutive using the treasury stock method and
the initial public offering price).

F-8
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(k) Significant Customers and Concentration of Credit Risk

Presented below is a summary of net sales to and commissions earned from
significant customers as a percentage of total revenue. Net sales to and
commissions earned from these customers are from both of the Company's
segments.

<TABLE>
<CAPTION>
CUSTOMER 1994 1995 1996
-------- ---- ---- ----
<S> <C> <C> <C>
A........................................................ 21% 21% 18%
B........................................................ 10% 11% *
C........................................................ 11% * *
</TABLE>
- --------
*Less than 10%.

Amounts due from three customers represented 14%, 15%, and 25% of total
trade accounts and notes receivable at May 31, 1996.

(l) Patents and Trademarks

Patents and trademarks included in other assets, in the net amount of $311
and $463 at the end of fiscal years 1995 and 1996, respectively, are amortized
on a straight-line basis over 17 years for patents and 5 years for trademarks.

(m) Research, Development and Engineering

Expenditures for research, development and engineering of products and
processes are expensed as incurred.

(n) Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(2) INVENTORIES

Inventories at the end of fiscal years 1995 and 1996 are summarized as
follows:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Raw materials............................................. $10,383 $14,626
Work-in-process........................................... 4,930 10,777
Finished goods............................................ 2,682 2,528
------- -------
Total inventories..................................... $17,995 $27,931
======= =======
</TABLE>

(3) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at the end of fiscal years 1995 and 1996 is
summarized as follows:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land.................................................... $ 188 $ 2,275
Buildings............................................... 2,013 2,054
Machinery and equipment................................. 2,448 7,667
Furniture and fixtures.................................. 1,125 1,039
Leasehold improvements.................................. 522 767
Construction in progress................................ -- 495
------- -------
6,296 14,297
Less accumulated depreciation........................... (3,235) (4,328)
------- -------
Net property, plant and equipment....................... $ 3,061 $ 9,969
======= =======
</TABLE>

F-9
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
(4)INVESTMENTS IN AFFILIATES

The Company owns a 50 percent interest in SpeedFam Co., Ltd. The Company's
equity investment in SpeedFam Co., Ltd. was $17,108 and $18,545 in 1995 and
1996, respectively. SpeedFam Co., Ltd.'s consolidated financial statements
include the accounts of the following subsidiaries:

<TABLE>
<CAPTION>
COMPANY LOCATION
------- -----------
<S> <C>
SpeedFam Clean System Co., Ltd................................ Japan
Saku Seiki Co., Ltd........................................... Japan
SpeedFam Incorporated......................................... Taiwan
SpeedFam Korea Ltd............................................ South Korea
SpeedFam India (Pvt.) Ltd..................................... India
</TABLE>

Significant intercompany balances and transactions have been eliminated.
SpeedFam Co., Ltd.'s investments in three affiliated Japanese companies, Met-
Coil Ltd., CRT K.K., and Xevios Corporation are accounted for by the equity
method. Condensed consolidated financial statements of SpeedFam Co., Ltd. are
as follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
APRIL 30
-----------------
ASSETS 1995 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and short-term investments......................... $ 15,531 $ 14,323
Trade accounts receivable, net.......................... 46,088 50,420
Inventories............................................. 11,086 19,961
Due from affiliates..................................... 8,759 10,924
Prepaid expenses........................................ 1,712 2,864
-------- --------
Total current assets.................................. 83,176 98,492
Investments in affiliates................................. 1,223 891
Property, plant and equipment, net........................ 20,371 20,161
Deferred income taxes and other assets.................... 6,043 7,007
-------- --------
Total assets.......................................... $110,813 $126,551
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings................................... $ 15,744 $ 8,088
Current portion of long-term debt....................... 2,406 2,252
Accounts payable........................................ 34,299 48,326
Accrued expenses........................................ 4,384 7,122
Income taxes payable.................................... 2,564 9,178
-------- --------
Total current liabilities............................. 59,397 74,966
Long-term debt............................................ 12,528 9,106
Liability for employee benefits........................... 2,595 3,421
Minority interest......................................... 2,078 1,967
-------- --------
Total long-term liabilities........................... 17,201 14,494
Stockholders' equity:
Common stock............................................ 210 664
Retained earnings....................................... 18,036 26,943
Foreign currency translation adjustment................. 15,954 9,346
Unrealized gains on marketable securities............... 15 138
-------- --------
Total stockholders' equity............................ 34,215 37,091
-------- --------
Total liabilities and stockholders' equity............ $110,813 $126,551
======== ========
</TABLE>

F-10
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Net sales...................................... $87,217 $108,664 $161,169
Costs and operating expenses................... 84,823 103,574 141,752
------- -------- --------
Earnings before income taxes................... 2,394 5,090 19,417
Income taxes................................... 1,026 2,755 9,479
------- -------- --------
Net earnings before minority interest.......... 1,368 2,335 9,938
Minority interest.............................. (241) (166) (301)
------- -------- --------
Net earnings before cumulative effect of change
in accounting principle....................... 1,127 2,169 9,637
Cumulative effect of change in accounting
principle..................................... (43) -- --
------- -------- --------
Net earnings................................... 1,084 2,169 9,637
Retained earnings at beginning of year......... 14,958 15,987 18,036
Common stock dividend.......................... -- -- (454)
Dividends...................................... (55) (120) (276)
------- -------- --------
Retained earnings at end of year............... $15,987 $ 18,036 $ 26,943
======= ======== ========
</TABLE>

The following is a summary of SpeedFam International, Inc. and consolidated
subsidiaries' transactions with SpeedFam Co., Ltd.

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam Co., Ltd............................. $ 67 $ 259 $1,737
====== ====== ======
Purchases from SpeedFam Co., Ltd....................... $2,555 $3,046 $7,612
====== ====== ======
Commission revenue..................................... $2,134 $2,757 $6,290
====== ====== ======
Commission expense..................................... $ 91 $ 196 $ 582
====== ====== ======
</TABLE>

Net amounts due to SpeedFam Co., Ltd. included in the consolidated balance
sheets at the end of fiscal years 1995 and 1996 are $8,698 and $11,591,
respectively.

The Company owns a 50% interest in Fujimi Corporation. The Company's equity
investment in Fujimi Corporation was $1,474 and $1,905 in 1995 and 1996,
respectively. Summary financial information relating to Fujimi Corporation is
as follows:

STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $12,301 $15,783 $19,734
Costs and operating expenses........................ 11,595 15,536 18,235
------- ------- -------
Earnings before income taxes........................ 706 247 1,499
Income taxes........................................ 296 72 589
------- ------- -------
Net earnings........................................ $ 410 $ 175 $ 910
======= ======= =======
</TABLE>

F-11
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
The Company received dividends from Fujimi Corporation of $50, $30, and $25
in 1994, 1995, and 1996, respectively. Purchases from Fujimi Corporation
approximated $775, $1,301, and $952 in 1994, 1995, and 1996, respectively.
Amounts due to Fujimi Corporation included in the consolidated balance sheets
at the end of fiscal years 1995 and 1996 are $208 and $165, respectively.

(5) INCOME TAXES

As discussed in note 1, the Company adopted Statement 109 effective June 1,
1993. The cumulative effect of this change in accounting for income taxes of
$78 was determined as of June 1, 1993 and is reported separately in the
consolidated statement of earnings in fiscal year 1994.

The Company files consolidated U.S. Federal income tax returns with its
domestic subsidiary. Operations in the United Kingdom and Germany file local
income tax returns. Earnings from consolidated companies before income taxes
and cumulative effect of change in accounting principle are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------- ---- -------
<S> <C> <C> <C>
U.S..................................................... $ 1,165 $183 $ 9,380
Non-U.S................................................. 293 460 1,503
------- ---- -------
Total............................................... $ 1,458 $643 $10,883
======= ==== =======
</TABLE>

The provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------ ---- ------
<S> <C> <C> <C>
Current:
U.S. Federal...................................... $ (72) $112 $3,693
State............................................. -- 12 965
Non-U.S........................................... 132 182 537
------ ---- ------
60 306 5,195
------ ---- ------
Deferred:
U.S. Federal and State............................ (214) (92) (915)
Non-U.S........................................... (6) (28) (14)
------ ---- ------
(220) (120) (929)
------ ---- ------
Income tax expense (benefit)........................ $ (160) $186 $4,266
====== ==== ======
</TABLE>

The tax effects of temporary differences that give rise to the deferred tax
assets (liabilities) at the end of fiscal years 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Property, plant and equipment............................. $(478) $(616)
Inventory................................................. (257) 166
Allowance for doubtful accounts........................... 73 164
Trademark amortization.................................... 66 80
Warranty reserve.......................................... 81 984
Alternative minimum tax credit carryforward............... 47 47
Unrealized foreign currency losses........................ 141 --
Other..................................................... 47 (176)
----- -----
Net deferred tax asset (liability)........................ $(280) $ 649
===== =====
</TABLE>

F-12
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
There is no valuation allowance for deferred tax assets at the end of fiscal
years 1995 or 1996. Deferred tax assets are considered realizable due to the
expectation of future taxable income.

A reconciliation between the Company's effective tax rate and the "expected"
tax rate of 34% on earnings before income taxes and cumulative effect of
change in accounting principle is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate.............................. 34% 34% 34%
Officers' life insurance................................ 2 4 --
U.S. tax benefit on disposal of FamTec AG............... (51) -- --
Difference of non-U.S. and "expected" tax rates......... 2 -- --
Dividend income from non-U.S. affiliates................ 1 3 --
State taxes, net of U.S. Federal benefit................ (1) -- 4
Foreign sales corporation............................... (2) (13) --
Other................................................... 4 1 1
--- --- ---
Effective income tax rate............................... (11)% 29% 39%
=== === ===
</TABLE>

No provision is made for income taxes on undistributed earnings of wholly
owned non-U.S. subsidiaries and SpeedFam Co., Ltd. because it is the Company's
present intention to reinvest substantially all the earnings of these
operations. At the end of fiscal year 1996 there were approximately $15,943 of
accumulated undistributed earnings of those operations. It is not practical
for the Company to compute the amount of unrecognized deferred tax liability
on the undistributed earnings.

The Company has not recognized a deferred tax liability of approximately
$232 for its share of the undistributed earnings of Fujimi Corporation that
arose in fiscal year 1993 and prior years because the Company does not expect
those unremitted earnings to reverse and become taxable in the foreseeable
future. A deferred tax liability will be recognized when the Company expects
that it will recover those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investment. At the end of fiscal
year 1996 the undistributed earnings of Fujimi Corporation were approximately
$123. A deferred tax liability in the amount of $49 has been provided for the
undistributed earnings subsequent to fiscal year 1993.

(6) LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1995 1996
----- ------
<S> <C> <C>
Loans under revolving line of credit due April 14, 1999;
interest rate at bank's prime rate (8.25% at May 31, 1996)
or LIBOR plus 1.25% (6.75% at May 31, 1996)............... $ -- $2,400
Loans under revolving line of credit due November 8, 1997;
interest rate at bank's prime rate or LIBOR plus 2%....... 6,500 --
Term loan payable in quarterly installments of $100 with
final installment of $1,900 on October 31, 1997; interest
rate fixed at 9%.......................................... 2,800 --
Term loan payable in monthly installments of $26 (including
interest) beginning April 1, 1994 for five years; interest
rate fixed at 9.25%....................................... 1,000 772
</TABLE>

F-13
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Term loan payable in monthly installments of (Pounds)4.7
($8) for 15 years beginning in November 1987, interest
rate of 2.25% over the bank's base rate (8.25% at April
30, 1996)............................................... 229 148
Note payable in equal annual installments of $207 through
January 15, 1999; interest rate of prime less 1/2%
(however, not less than 8% or greater than 12%); an
imputed interest rate of 15% results in a debt discount
of $87 at May 31, 1995.................................. 828 --
------- ------
Total long-term debt..................................... 11,357 3,320
Less current portion of long-term debt................... 908 727
Less debt discount....................................... 87 --
------- ------
Net long-term debt....................................... $10,362 $2,593
======= ======
</TABLE>

In fiscal year 1996 the Company entered into a new unsecured credit
agreement with two U.S. banks. The credit agreement includes a $22,500
revolving line of credit maturing April 14, 1999. The Company must meet
certain financial objectives each year as defined in the credit agreement.

The term loan payable in monthly installments of $26 is secured by certain
machinery of SpeedFam Corporation with a net book value of $193 at May 31,
1996.

The term loan, payable in pounds sterling is secured by the assets of
SpeedFam Limited and a (Pounds)250 ($377) keyman life insurance policy.

During fiscal year 1996 the revolving line of credit due November 8, 1997,
the term loan payable in quarterly installments of $100, and the note payable
were paid.

Annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1997.............................................................. $ 727
1998.............................................................. 744
1999.............................................................. 1,849
------
$3,320
======
</TABLE>

(7) COMMITMENTS AND CONTINGENCIES

During fiscal year 1996 the Company entered into a technology license
agreement related to the development of a new product expected to be
introduced during fiscal year 1997. The agreement required the payment of $400
upon signing and a final payment of $300 due in June 1996. The agreement also
obligates the Company to make annual royalty payments of 5.5% of the Company's
net sales of products using the licensed technology for ten years. The annual
royalty payments are subject to a minimum payment of $150 beginning in fiscal
year 1998 and $200 for fiscal years 1999 to 2006.

The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2001. Rental expense aggregated
approximately $468, $611, and $917 in 1994, 1995, and 1996, respectively.

During fiscal year 1996, the Company entered into certain agreements with a
general contractor, project manager and architect relating to the construction
of a new office and manufacturing facility in Chandler, Arizona. The
agreements specify the amounts and timing of payments to be made by the
Company and the work to be performed by the other parties to the agreements.

F-14
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1996 are as
follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997............................................................... $1,071
1998............................................................... 784
1999............................................................... 609
2000............................................................... 334
2001 and thereafter................................................ 12
------
Total.......................................................... $2,810
======
</TABLE>

(8) FORWARD EXCHANGE CONTRACTS

The Company enters into forward foreign exchange contracts to hedge certain
firm commitments denominated principally in Japanese yen. The terms of the
contracts are rarely more than one year. The contracts are entered into at the
time an order is received to preserve the expected profit by protecting the
Company from the risk that those commitments will be adversely affected by
changes in exchange rates. Unrealized gains and losses on the forward
contracts are deferred until the related transaction occurs. At the end of
fiscal years 1995 and 1996, deferred net losses amounted to $310 and $228,
respectively.

During fiscal year 1995, the Company incurred foreign currency transaction
losses on three purchase transactions as a result of not hedging on a timely
basis (i.e., at the purchase order date). These losses amounted to $350 and
are included in Miscellaneous, net in the accompanying consolidated statement
of earnings in fiscal year 1995.

The table below summarizes the contractual amounts of the Company's forward
exchange contracts in U.S. dollars. The amounts represent the U.S. dollar
equivalent of commitments to purchase or sell foreign currencies.

<TABLE>
<CAPTION>
1995 1996
--------------- --------------
BUY SELL BUY SELL
------- ------- ------- ------
<S> <C> <C> <C> <C>
Japanese yen............................... $15,399 $10,448 $17,980 $1,224
======= ======= ======= ======
Deutsche mark.............................. $ 65 $ -- $ -- $ --
======= ======= ======= ======
</TABLE>

(9) SAVINGS AND PROFIT-SHARING PLANS

The Company maintains savings and profit-sharing plans for its employees.
The plans cover certain employees who meet length of service requirements.
Expense under the plans, determined by the Company's Board of Directors,
aggregated $180, $60, and $1,443 in 1994, 1995, and 1996, respectively.

(10) EMPLOYEE INCENTIVE STOCK OPTION PLAN

On September 12, 1991, the shareholders approved the Employee Incentive
Stock Option Plan of 1991, reserving 1,500,000 shares of common stock for sale
or award as stock options to officers and key employees. Prior to fiscal year
1995, stock options were granted at 100% to 110% of the value of the Company's
common stock as determined by an established formula. In fiscal year 1995,
stock options were granted at 100% to 110% of the fair value of the Company's
common stock as determined by an independent appraiser. Subsequent to

F-15
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
fiscal year 1995, stock options are granted at a price not less than the fair
market value on the date of grant. The stock options vest over five years
(i.e., 20% each year) with the exception of 163,800 stock options issued in
1992 which vested immediately. The stock options expire ten years after the
grant date except for 119,700 stock options which expire five years after the
grant date. The following table summarizes the activity in common shares
subject to options for the two years ended May 31, 1996:

<TABLE>
<CAPTION>
SHARES OPTION PRICE PER SHARE
--------- ----------------------
<S> <C> <C>
Balance, June 1, 1994.................... 822,000 $ 2.0365 - $ 2.2600
Granted................................ 281,660 2.4130 - 6.4100
Exercised.............................. -- -
Canceled or Expired.................... -- -
Balance, May 31, 1995.................... 1,103,660 2.0365 - 6.4100
Granted................................ 330,976 10.7500 - 20.5000
Exercised.............................. 119,668 2.0365 - 5.8250
Canceled or Expired.................... 33,900 2.0365 - 5.8250
Balance, May 31, 1996.................... 1,281,068 $ 2.0365 - $20.5000
</TABLE>

At May 31, 1996, 347,364 shares were exercisable.

(11)DISPOSAL OF FAMTEC AG

During fiscal year 1993, the Company terminated the operations of FamTec AG,
incorporated under the laws of Switzerland. A voluntary petition for
bankruptcy was filed, announced and published in Switzerland in fiscal year
1994. Subsequently, creditors' claims were adjudicated and all Swiss assets
liquidated. On July 27, 1995, the bankruptcy administrator paid out the
liquidation proceeds to creditors, and the bankruptcy matter was closed.
FamTec AG was dissolved and the Company no longer has ownership of the entity.

As a result of this circumstance, the Company's net investment in FamTec AG
was written off in 1994. Since the liabilities and reserve associated with
FamTec AG exceeded its assets, the disposal resulted in a pretax gain of $303
and an income tax benefit of $740 in fiscal year 1994. The benefit arose from
the write-off and resulting deduction of the Company's investment in FamTec AG
for U.S. tax purposes. Results of operations of FamTec AG are not included in
the 1994 consolidated statement of earnings nor are they material.

(12) LITIGATION SETTLEMENT AND CANCELLATION CHARGE

In January, 1993, the Company reached a favorable settlement with a
competitor over the infringement of a patent owned by the Company. Title to
the patent was granted to the competitor. The Company received in the
settlement a royalty free non-exclusive license to use the technology, an
immediate cash payment of $300 and a promissory note in the amount of $500
payable over the five years in equal quarterly installments of $25 plus
interest at the prime rate. Additionally, the Company received a 2% royalty
fee on machines sold by the competitor to a maximum fee of $600. The royalty
fee was satisfied as of November 30, 1994.

In connection with the cancellation of an order, the Company recorded income
of $379 in fiscal year 1994. This amount is included in Miscellaneous, net in
the 1994 consolidated statement of earnings.

F-16
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(13) BUSINESS SEGMENT INFORMATION

The Company classifies its products into two core business segments: (i)
equipment, parts and expendables, which represent the Company's operations in
designing, developing manufacturing, marketing and servicing high throughput,
precision surface processing systems and (ii) slurries, which represents the
distribution and sale of materials used in the customers' manufacturing
process. Information concerning the Company's business segments in fiscal
years 1994, 1995 and 1996 is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Revenue:
Sales to unaffiliated customers:
Equipment, parts and expendables............ $24,336 $29,846 $ 88,050
Slurries.................................... 24,911 27,175 25,830
------- ------- --------
Total sales to unaffiliated customers..... 49,247 57,021 113,880
Commissions from affiliate--Equipment, parts
and expendables.............................. 2,134 2,757 6,290
------- ------- --------
Total revenue............................. $51,381 $59,778 $120,170
======= ======= ========
Segment operating profit:
Equipment, parts and expendables.............. $ 1,840 $ 2,475 $ 14,585
Slurries...................................... 1,705 1,759 572
------- ------- --------
Segment operating profit........................ 3,545 4,234 15,157
General corporate expense....................... (1,390) (2,632) (3,583)
Interest expense................................ (697) (959) (691)
------- ------- --------
Earnings from consolidated companies before
income taxes and cumulative effect of change in
accounting principle........................... $ 1,458 $ 643 $ 10,883
======= ======= ========
Identifiable Assets:
Equipment, parts and expendables.............. $21,727 $30,538 $ 62,177
Slurries...................................... 6,825 7,828 8,836
Investment in affiliates...................... 14,738 18,582 20,450
Corporate assets.............................. 2,419 3,081 16,521
------- ------- --------
Total identifiable assets................. $45,709 $60,029 $107,984
======= ======= ========
Capital expenditures:
Equipment, parts and expendables.............. $ 236 $ 470 $ 5,197
Slurries...................................... 15 12 35
Corporate..................................... 192 262 2,889
------- ------- --------
Total capital additions................... $ 443 $ 744 $ 8,121
======= ======= ========
Depreciation expense:
Equipment, parts and expendables.............. $ 496 $ 437 $ 1,044
Slurries...................................... 30 28 29
Corporate..................................... 49 73 99
------- ------- --------
Total depreciation expense................ $ 575 $ 538 $ 1,172
======= ======= ========
</TABLE>

F-17
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
Intersegment sales are not material. Operating profit represents total
revenue less operating expenses, and excludes equity in net earnings of
affiliates, interest expense and income taxes. Identifiable assets are those
assets employed in each segment's operation, including an allocated value.
Corporate assets consist primarily of cash and assets not employed in
production.

Information regarding the Company's operations in the United States and
internationally are presented below:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Net sales:
United States............................... $41,492 $47,587 $103,698
Europe...................................... 8,559 10,355 10,855
Intercompany sales.......................... (804) (921) (673)
------- ------- --------
Consolidated net sales........................ $49,247 $57,021 $113,880
======= ======= ========
Operating profit:
United States............................... $ 757 $ 1,478 $ 10,184
Europe...................................... 44 165 917
Eliminations................................ 380 (47) (10)
------- ------- --------
Operating profit.............................. $ 1,181 $ 1,596 $ 11,091
======= ======= ========
Identifiable assets:
United States............................... $24,768 $33,408 $ 66,059
Europe...................................... 3,784 4,958 4,954
Corporate................................... 17,157 21,663 36,971
------- ------- --------
Consolidated identifiable assets.............. $45,709 $60,029 $107,984
======= ======= ========
</TABLE>

(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Following is a summary of unaudited quarterly information:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1995:
Total revenue............................. $13,953 $13,080 $13,006 $19,739
======= ======= ======= =======
Gross margin.............................. $ 2,773 $ 2,660 $ 3,309 $ 5,542
======= ======= ======= =======
Net earnings (loss)....................... $ 146 $ (433) $ 403 $ 1,528
======= ======= ======= =======
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1996:
Total revenue............................. $17,816 $25,438 $33,140 $43,776
======= ======= ======= =======
Gross margin.............................. $ 5,050 $ 7,018 $12,845 $16,596
======= ======= ======= =======
Net earnings.............................. $ 704 $ 1,625 $ 4,359 $ 5,133
======= ======= ======= =======
</TABLE>

F-18
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

(DOLLARS IN THOUSANDS)

(15) OFFERING OF COMMON STOCK

On October 26, 1995, the Company completed its initial public offering of
common stock. In connection therewith, the Company issued 2,927,500 shares of
common stock and received proceeds of $28,284, net of underwriters' discounts
and commissions and offering expenses.

(16) FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments at May 31, 1995 and 1996 include cash
equivalents, trade receivables, trade payables, noncurrent receivables and
long-term debt. The carrying value of cash equivalents, trade receivables and
trade payables approximates fair value because of the short maturity of these
instruments. The fair value of the Company's noncurrent receivables and long-
term debt are not materially different from their financial statement carrying
values.

F-19
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
ASSETS 1996 1996
------ -------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 10,871 $ 7,446
Trade accounts and notes receivable, net............... 34,693 34,016
Inventories............................................ 27,931 27,866
Other current assets................................... 2,470 3,491
-------- --------
Total current assets................................. 75,965 72,819
Investments in affiliates................................ 20,450 23,099
Property, plant and equipment, net....................... 9,969 13,877
Other assets............................................. 1,600 1,948
-------- --------
Total assets......................................... $107,984 $111,743
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings and current portion of long-term
debt.................................................. $ 727 $ 650
Accounts payable and due to affiliates................. 26,460 19,679
Customer deposits...................................... 4,814 8,298
Other current liabilities.............................. 12,771 12,183
-------- --------
Total current liabilities............................ 44,772 40,810
-------- --------
Long-term liabilities:
Long-term debt......................................... 2,593 2,200
Deferred income taxes.................................. 580 588
-------- --------
Total long-term liabilities.......................... 3,173 2,788
-------- --------
Shareholders' equity:
Common stock, no par value, 20,000,000 shares
authorized, 10,514,868 and 10,612,485 shares issued
and outstanding at May 31 and November 30, 1996,
respectively.......................................... 1 1
Additional paid-in capital............................. 26,174 26,787
Retained earnings...................................... 29,247 38,068
Foreign currency translation adjustment................ 4,617 3,289
-------- --------
Total shareholders' equity........................... 60,039 68,145
-------- --------
Total liabilities and shareholders' equity........... $107,984 $111,743
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-20
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

SIX MONTHS ENDED NOVEMBER 30, 1995 AND 1996
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
Revenue:
Net sales................................................. $ 42,270 $ 74,283
Commissions from affiliate................................ 984 4,564
-------- --------
Total revenue........................................... 43,254 78,847
Cost of sales............................................... 31,186 49,873
-------- --------
Gross margin............................................ 12,068 28,974
Research, development and engineering..................... 3,497 7,895
Selling, general and administrative....................... 6,862 13,481
-------- --------
Operating profit............................................ 1,709 7,598
Interest expense.......................................... (525) (124)
Other expense, net........................................ (304) (342)
-------- --------
Earnings from consolidated companies before income taxes.... 880 7,132
Income tax expense.......................................... 386 2,766
-------- --------
Earnings from consolidated companies........................ 494 4,366
Equity in net earnings of affiliates........................ 1,835 4,455
-------- --------
Net earnings................................................ $ 2,329 $ 8,821
======== ========
Net earnings per share...................................... $ 0.26 $ 0.78
======== ========
Weighted average common and common equivalent shares........ 9,084 11,296
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-21
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

SIX MONTHS ENDED NOVEMBER 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................................. $ 2,329 $ 8,821
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in net earnings of affiliates................... (1,835) (4,455)
Depreciation and amortization.......................... 436 948
Discount on sale of stock to employees................. -- 191
Other.................................................. 17 225
Changes in assets and liabilities:
(Increase) decrease in trade accounts and notes
receivable.......................................... (4,330) 736
(Increase) decrease in inventories................... (3,717) 11
Increase in other current assets..................... (3,389) (970)
Decrease in accounts payable and due to affiliates... (1,348) (7,042)
Increase in accrued expenses, customer deposits and
other liabilities................................... 9,060 2,709
-------- --------
Net cash provided by (used in) operating activities........ (2,777) 1,174
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................................... (1,098) (4,832)
Other investing activities............................... (250) 145
-------- --------
Net cash used in investing activities...................... (1,348) (4,687)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock................... 28,284 --
Proceeds from exercise of stock options.................. -- 150
Proceeds from sale of stock to employees................. -- 273
Treasury stock transactions.............................. 17 --
Increase in short-term borrowings........................ 122 --
Proceeds from long-term debt............................. 4,003 --
Principal payments on long-term debt..................... (11,677) (479)
-------- --------
Net cash provided by (used in) financing activities........ 20,749 (56)
-------- --------
Effects of foreign currency rate changes on cash........... (248) 144
-------- --------
Net increase (decrease) in cash and cash equivalents....... 16,376 (3,425)
Cash and cash equivalents at beginning of year............. 1,095 10,871
-------- --------
Cash and cash equivalents at November 30, 1996 and 1995.... $ 17,471 $ 7,446
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-22
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

(1) BASIS OF PRESENTATION

The condensed consolidated financial statements included herein have been
prepared by management without audit. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures made are adequate to make
the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements of the Company for the year ended May 31, 1996, as filed
with the Securities and Exchange Commission on September 5, 1996 as part of
its Annual Report on Form 10-K/A. In the opinion of management the information
furnished herein reflects all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of results for the interim periods
presented. Results of operations for the six months ended November 30, 1996
are not necessarily indicative of results to be expected for the full fiscal
year.

(2) INVENTORIES

The components of inventory were:
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1996 1996
------- ------------
<S> <C> <C>
Raw materials........................................ $14,626 $13,130
Work-in-process...................................... 10,777 9,791
Finished goods....................................... 2,528 4,945
------- -------
$27,931 $27,866
======= =======
</TABLE>

(3) INVESTMENTS IN AFFILIATES

The Company owns a 50% interest in SpeedFam Co., Ltd. which is translated in
accordance with SFAS No. 52. The Company's equity interest in SpeedFam Co.,
Ltd. was $18,545 and $20,328 at May 31, 1996 and at November 30, 1996,
respectively, based on the balance sheet of SpeedFam Co., Ltd. at April 30,
1996 and October 31, 1996, respectively. The remaining equity interest
included in investments in affiliates relates to the Company's 50% ownership
interest in Fujimi Corporation. Condensed consolidated financial statements of
SpeedFam Co., Ltd., which are consolidated on a fiscal year that ends April
30, are as follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
ASSETS 1996 1996
------ --------- -----------
<S> <C> <C>
Total current assets................................... $ 98,492 $116,657
Investment in affiliates............................... 891 657
Property, plant and equipment, net..................... 20,161 23,884
Deferred income taxes and other assets................. 7,007 7,912
-------- --------
Total assets....................................... $126,551 $149,110
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Total current liabilities.............................. $ 74,966 $ 93,175
Long-term debt......................................... 9,106 8,357
Other long-term liabilities............................ 5,388 6,922
Stockholders' equity
Common stock......................................... 664 664
Retained earnings.................................... 26,943 33,596
Foreign currency translation adjustment.............. 9,346 6,303
Unrealized gains on marketable securities............ 138 93
-------- --------
Total liabilities and stockholders' equity......... $126,551 $149,110
======== ========
</TABLE>

F-23
<PAGE>

SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

(DOLLARS IN THOUSANDS)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
-----------------
1995 1996
------- --------
<S> <C> <C>
Net sales................................................. $62,144 $110,854
Costs and operating expenses.............................. 54,726 95,048
------- --------
Earnings before income taxes.............................. 7,418 15,806
Income taxes.............................................. 3,594 7,744
------- --------
Net earnings before minority interest..................... 3,894 8,062
Minority interest......................................... 279 502
------- --------
Net earnings.............................................. 3,545 7,560
Beginning retained earnings............................... 18,036 26,943
Dividends................................................. (276) (907)
Transfers to capital...................................... (454) --
------- --------
Ending retained earnings.................................. $20,851 $ 33,596
======= ========
</TABLE>

(4) LONG-TERM DEBT
In fiscal year 1996, the Company entered into an unsecured credit agreement
with two U.S. banks. The credit agreement includes a $22,500 revolving line of
credit maturing April 14, 1999. As of September 13, 1996, the Company had
negotiated an amendment to the credit facility, providing for an additional
$14,000 in a 5-year unsecured term loan to fund the construction of a new
corporate headquarters and manufacturing facility in Chandler, Arizona. The
term loan's principal is to be repaid in fifteen (15) quarterly installments of
$350 each beginning in October of 1997. The remaining outstanding balance is to
be repaid at the end of the loan's term. Interest on the term loan accrues and
is paid monthly on the outstanding balance at LIBOR plus 1.4%. As of November
30, 1996, no amounts were outstanding on the term loan.

On October 31, 1996, SpeedFam Limited in the United Kingdom, a wholly owned
subsidiary of SpeedFam International, Inc., entered into a (Pounds)950 ($1,546)
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 November 30, 1996) and is
payable monthly. As of November 30, 1996, no amounts were outstanding on this
credit facility.

F-24
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
SpeedFam Co., Ltd.:

We have audited the accompanying consolidated balance sheets of SpeedFam
Co., Ltd. and consolidated subsidiaries as of April 30, 1995 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 1996.
These consolidated financial statements are the responsibility of the
management of SpeedFam Co., Ltd. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam
Co., Ltd. and consolidated subsidiaries as of April 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1996 in conformity with generally accepted
accounting principles.

KPMG PEAT MARWICK LLP

July 3, 1996
Chicago, Illinois

F-25
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

APRIL 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS 1995 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 7,234 $ 10,993
Short-term investments..................................... 8,297 3,330
Trade accounts and notes receivable, less allowance for
doubtful accounts of $428 and $676 in 1995 and 1996,
respectively.............................................. 46,088 50,420
Inventories................................................ 11,086 19,961
Due from affiliated companies.............................. 8,759 10,924
Income taxes receivable.................................... 44 42
Deferred income taxes...................................... 190 1,089
Prepaid expenses and other current assets.................. 1,478 1,733
-------- --------
Total current assets..................................... 83,176 98,492
Investments in affiliates.................................... 1,223 891
Property, plant and equipment, net........................... 20,371 20,161
Deferred income taxes........................................ 512 640
Other assets................................................. 5,531 6,367
-------- --------
$110,813 $126,551
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings...................................... $ 15,744 $ 8,088
Current portion of long-term debt.......................... 2,406 2,252
Accounts payable........................................... 34,299 48,326
Accrued expenses........................................... 4,384 7,122
Income taxes payable....................................... 2,564 9,178
-------- --------
Total current liabilities................................ 59,397 74,966
-------- --------
Long-term liabilities:
Long-term debt............................................. 12,528 9,106
Liability for employee benefits............................ 2,595 3,421
Minority interest.......................................... 2,078 1,967
-------- --------
Total long-term liabilities.............................. 17,201 14,494
-------- --------
Stockholders' equity:
Common stock, $6 par value, 240,000 shares authorized,
120,000 and 198,000 shares issued and outstanding, at
April 30, 1995 and 1996, respectively..................... 210 664
Retained earnings.......................................... 18,036 26,943
Foreign currency translation adjustment.................... 15,954 9,346
Unrealized gains on marketable securities.................. 15 138
-------- --------
Total stockholders' equity............................... 34,215 37,091
-------- --------
$110,813 $126,551
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-26
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Net sales......................................... $87,217 $108,664 $161,169
Cost of sales..................................... 63,405 77,088 106,912
------- -------- --------
Gross profit...................................... 23,812 31,576 54,257
Selling, general, and administrative expenses..... 20,904 25,109 34,298
------- -------- --------
Operating profit.................................. 2,908 6,467 19,959
------- -------- --------
Other income (expense):
Losses on sales of assets....................... (69) (293) (710)
Equity in net earnings (loss) of affiliates..... 110 89 (203)
Interest income................................. 207 317 407
Interest expense................................ (1,119) (1,056) (851)
Miscellaneous, net.............................. 357 (434) 815
------- -------- --------
(514) (1,377) (542)
------- -------- --------
Earnings before income taxes, minority interest
and cumulative effect of change in accounting
principle........................................ 2,394 5,090 19,417
Income tax expense................................ 1,026 2,755 9,479
------- -------- --------
Earnings before minority interest and cumulative
effect of change in accounting principle......... 1,368 2,335 9,938
Minority interest................................. (241) (166) (301)
------- -------- --------
Earnings before cumulative effect of change in
accounting principle............................. 1,127 2,169 9,637
Cumulative effect of change in accounting
principle........................................ (43) -- --
------- -------- --------
Net earnings...................................... $ 1,084 $ 2,169 $ 9,637
======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-27
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
COMMON RETAINED TRANSLATION GAINS ON
STOCK EARNINGS ADJUSTMENT SECURITIES TOTAL
------ -------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1993...... $210 $14,958 $ 8,578 $ -- $23,746
Net earnings................... -- 1,084 -- -- 1,084
Foreign currency translation
adjustment.................... -- -- 1,866 -- 1,866
Cash dividends................. -- (55) -- -- (55)
---- ------- ------- ---- -------
Balance at April 30, 1994...... 210 15,987 10,444 -- 26,641
Net earnings................... -- 2,169 -- -- 2,169
Foreign currency translation
adjustment.................... -- -- 5,510 -- 5,510
Cash dividends................. -- (120) -- -- (120)
Unrealized gains on securities. -- -- -- 15 15
---- ------- ------- ---- -------
Balance at April 30, 1995...... 210 18,036 15,954 15 34,215
Net earnings................... -- 9,637 -- -- 9,637
Common stock dividend.......... 454 (454) -- -- --
Foreign currency translation
adjustment.................... -- -- (6,608) -- (6,608)
Cash dividends................. -- (276) -- -- (276)
Unrealized gains on securities. -- -- -- 123 123
---- ------- ------- ---- -------
Balance at April 30, 1996...... $664 $26,943 $ 9,346 $138 $37,091
==== ======= ======= ==== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-28
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................... $ 1,084 $ 2,169 $ 9,637
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in net (earnings) loss of affiliates.... (110) (89) 203
Depreciation and amortization.................. 2,668 2,531 2,267
Provision (benefit) for deferred income taxes.. (327) 76 (1,368)
Losses on sales of assets...................... 69 293 710
Cumulative effect of change in accounting
principle..................................... 43 -- --
Other, net..................................... 61 375 364
Change in net assets and liabilities:
Increase in trade accounts and notes
receivable and due from affiliates.......... (2,744) (1,729) (18,608)
(Increase) decrease in inventories........... 1,813 608 (11,661)
Increase in prepaid expenses and other
assets...................................... (552) (316) (2,462)
Increase in accounts payable................. 2,255 4,028 22,102
Increase in accrued expenses and other
liabilities................................. 1,215 717 5,482
Increase in income taxes, net................ 922 862 7,509
------- ------- --------
Net cash provided by operating activities.......... 6,397 9,525 14,175
------- ------- --------
Cash flows from investing activities:
Capital expenditures............................. (3,315) (1,214) (7,129)
Proceeds from sales of assets.................... 6 354 283
Other investing activities....................... 18 (5,676) 3,435
------- ------- --------
Net cash used in investing activities.............. (3,291) (6,536) (3,411)
------- ------- --------
Cash flows from financing activities:
Dividends paid................................... (55) (120) (276)
Decrease in short-term borrowings................ (2,551) (155) (4,824)
Proceeds from long-term debt..................... 3,008 247 2,528
Principal payments on long-term debt............. (2,293) (2,165) (3,176)
------- ------- --------
Net cash used in financing activities.............. (1,891) (2,193) (5,748)
------- ------- --------
Effect of foreign currency rate changes on cash.... 254 915 (1,257)
------- ------- --------
Net increase in cash and cash equivalents.......... 1,469 1,711 3,759
Cash and cash equivalents at beginning of year..... 4,054 5,523 7,234
------- ------- --------
Cash and cash equivalents at end of year........... $ 5,523 $ 7,234 $ 10,993
======= ======= ========
Supplemental cash flow information--cash paid
during the year for:
Interest......................................... $ 1,162 $ 1,487 $ 720
======= ======= ========
Income taxes..................................... $ 450 $ 1,783 $ 3,389
======= ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-29
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SpeedFam Co., Ltd. (the "Company") was incorporated in 1971 as a joint
venture owned equally by the two corporate shareholders, Obara Corporation, a
Japanese company and SpeedFam International, Inc., a U.S. company.

The Company and its domestic subsidiaries and affiliated companies conduct
operations primarily in Japan but have subsidiaries and branches in Taiwan,
South Korea, India, Singapore, Hong Kong and China.

The Company and its subsidiaries and affiliates are engaged in the design,
engineering, manufacture, and distribution mainly of lapping and polishing
equipment and consumables, through-feed grinders, cleaning machines and
measuring equipment used in high technology industries.

(a) Basis of Presentation

The Company and its consolidated Japanese subsidiaries maintain their books
of account in conformity with the financial accounting standards of Japan. The
Company's non-Japan subsidiaries maintain their books of account in conformity
with the financial accounting standards of the countries in which they are
located. The consolidated financial statements presented herein in dollars
have been adjusted to conform to U.S. generally accepted accounting
principles.

(b) Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and the following subsidiaries:

<TABLE>
<CAPTION>
PERCENTAGE FISCAL
SUBSIDIARIES OWNERSHIP LOCATION YEAR-END
- ------------ ---------- ----------- --------
<S> <C> <C> <C>
SpeedFam Clean System Co., Ltd.................. 61.25% Japan March 31
Saku Seiki K.K.................................. 53.54 Japan March 31
SpeedFam Incorporated........................... 100.00 Taiwan March 31
SpeedFam Korea Ltd.............................. 100.00 South Korea March 31
SpeedFam India (Pvt.) Ltd....................... 82.00 India March 31
</TABLE>

All significant intercompany balances and transactions have been eliminated.
The Company's fiscal year ends on April 30.

The Company's investments in the common stock of affiliates, Met Coil Ltd.
(50% owned), CRT K.K. (23.08% owned) and Xevios Corporation (50% owned,
acquired in fiscal year 1996) are accounted for by the equity method.

The investment in Clean Technology K.K., a 27.5% (1995--45.08%) owned
affiliate of SpeedFam Clean System Co., Ltd., and 22.5% (1995--4.92%) owned by
the Company, is accounted for by the equity method.

At the end of 1993, Precision Technology, Inc. ceased operations and
transferred certain fixed assets at their net book value to SpeedFam Korea
Ltd., which was established in October 1993. Precision Technology, Inc. was
liquidated on May 31, 1994.

F-30
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

Cash and cash equivalents include deposits in banks and highly liquid short-
term investments with original maturities of three months or less. These
short-term investments are carried at cost which approximates market.

(d) Short-term Investments

In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," (Statement 115) requiring that certain
investments in debt and equity securities be classified as held-to-maturity,
available-for-sale or trading securities. Investments classified as held-to-
maturity are reported at amortized cost, and those classified as available-
for-sale are reported at fair value with unrealized gains and losses, net of
related taxes, excluded from earnings and reported in a separate component of
stockholders' equity.

Effective May 1, 1994, the Company adopted Statement 115. The effect of
adoption on the consolidated financial statements was not material. Prior to
May 1, 1994, marketable equity securities were carried at the lower of cost or
market and other investment securities were carried at cost.

(e) Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation is provided on
the declining balance method over the estimated useful lives of the assets.
Depreciation expense was $2,512, $2,312, and $2,148 in fiscal years 1994, 1995
and 1996, respectively. The estimated useful lives of the assets are as
follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 5 to 60 years
Machinery and equipment..................................... 3 to 13 years
Furniture and fixtures...................................... 2 to 20 years
Leasehold improvements...................................... 2 years
</TABLE>

(f) Inventories

Inventories are stated at the lower of cost, determined principally by the
first-in, first-out (FIFO) method, or market.

(g) Income Taxes

In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Statement 109 required a change to the asset and liability
method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

Effective May 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that accounting change in the fiscal year 1994
consolidated statement of earnings.

F-31
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(h) Revenue Recognition

Sales of the Company's products are recorded upon shipment.

(i) Warranty Costs

Generally, the Company provides a one-year warranty against manufacturer's
defects on all machines sold. Due to the specialized nature of the products,
warranty expense is recorded when it is probable and can be estimated rather
than on a units-produced or revenue basis.

(j) Foreign Currency Translation

Assets and liabilities have been translated using the exchange rates in
effect at the balance sheet dates. Results of operations are translated using
the average exchange rates prevailing throughout the period. Local currencies
are considered the functional currencies of the Company's non-Japanese
entities.

(k) Significant Customer

The Company had sales to a Japanese company that amounted to approximately
7.3%, 10.5%, and 11.2% of net sales in fiscal years 1994, 1995, and 1996,
respectively.

(l) Research and Development

Research and development expense amounted to approximately $1,634, $1,748
and $6,651 in fiscal years 1994, 1995, and 1996, respectively. Such
expenditures are expensed as incurred.

(m) Use of Estimates

(n) Reclassifications

Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 financial statement presentation.

(2) INVENTORIES

Inventories at the end of fiscal years 1995 and 1996 are summarized below:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Raw materials............................................. $ 1,211 $ 723
Work-in-process........................................... 8,671 16,340
Finished goods............................................ 1,204 2,898
------- -------
Total inventories..................................... $11,086 $19,961
======= =======
</TABLE>

F-32
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(3) INVESTMENTS

Investments at the end of fiscal years 1995 and 1996 are summarized as
follows:

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Held-to-maturity, debt securities, at amortized cost....... $6,096 $ 133
Time deposits.............................................. 2,201 3,197
------ ------
Total short-term investments........................... 8,297 3,330
Available-for-sale, equity securities, at fair value,
included in other assets.................................. 651 779
------ ------
Total investments...................................... $8,948 $4,109
====== ======
</TABLE>

The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value of available-for-sale and held-to-maturity securities at
the end of fiscal years 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1995:
Available-for-sale equity
securities....................... $ 618 $ 45 $12 $ 651
Held-to-maturity debt securities.. $6,096 $ -- $-- $6,096
1996:
Available-for-sale equity
securities....................... $ 515 $265 $(1) $ 779
Held-to-maturity debt securities.. $ 133 $ -- $-- $ 133
</TABLE>

No investments classified as available-for-sale were sold during fiscal
years 1995 and 1996. The Company does not hold securities for trading
purposes.

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at the end of fiscal years 1995 and 1996 are
summarized as follows:

<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Land.................................................... $ 5,665 $ 4,560
Buildings and improvements.............................. 13,352 11,361
Machinery and equipment................................. 17,929 13,615
Furniture and fixtures.................................. 2,772 2,486
Leasehold improvements.................................. 14 13
Construction in progress................................ -- 3,468
-------- -------
39,732 35,503
Less accumulated depreciation........................... 19,361 15,342
-------- -------
Net property, plant and equipment....................... $ 20,371 $20,161
======== =======
</TABLE>

F-33
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(5) INCOME TAXES

As discussed in note 1, the Company adopted Statement 109 effective May 1,
1993. The cumulative effect of this change in accounting for income taxes of
$43 was determined as of May 1, 1993 and is reported separately in the
consolidated statement of earnings in fiscal year 1994.

Earnings before income taxes, minority interest and cumulative effect of
change in accounting principle are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Japan............................................... $1,564 $3,216 $15,135
Non-Japan........................................... 830 1,874 4,282
------ ------ -------
Total........................................... $2,394 $5,090 $19,417
====== ====== =======
</TABLE>

The provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Current:
Japan........................................... $1,139 $2,159 $ 9,546
Non-Japan....................................... 214 520 1,301
------ ------ -------
1,353 2,679 10,847
Deferred:
Japan........................................... (327) 76 (1,360)
Non-Japan....................................... -- -- (8)
------ ------ -------
Total......................................... $1,026 $2,755 $ 9,479
====== ====== =======
</TABLE>

The tax effects of temporary differences that give rise to the deferred tax
assets (liabilities) at the end of fiscal years 1995 and 1996 are presented
below:

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Property, plant and equipment............................ $ (507) $ (333)
Inventory................................................ (52) 74
Allowance for doubtful accounts.......................... (46) (60)
Employee benefits........................................ 1,199 1,093
Accrued vacation......................................... 97 166
Business tax............................................. 248 890
Other.................................................... (237) (101)
------ ------
$ 702 $1,729
====== ======
</TABLE>

There is no valuation allowance for tax assets at the end of fiscal years
1995 and 1996. Deferred tax assets are considered realizable due to the
expectation of future taxable income. Income tax expense as a component of
stockholders' equity related to unrealized gains and losses on marketable
securities, aggregated $15 and $129 at the end of fiscal years 1995 and 1996,
respectively.

F-34
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

A reconciliation between the Company's effective tax rate and the "expected"
tax rate of 51% in Japan on earnings before income taxes, minority interest
and cumulative effect of change in accounting principle is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
"Expected" income tax rate................................ 51% 51% 51%
Expenses not deductible for tax purposes.................. 15 14 4
Equity in earnings of affiliates.......................... (2) (1) 1
Differences of non-Japan and "expected" tax rates......... (9) (5) (5)
Utilization of tax loss carryforward...................... (5) (3) --
Tax credit for research and development................... (6) (2) (3)
Reduced tax rate applicable to earnings less than
threshold................................................ (1) (1) --
Other, net................................................ -- 1 1
--- --- ---
Effective income tax rate................................. 43% 54% 49%
=== === ===
</TABLE>

No provision is made for income taxes on undistributed earnings of non-Japan
subsidiaries and affiliates because it is the Company's present intention to
reinvest substantially all the earnings of these operations. The Company
believes that the amount of income taxes that would be incurred if these
earnings were remitted would not be significant because of available tax
credits.

The Company's corporate tax returns through April 30, 1994 have been
examined by the Japanese tax authorities.

(6) SHORT-TERM BORROWINGS

Short-term borrowings are summarized as follows:

<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Bank borrowings, including overdraft...................... $ 7,984 $ 926
Trade notes discounted at banks with recourse............. 7,760 7,162
------- ------
$15,744 $8,088
======= ======
</TABLE>

Short-term borrowings are secured by trade notes receivable with a net book
value of $7,162 at the end of fiscal year 1996. The short-term borrowings had
weighted average interest rates of 3.54%, 3.28% and 2.34% in fiscal years
1994, 1995 and 1996, respectively.

(7) LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Mortgage debentures:
1st Series, due November 1997, fixed interest rate of
7.7%................................................... $ 1,188 $ 952
2nd Series, due September 1999, fixed interest rate of
5.7%................................................... 3,563 2,855
Loans from banks and other financial institutions,
maturing 1995 to 2004, with weighted average interest
rates of 4.2% and 3.46% in 1995 and 1996, respectively... 10,183 7,551
------- ------
Total long-term debt...................................... 14,934 11,358
Less current portion of long-term debt.................... 2,406 2,252
------- ------
Net long-term debt........................................ $12,528 $9,106
======= ======
</TABLE>

F-35
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
The mortgage debentures are secured by land and buildings with a net book
value of $3,776 at the end of fiscal year 1996.

At the end of fiscal year 1996, the Company has provided guarantees for up
to $952 and $181 of bank borrowings by Met-Coil Ltd., Japan, a 50% owned
affiliate, and SpeedFam India (Pvt.) Ltd., a subsidiary of the Company,
respectively. The Company does not anticipate any loss from these
arrangements.

Annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
1997.............................................................. $ 2,252
1998.............................................................. 2,916
1999.............................................................. 1,445
2000.............................................................. 3,621
2001 and thereafter............................................... 1,124
-------
$11,358
=======
</TABLE>

(8) COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2001. Rental expense aggregated
approximately $1,471, $1,500 and $1,635 in fiscal years 1994, 1995 and 1996,
respectively.

Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1996 are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1997............................................................... $ 799
1998............................................................... 643
1999............................................................... 546
2000............................................................... 397
2001 and thereafter................................................ 133
------
Total.......................................................... $2,518
======
</TABLE>

At the end of fiscal year 1996, outstanding commitments for the purchase of
property, plant and equipment were approximately $5,024.

F-36
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

(9) PENSION AND SEVERANCE BENEFITS

The Company maintains pension and severance benefit plans for its employees.
Employees who leave the Company upon retirement because of age or sever their
connection with the Company for reasons other than dismissal for cause are
entitled to lump-sum payments based on their current rate of pay and length of
service.

Effective June 1, 1984 the Company adopted an insured pension plan which
also covers employees of SpeedFam Clean Systems Co., Ltd., the terms of which
provide for the ultimate funding of retirement benefits when due. Premiums
paid under the insured plan constitute the funding of the current costs of the
liability under the plan and the funding of the related past service costs
over a 15-year period.

The funded status of the insured pension plan at the end of fiscal years
1995 and 1996 is as follows:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $(1,338) $(1,205)
Nonvested benefits.................................... (46) (26)
------- -------
Accumulated benefit obligation.......................... (1,384) (1,231)
------- -------
Projected benefit obligation............................ (2,015) (1,775)
Plan assets at fair value............................... 1,785 1,656
------- -------
Projected benefit obligation in excess of plan assets... (230) (119)
Unrecognized net loss................................... 76 19
Unrecognized net obligation at transition............... 251 185
------- -------
Prepaid pension cost.................................... $ 97 $ 85
======= =======
</TABLE>

The components of net periodic pension cost for the insured pension plan are
shown below:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year........ $167 $204 $176
Interest cost on projected benefit obligation........... 69 89 87
Actual return on plan assets............................ (41) (46) (39)
Net amortization and deferral........................... 25 19 10
---- ---- ----
$220 $226 $234
==== ==== ====
Significant actuarial assumptions:
Discount rate......................................... 5.5% 5.5% 5.5%
Rate of salary increase............................... 3.0% 3.0% 3.0%
Expected long-term return on plan assets.............. 3.0% 3.0% 3.0%
</TABLE>

Plan assets represent the Company's share of funds invested by a trustee in
pooled accounts comprised of cash in bank and real estate.

A separate retirement benefits program for directors and statutory auditors
is not covered by the pension plan described above. The program provides that
directors and statutory auditors who retire or sever their connection with the
Company are entitled to lump-sum payments based on current rates of pay,
determined according to their title and the length of service. Directors and
statutory auditors may also be granted, at the discretion of the Company,
additional lump-sum payments for meritorious service. It is not the policy of
the Company to fund these retirement and severance benefits, but provision has
been made in the financial statements for the estimated accrued liabilities
under the plan. The liability related to these retirement benefits included in

F-37
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)
the accompanying consolidated balance sheets at the end of fiscal years 1995
and 1996 amounted to $2,256 and $3,150, respectively. The plan was amended
during fiscal year 1996 and the resulting past service cost of $1,104 is being
amortized over a period of five years. Unamortized past service cost at the
end of fiscal year 1996 amounting to $883 is classified as other assets in the
accompanying consolidated balance sheets. The retirement benefits expense
amounted to $165, $181, and $520 in fiscal years 1994, 1995 and 1996,
respectively.

Two subsidiaries of the Company have separate employee retirement and
severance plan arrangements. Payments with respect to voluntary severance are
less in amount than payments for involuntary severance and retirement. The
subsidiaries have recorded estimated liabilities in the accompanying
consolidated balance sheets at the end of fiscal years 1995 and 1996 of $338
and $272, respectively, based upon the amount, net of the benefits to be paid
by a government-sponsored small enterprise mutual aid retirement fund, which
would be payable if all employees had to retire voluntarily. Plan assets plus
the accrual liability approximate vested benefits. The expense related to
these employee retirement and severance plans amounted to $20, $20 and $222 in
fiscal years 1994, 1995 and 1996, respectively. The Company believes that the
effect of not adopting Statement of Financial Accounting Standard No. 87,
"Employers' Accounting for Pensions" for these plans is not material to the
consolidated financial statements.

(10) LEGAL RESERVE AND CASH DIVIDENDS

The Japanese Commercial Code provides that earnings in an amount equal to at
least 10% of retained earnings be appropriated as a legal reserve until such
reserve equals 25% of stated common stock. This legal reserve is not available
for dividends but may be used to reduce a deficit or may be transferred to
stated common stock. Certain foreign subsidiaries are also required to
appropriate their earnings to legal reserves under the laws of the respective
countries. The legal reserve included as a component of retained earnings at
the end of fiscal years 1995 and 1996 amounted to $310 and $513, respectively.

On July 20, 1995, shareholders approved the capitalization of a portion of
fiscal year 1995 earnings through an in-substance stock dividend amounting to
$454 by issuing 78,000 shares of new common stock with a par value of six U.S.
dollars per share (0.65 new share against each issued and outstanding share at
the end of fiscal year 1995).

The accompanying consolidated financial statements do not reflect dividends
of $942 ($4.76 per share) declared subsequent to fiscal year 1996 by the Board
of Directors related to fiscal year 1996.

(11)RELATED PARTY TRANSACTIONS

The following is a summary of SpeedFam Co., Ltd. and consolidated
subsidiaries' transactions with SpeedFam International, Inc.

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Sales to SpeedFam International, Inc................ $3,121 $2,984 $7,140
Purchases from SpeedFam International, Inc.......... $ 134 $ 251 $1,696
Commission income................................... $ 91 $ 125 $ 355
Commission expense.................................. $1,991 $2,952 $6,458
</TABLE>

The following is summary of SpeedFam Co., Ltd. transactions with Met-Coil
Ltd., a 50% owned affiliate accounted for by the equity method:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Sales to Met-Coil Ltd............................... $ 281 $ 148 $ 865
Purchases from Met-Coil Ltd......................... $ 767 $ 836 $1,026
Interest income..................................... $ 50 $ 14 $ 28
Interest expense.................................... $ 3 $ 5 $ --
</TABLE>

F-38
<PAGE>

SPEEDFAM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

(DOLLARS IN THOUSANDS)

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments at April 30, 1995 and 1996 include cash
equivalents, trade receivables, short-term investments, short-term loans,
trade payables, noncurrent receivables and long-term debt. The carrying amount
of cash equivalents, trade receivables, short-term loans and trade payables
approximates fair value because of the short maturity of these instruments.
The fair value of short-term investments has been determined based on quoted
market prices and approximate their financial statement carrying values. The
fair value of the Company's noncurrent receivables and long-term debt has been
determined based on discounted cash flows using current interest rates of
similar instruments and are not materially different from their financial
statement carrying values.

F-39
<PAGE>

Polishing pads are an
essential component of the
polishing process.

The Company supplies
a wide variety of
abrasives that are
used in polishing and
lapping processes.

The Company provides
specialized
carriers, precision-
shaped backing
films, retainer
rings, and other
processspecific
fixturing to secure
the memory disk,
semiconductor wafer
or component during
the polishing
process.

In order to provide a total
solution to its customers'
surface processing
requirements,the Company
supplies a full complement of
process specific materials
including slurries, pads,
abrasives, carriers, backing
films,grinding stones, and
other items.
<PAGE>

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

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 6
The Company............................................................... 16
Use of Proceeds........................................................... 17
Price Range of Common Stock and Dividend Policy........................... 18
Capitalization............................................................ 18
Selected Consolidated Financial Data...................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 29
Joint Venture Arrangements................................................ 43
Management................................................................ 48
Principal and Selling Shareholders........................................ 51
Description of Capital Stock.............................................. 52
Underwriting.............................................................. 54
Legal Matters............................................................. 55
Experts................................................................... 55
Index to Consolidated Financial Statements................................ F-1
</TABLE>

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3,000,000 SHARES

LOGO

SPEEDFAM INTERNATIONAL, INC.

COMMON STOCK

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PROSPECTUS

FEBRUARY 13, 1997

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LEHMAN BROTHERS

ALEX. BROWN & SONS
INCORPORATED

NEEDHAM & COMPANY, INC.

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