e10-k405

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

State the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant: $63,173,009 as of July 31, 2001.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock: 30,317,636 as of July 31, 2001.

Portions of the definitive Proxy Statement for SpeedFam-IPEC, Inc.’s Annual Meeting of Shareholders to be held on October 12, 2001 are incorporated by reference into Part III of this Form 10-K.

The Company was incorporated in Illinois in 1959 as SpeedLap Corporation. Effective April 6, 1999, Integrated Process Equipment Corp. (IPEC), a supplier of CMP systems, merged into a wholly owned subsidiary of SpeedFam International, Inc. Following the merger, SpeedFam International, Inc. changed its name to SpeedFam-IPEC, Inc.

On August 30, 2000, the Company and Obara Corporation (Obara) restructured SpeedFam-IPEC Co., Ltd. (together with its subsidiaries and joint ventures, the Far East Joint Venture), effectively dissolving their joint venture. Prior to the dissolution, the Company and Obara each owned a 50% interest in the Far East Joint Venture. Under the terms of the Master Reorganization Agreement with Obara, ownership of the CMP sales and service operations of the Far East Joint Venture was transferred to the Company allowing the Company to have direct control over CMP operations in Asia. Obara continues the non-CMP activities of the former Far East Joint Venture, which include the manufacture of silicon wafer and thin film memory disk polishing products. Under the terms of a distributor agreement signed on August 31, 2000, the Company continues to act as a direct distributor in the United States and Europe for the wafer and disk polishing products manufactured by Obara.

Unless the context otherwise requires, the “Company” and “SpeedFam-IPEC” refer to SpeedFam-IPEC, Inc., an Illinois corporation, and its wholly owned subsidiaries. The Company’s principal executive offices are located at 305 North 54th Street, Chandler, Arizona 85226 and its telephone number is (480) 705-2100. Additional information about the Company is available on the Company’s website at www.sfamipec.com.

The semiconductor industry has experienced significant growth over the past decade due to increased demand for electronic products and the increased semiconductor content in electronics products. The demand for personal computers; the expansion of the telecommunications industry (especially wireless communications); and the emergence of new applications within consumer electronics continues to drive the demand for faster, smaller and cheaper integrated circuit devices.

Although the semiconductor market has experienced significant growth, it is cyclical by nature, characterized by short-term periods of either under or over supply for both memory and logic devices. When demand decreases, semiconductor manufacturers slow their purchasing of capital equipment; conversely, when demand increases, so does capital spending. The late 1990’s also saw the emergence of a new trend, driven by the increasingly rapid pace with which the size of the circuitry on the chip is decreasing. When chips decrease in size, circuits can operate more quickly. With size reduction, more chips can also be produced on a given wafer size, and the yield per manufacturing machine increases. So, with decreasing chip size, more chips can be produced per machine, and the need to build new manufacturing plants decreases, in particular, for pure capacity expansion. New equipment featuring the latest technological advances, however, must often be purchased to manufacture the smaller-sized chips and in many cases is retrofitted into existing manufacturing facilities.

The Company offers the broadest range of CMP systems currently available to the semiconductor industry. CMP is a process used during the semiconductor manufacturing process to planarize individual layers in complex integrated circuits to specific parameters. It 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 to achieve the desired flatness (planarity), smoothness and optical properties of a surface. One typical flat polishing system consists of a moving platen that is covered with a polishing pad, in combination with a polishing liquid (or slurry) containing abrasive particles that impinge on the surface, thereby creating the desired surface qualities. This liquid slurry can be chemically active such that the surface of the component being polished is chemically modified, thus accelerating and improving the polishing process.

The Company’s orbital CMP systems incorporate a unique advanced polishing technique developed in conjunction with a major semiconductor manufacturer. Planarization in these systems is achieved by the downward pressure from and rotational motion of the upper wafer carrier against the orbital motion of the lower polishing platen, which has a polishing pad attached to its surface. The use of orbital polishing technology in conjunction with other enhancements offered on the Company’s orbital platforms provides customers with improved polish flexibility in a smaller footprint tool. Moreover, the Company’s orbital systems incorporate an innovative slurry delivery method that delivers the slurry through the polishing pad directly to the wafer surface. This slurry delivery method is designed to increase throughput and improve process control and planarity, and therefore yield to the device manufacturer, as well as reduce the consumption of slurry compared to conventional methods, which deposit slurry on the pad surface.


	•	The 676 product features four independent heads, allowing simultaneous polishing of four wafers and offers one of the industry’s smallest footprints. This system is capable of polishing either oxide or metal layers. The 676 was initially designed solely to planarize metal layers and has been adopted for this purpose in volume production by a majority of the customers that have purchased the system.

	•	The 776 product is based on the same four-head orbital polishing technology as the 676. The 776 integrates CMP, metrology and wafer cleaning in a single unit that requires less clean room space than separate CMP and post-CMP cleaning equipment.

	•	The Momentum™ product is a highly flexible, universal tool that processes copper, low k, direct shallow trench isolation (STI), tungsten and oxide. Momentum™ was developed to address the industry’s growing need for an advanced level of process capability for geometry shrinks to 0.13 micron and below. The tool features a new polishing system that combines SpeedFam-IPEC’s industry proven rotational and orbital technologies. The system enables productivity and yield management by integrating three advanced technologies: adaptive planarization technology (APT™) with an innovative carrier design; a stable, highly flexible new polishing technique (Next™) which combines an advanced hard platen with orbital motion; and Intelligent In-line Inspection technology (I3™) with closed-loop control metrology for maximum effective throughput and reduced cost of ownership. The Momentum™ was chosen as the Grand Award winner in Semiconductor International magazine’s 2000 Editors’ Choice Best Product Competition.

	•	The Momentum300™ product, announced in July 2001, is a third generation CMP tool which flexibly delivers 0.13 micron and below process metrics for copper, low k, direct STI, tungsten and oxide. Momentum300™ offers uniform velocity with solid polish support through an orbital hard platen. Its pressure-controlled Hexazone™ multi-channel carrier is the industry’s only adaptive polish carrier for optimized removal rate and total wafer metrics control. The tool’s multizone in-situ process monitor and broadband optical end-point detection system enable precise and reliable endpoint and process-quality control. Other Momentum300™ features include the smallest 300 millimeter tool footprint, six independent process modules for flexible process flow and high throughput, as well as through-the-pad slurry delivery for economical slurry consumption and reduced cost of ownership. In addition, the Momentum 300™ provides direct transfer of process from 200 millimeter to 300 millimeter geometries.


	•	The Avanti® 472, introduced in 1994, is a fully automated, single wafer planarization system for polishing oxide or metal layers on silicon wafers from four to eight inches in diameter. In addition to the planarization of oxide layers, the system planarizes layers of metal interconnects, including tungsten and aluminum.

	•	The Company’s Auriga™ system is a five head, two polishing table CMP system capable of processing 50-60 wafers per hour. The Auriga™ system, which began shipping commercially in November 1996, is used for oxide and metal (tungsten) applications. The system incorporates full cassette-to-cassette automation. Robotics remove the wafers from the cassette and places 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.

	•	In 1998, the Company introduced the Auriga-C™, which integrates cleaning and drying technology into the Company’s CMP system thereby providing a complete dry-in/dry-out system. The design of the Auriga-C™ is based upon the replacement of the automation module on the Auriga™ with a new automation module, which incorporates the cleaning technology.

	•	The Auriga Vision™ is the latest tool derived from the industry proven Auriga™ platform and provides complete dry-in/ dry-out CMP processing in a high throughput tool. This systems integrates five Olympian™ carriers with advanced cleaning capability, computer integrated manufacturing automation and in-line metrology capability.

Thin Film Memory Disk Media Polishing Products. The Company sells polishing machines, pre-deposition cleaning machines and grinding machines for producing aluminum, nickel-plated and alternative substrates for the thin film memory disk media market.

Semiconductor Wafer Polishing Products. The Company supplies chemical mechanical polishing, double-sided lapping and edge polishing systems to the semiconductor substrates or silicon wafer market.

The Company’s 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 has been sliced. The lapping process removes saw marks remaining after slicing and provides a surface finish suitable for subsequent polishing processes. Double-sided polishers for silicon wafer polishing are also available.

The Company also sells chemical mechanical polishing equipment to semiconductor wafer manufacturers that remove the shallow damage layer remaining from previous process steps to attain the specified flatness and surface finish.

The edge polishing technology was developed and introduced for the purpose of making the wafer’s edge easier to clean, thereby increasing semiconductor device manufacturing yields. The Company markets and distributes edge polishing systems manufactured by Obara Corporation in Japan, the Company’s former Far East Joint Venture partner.

General Industrial Products. 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 and in-line grinding systems. 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.

The Company sells its products to leading manufacturers of semiconductor devices, thin film memory disks, semiconductor wafers and various general industrial applications. During the last three years, the majority of the Company’s total revenue has been derived from the sale of CMP products and services. In 2001, 2000 and 1999, sales to semiconductor device manufacturers were 81.4%, 84.0%, and 74.2% of total revenue, respectively. In 2001, 2000 and 1999, sales to thin film memory disk media and silicon wafer manufacturers were 10.9%, 10.6% and 19.6% of total revenue, respectively. In 2001, 2000 and 1999, sales to manufacturers of general industrial components were 7.7%, 5.4% and 6.2% of total revenue, respectively.

Sales to three customers in 2001 accounted for 15%, 11% and 10% of the Company’s total revenue. In 2000, sales to two customers accounted for 12% and 11% of the Company’s total revenue and in 1999, sales to two customers accounted for 11% each of the Company’s total revenue. No other customer accounted for 10% or more of the Company’s total revenue during these periods. The Company’s ten largest customers accounted for 60%, 65% and 61% of the Company’s total revenue in 2001, 2000 and 1999, respectively.

Due to the highly technical nature of its products, the Company markets and sells its products worldwide directly to all the industries it serves. In addition, the Company uses one distributor in Europe for its CMP product lines and a network of regional distributors for its general industrial product lines.

The Company’s sales strategy emphasizes direct interaction with customers focused on building long-term relationships, particularly in the semiconductor device, silicon wafer 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 industries it serves.

The Company’s business is not seasonal but is cyclical in nature because it is based on the capital equipment investment patterns of major semiconductor manufacturers. These expenditure patterns are based on many factors including anticipated market demand for integrated circuits, the development of new technologies and global economic conditions.

The Company’s sales offices are in Chandler, Arizona; Austin, Texas; Portland, Oregon; Des Plaines, Illinois; the United Kingdom; Germany; Taiwan; Korea; Singapore; Malaysia and Japan.

The Company’s marketing strategy includes involvement with SEMATECH, Inc., a consortium of major semiconductor manufacturers and equipment suppliers, attendance at Semicon, Diskcon, IMTS and other trade shows worldwide and participation in 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.

The Company believes that providing highly responsive support infrastructure with standard and customized support programs is an essential factor in providing customers a competitive operational advantage in the marketplace. 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 service and support program include system installation and process certification, process support, machine repair, maintaining spare parts inventories, internal training programs, external customer training, documentation and formation of customer user groups

The Company generally provides a one-year warranty on all equipment it sells and in certain instances provides a warranty period in excess of one year. An extensive network of field and technical service personnel in place throughout the United States, Europe, and Asia provide warranty service, post-warranty service, and equipment installations. In addition, dedicated site-specific engineers are in place at certain customer locations

pursuant to contractual arrangements. The Company also utilizes a distributor in Europe for CMP field and technical services and a distributor in Israel for service support. The Company also provides service and maintenance training as well as process application training for its customers’ personnel. The Company maintains an 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 of orders for capital equipment, parts and consumables was approximately $40.0 million on July 31, 2001, compared to $93.1 million on July 31, 2000. The time between the placing of orders and shipment of parts, consumables and slurries is significantly less than for capital equipment and as a result, the Company’s backlog consists mostly 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 canceled 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.

The capital equipment market, and in particular the semiconductor capital equipment market in which the Company competes, is characterized by rapid technological development and product innovation. The Company’s research and development efforts are currently focused on enhanced performance for finer geometries in oxide and tungsten applications while developing new process capabilities for STI, copper, and 300 millimeter applications. The Company’s research and development expenditures during 2001, 2000 and 1999 were approximately $64.0 million, $53.7 million and $61.8 million, respectively.

Because of the complex and highly specialized design, testing, and manufacturing requirements of the Company, research and development employees must be experienced in a wide range of engineering disciplines. These primary disciplines include process development, system architecture, mechanical engineering, software engineering, electrical engineering, reliability and test engineering. Development programs are organized around cross-functional project teams including leaders for engineering, manufacturing, marketing and customer support. Teams are lead by program managers responsible for concurrent activity across all functional areas. The Company believes that this approach provides flexibility and allows the Company to shorten time to market for new products and processes.

In order to respond to developing technologies in the semiconductor industry, the Company augments its internal development capabilities by seeking cooperative research and product development relationships with industry participants. Three such relationships are currently active: alliances with other capital equipment suppliers; joint development projects with customers; and sponsorship of university research.

During 2000, the Company developed its advanced CMP system, which combines SpeedFam-IPEC’s industry-proven rotational and orbital technologies. The Momentum™ product was developed to address the industry’s growing need for an advanced level of process capability, continued geometry shrinks to 0.13 micron and below, and CMP challenges for applications such as copper and STI in advanced semiconductor device manufacturing. Momentum™ is a highly flexible system, which can be configured to provide world-class process results for oxide, tungsten, copper and STI. In addition, the Company developed the Auriga Vision™ which extends the capabilities of the Auriga™ system down to 0.13 micron, with a new carrier, end-point detection, enhanced cleaner and computer-integrated manufacturing automation. These systems were both introduced in July 2000.

During 2001, the Company developed Momentum300™, a 300 millimeter tool which delivers 0.13 micron and below process metrics for copper, low k, direct STI, tungsten and oxide. Its pressure-controlled Hexazone™ multi-channel carrier is the industry’s only adaptive polish carrier for optimized removal rate and

The Company generally assembles its equipment and systems from components and fabricated parts manufactured and supplied by third parties, including stainless steel plates, 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 products sold to manufacturers of general industrial components are manufactured in its Illinois facility. Substantially all of the Company’s products sold to the thin film memory disk media and silicon wafer markets are manufactured by Obara. The Company’s CMP system development and manufacturing operations are located at the Company’s headquarters in Chandler, Arizona and in June 2000, the Company completed the expansion of this CMP manufacturing facility, which nearly doubled the overall manufacturing space.

The Company competes in several distinct markets. These markets include the semiconductor device equipment market (specifically for CMP), the thin film memory disk media equipment market, the semiconductor wafer equipment market, the general industrial applications market, and the related parts and consumables 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. The Company expects its competitors to improve the design and performance of their products. There can be no assurance that the Company’s competitors will not develop enhancements or acquire new technologies through business acquisitions that will offer price or performance features superior to those offered by the Company. In the semiconductor device equipment market, the Company faces significant competition from current competitors including Applied Materials, Inc. and Ebara Corporation, and any others that may enter this market in the future. 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 systems to such semiconductor device manufacturers. Consolidation among CMP equipment suppliers or the acquisition of CMP equipment suppliers by large, established suppliers of non-CMP capital equipment to semiconductor device manufacturers or others could materially adversely affect the Company’s ability to compete and would have a material adverse effect on the Company’s financial position and results of operations.

Competition in the general industrial products market is fragmented with no one competitor currently holding a dominant position. The Company faces significant competitive pressure in the sale of slurries, particularly with regards to pricing, which has resulted 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.

As of July 31, 2001, the Company had approximately 880 full time employees located in the U.S., Europe and Asia. From time to time, the Company uses temporary employees to respond more rapidly to fluctuations in assembly and product demand and 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.

The Company currently holds 156 United States patents and 154 foreign patents in Asian and European countries. As of July 31, 2001, the Company has 150 United States patent applications pending and 281 foreign patent applications pending. In addition, the Company believes that such factors as continued innovation, technical expertise and know-how of its personnel and other factors are also important. The Company also owns 10 U.S. trademark registrations and numerous foreign trademarks.

The Company licenses the right to manufacture CMP machines employing the orbital motion used in its 676, 776, Momentum™ and Momentum300™ products from a semiconductor manufacturer.

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 made by third parties that the Company is infringing intellectual property rights of such third parties. There can be no assurance that infringement claims will not be asserted by third parties in the future. There also can be no assurance in the event of such claims of infringement that the Company will be able to obtain licenses on reasonable terms, if at all. The Company’s involvement in any patent dispute or other intellectual property dispute or action could have a material adverse effect on the Company’s business. Adverse determinations in any litigation relating to intellectual property could possibly subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties and prevent the Company from manufacturing and selling one or more of its products. Any of these events could have a material adverse effect on the Company.

The Company’s operations are conducted primarily in three buildings in Chandler, Arizona and one building in Des Plaines, Illinois. Two of the Chandler buildings are owned by the Company and consist of approximately 250,000 square feet. The other building is leased and is approximately 39,000 square feet. These buildings house the main manufacturing operation, research and development, various administrative and customer support offices, corporate headquarters and a state-of-the-art applications and customer demonstration lab. In June 2000, the Company completed the expansion of its CMP manufacturing facility, which nearly doubled the overall manufacturing space. The Des Plaines, Illinois building, which houses the Industrial Applications Group, is owned by the Company and consists of approximately 40,000 square feet.

The Company also leases 22,000 square feet in Portland, Oregon, which houses the northwest field service operation. The central region field service operation is housed in a 8,300 square foot leased facility in Austin, Texas.

SpeedFam-IPEC U.K. is located in Hinckley, England and owns a 9,000 square foot facility used for demonstration, customer service, sales and administration purposes. SpeedFam-IPEC GmbH leases 2,000 square feet of office space in Ingelfingen, Germany.

The Company also leases various smaller facilities worldwide, which are used as sales and customer service centers, including facilities in Japan, Taiwan, Korea, Singapore and Malaysia.

The Company is currently seeking sub-lessees for or has subleased certain of the properties occupied by the former IPEC operations, which have been relocated to the facilities in Chandler, Arizona. This includes a 150,000 square foot facility in Phoenix, Arizona, which was the primary manufacturing, research and administration facility for the IPEC operations.

The Company believes that its current properties will be sufficient to meet the Company’s requirements for the foreseeable future.

On December 20, 1999, MEMC Electronics Materials, Inc. (MEMC) filed an action against IPEC Precision, Inc., Integrated Process Equipment Corporation, and the Company in the Circuit Court for St. Charles County, State of Missouri. An amended petition was filed on May 3, 2001 alleging causes of action for breach of contract and quantum meruit/unjust enrichment arising out of a joint development agreement between MEMC and IPEC Precision, Inc. The plaintiff alleges that the defendants failed to fulfill their obligations required by the joint development agreement and is seeking damages of approximately $7.4 million plus interest and attorneys’ fees. On July 11, 2001, the court denied defendants’ motions to dismiss the amended petition. A trial is scheduled to begin September 24, 2001. The Company believes it has meritorious defenses to the action and intends to pursue them vigorously.

On October 4, 2000, Raytheon Aircraft Company (Raytheon) filed an action against Integrated Process Equipment Corporation, IPEC Planar, Inc. and SpeedFam-IPEC, Inc. in the United States District Court for the District of Kansas. In the action, Raytheon alleges damages arising from its purchase of a wire cutting system from Gaard Automation Inc., predecessor-in-interest to the Company and is seeking approximately $6.5 million. The Company answered Raytheon’s claims on behalf of all defendants on February 5, 2001 asserting that the wire cutting system performed properly under the terms of the contract. Alternatively, the Company contends that the problems experienced by Raytheon, if any, were caused by failure of a major component of the system not manufactured by the Company. As a result, on June 4, 2001, the Company brought a Third Party Complaint against Spectrum Technologies PLC (Spectrum), the United Kingdom-based manufacturer of this major component. Spectrum’s response to the Complaint was due by July 31, 2001. Discovery has just commenced. The Court issued a Scheduling Order on March 31, 2001, where

discovery was to be completed by October 19, 2001 and trial was to take place on or after March 2002. However, with the addition of Spectrum as a party to the lawsuit, these deadlines will most likely be extended. The Company believes it has meritorious defenses to the action and intends to pursue them vigorously.

The Company is subject to various other legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business.

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:

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.

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 report.


	cash charge of $36.5 million related to the cumulative effect of the accounting change as of June 4, 2000. Refer to Note 5 of the Consolidated Financial Statements.


(2)	Includes $0.1 million, $(3.8) million, $0.1 million, $2.8 million and $5.5 million for the 2001 through 1997 years, respectively, attributable to the Company’s share of net earnings (loss) from the Far East Joint Venture, accounted for on the equity method. The remainder represents the Company’s share of net earnings from the Fujimi Joint Venture.

(3)	Data is not available in sufficient detail to show pro forma information for 1999, 1998 and 1997 for the impact of SAB 101.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SpeedFam-IPEC, Inc. (the Company) is a leading global supplier of chemical mechanical planarization (CMP) systems featuring the world’s largest installed base. The Company designs, develops, manufactures, markets and supports CMP systems which are used in the fabrication of semiconductor devices. In addition to CMP systems, the Company markets high-throughput precision surface processing equipment, manufactures and markets systems for the general industrial applications markets, and markets and distributes parts and consumables used in surface processing. The Company’s total revenue consists of net sales of the products described above and service revenues, as well as revenue derived from the distribution by the Company in the U.S. and Europe of products manufactured by the former SpeedFam-IPEC, Co., Ltd. (the Far East Joint Venture). The Company distributes such products throughout the U.S. and Europe acting as sales agent, and related costs to import this equipment are recorded as cost of goods sold to the Company.

The Company sells its products and services to three market segments: (1) semiconductor device manufacturers (CMP Group), (2) thin film memory disk media and silicon wafer manufacturers (Surface Technology Group or STG Group), and (3) manufacturers of general industrial components (Industrial Applications Group or IAG Group). Over the last three years, the majority of the Company’s total revenue has been derived from the sales of products and services by the CMP Group. In 2001, 2000 and 1999, sales to semiconductor device manufacturers were 81.4%, 84.0% and 74.2% of total revenue, respectively.

In 2001, 2000 and 1999, 60.9%, 69.6% and 37.4%, respectively, of the Company’s total revenue was attributable to sales outside of the United States. In 2001, 23.2% of the Company’s total revenue was attributable to sales in Europe and 37.7% was attributable to sales in the Far East. In 2000, 26.6% of the Company’s total revenue was attributable to sales in Europe and 42.1% was attributable to sales in the Far East. In 1999, 12.4% of the Company’s total revenue was attributable to sales in Europe and 22.9% was attributable to sales in the Far East.

During 2001, there was a significant decrease in the worldwide demand for semiconductor capital equipment. As a result of a rapid decline in the demand for semiconductor devices, inventory buildups in telecommunications products, slower than expected personal computer sales and overall slower global economic growth, many semiconductor manufacturers reevaluated their capital spending plans. Accordingly, several of the Company’s customers rescheduled delivery or canceled existing orders. Furthermore, the Company experienced a substantial decline in new orders. In response to industry conditions, the Company recorded significant inventory write-downs, charges related to asset impairments and severance costs in connection with across-the-board headcount reductions. Furthermore, the Company implemented measures to reduce discretionary spending. Due to the continuation and severity of the industry-wide downturn, the Company has implemented additional cost-cutting measures during the first quarter of 2002 which includes further decreases in discretionary spending and reductions in worldwide headcount.

third quarter ended March 3, 2001, retroactive to June 4, 2000. Changes in the Company’s revenue recognition policy resulting from the implementation of SAB 101 (discussed below) did not involve the restatement of prior financial statements. However, in accordance with Statement of Financial Accounting Standards No. 3, “Reporting Accounting Changes in Interim Financial Statements,” the Company recorded the cumulative effect of the change in accounting principle of ($36.5) million, or ($1.22) per share, as of the beginning of the year (June 4, 2000) as a charge in the first quarter ended September 2, 2000. The financial information for interim periods reported prior to the change, in this case the first two quarters of 2001, have been adjusted to reflect the provisions of SAB 101.

Prior to the implementation of SAB 101, the Company recognized revenue from the sales of its products generally upon shipment. Effective June 4, 2000, the Company changed its method of recognizing revenue for sales of CMP systems to reflect the following approach; 1) for CMP system sales to a new customer, or CMP system sales of existing products with new specifications or acceptance criteria, and for all new CMP products, revenue is deferred until customer acceptance, at which time the revenue is recognized. The related costs for systems for which this approach is used are recorded as shipped systems pending acceptance until customer acceptance, at which time cost of goods sold is recorded; 2) for CMP system sales to existing customers who have previously purchased the same system with the same customer-specified acceptance provisions, revenue is recognized under a multiple-element arrangement. Accordingly, upon shipment, the contractual amount billable is recorded as revenue and title is transferred. The remainder is recorded as deferred revenue and recognized as revenue upon customer acceptance. Revenue related to non-CMP systems and spare parts for all segments will continue to be recognized upon transfer of title, which is generally upon shipment. Revenue related to service contracts is recognized ratably over the duration of the contracts. In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured. The cumulative effect of the change in accounting principal discussed above includes system revenue, cost of sales and certain expenses that will be recognized when the conditions for revenue recognition have been met.

On August 30, 2000, the Company and Obara Corporation (Obara) restructured SpeedFam-IPEC Co., Ltd. (together with its subsidiaries and joint ventures, the Far East Joint Venture), effectively dissolving their joint venture. Under the terms of the Master Reorganization Agreement with Obara, ownership of the CMP sales and service operations of the Far East Joint Venture was transferred to the Company and specific personnel involved in CMP efforts became employees of the Company. Obara continues the non-CMP activities of the former Far East Joint Venture, which include the manufacturing of silicon wafer and thin film memory disk polishing products. The Company will not compete with the non-CMP business and Obara will not compete with the CMP business for an initial period of five years. The Company has indemnified Obara for any claims relating to the CMP business and Obara has indemnified the Company for any claims relating to the non-CMP business. Under the terms of a distributor agreement signed on August 31, 2000, the Company continues to act as a direct distributor in the United States and Europe for the wafer and disk polishing products manufactured by Obara and is prohibited from manufacturing these products.

The Company’s fiscal year consists of 52 or 53 weeks ending on the Saturday nearest May 31. Accordingly, the 2001 fiscal year ended on June 2 and contained 52 weeks, the 2000 fiscal year ended on June 3 and contained 53 weeks and the 1999 fiscal year ended on May 31 and contained 52 weeks. All references to years relate to fiscal years unless otherwise noted.

The following table sets forth certain consolidated statements of operations data for the periods indicated as a percentage of total revenue:

Net Sales. Net sales for 2001 were $267.1 million, down 2.5% from net sales of $274.0 million in 2000. Sales of CMP systems totaled $217.4 million, or 81.4% of net sales, down 5.6% from $230.2 million, or 84.0% of net sales in 2000. Had the Company not changed its revenue recognition policy to conform to the requirements of SAB 101, net sales for 2001 would have been $252.6 million, down 7.8% from net sales of $274.0 million in 2000. Sales of CMP systems decreased in 2001 due to the slowing of worldwide demand for semiconductor manufacturing equipment caused by a rapid decline in demand for semiconductor devices. Inventory buildups in telecommunication products, slower than expected personal computer sales and slower global economic growth have caused semiconductor companies to reevaluate their capital spending plans. A number of the Company’s customers revised the timing of their capital spending and rescheduled delivery or canceled existing orders, resulting in the postponement of equipment delivery and a decline in new orders and net sales. Net sales for 2001 as stated above reflect the Company’s adoption of SAB 101.

Sales of thin film memory and silicon wafer products in 2001 remained unchanged at $29.2 million, or 10.9% of net sales, as compared to $29.2 million, or 10.6% of net sales, in 2000. With the dissolution of the Far East Joint Venture, the Company has exited from the manufacturing of silicon wafer and thin film memory disk polishing equipment, as required by the agreement with Obara. However, the Company will continue to act as a direct distributor in the United States and Europe for the wafer and disk polishing products manufactured by Obara. During 2001, thin film memory disk manufacturers continued to experience manufacturing over-capacity which in turn reduced capital spending. In addition, this over-capacity situation has created a larger market for used equipment making it even more difficult to sell new equipment. While the Company continues to actively pursue sales of consumable products, the Company does not foresee a return of high volume equipment sales to this market. The silicon wafer market has also experienced continued softness in demand due to ongoing manufacturing over-capacity caused by various factors including available capacity and increased production efficiencies due to the fact that more chips could be produced on a given wafer.

Sales of products for general industrial applications increased to $20.6 million, or 7.7% of net sales, in 2001 compared with $14.7 million, or 5.4% of net sales in 2000 due to increased shipments in European markets.

Gross Margin. Excluding special charges of $31.7 million (primarily inventory writedowns) recorded in response to the industry slowdown and $3.4 million related to the exit from the manufacturing of wafer and disk polishing equipment, gross margin for 2001 was $73.6 million, or 27.6% of net sales, compared to $89.5 million, or 32.7% of net sales, for 2000. The decrease in gross margin was primarily due to decreased production volume resulting in lower overhead absorption on a reduced revenue base. During the industry downturn, the Company expects this trend of reduced gross margins to continue. Gross margins for 2001 reflect the Company’s adoption of SAB 101, discussed above. Excluding the effect of SAB 101, gross margin for the year ended June 2, 2001 was 27.0% of net sales.

The Company’s gross margin has significantly fluctuated in past and will continue to fluctuate based on several factors including the severity and duration of the current industry downturn, revenue recognition under SAB 101, product mix, overhead absorption levels and costs associated with the introduction of new products.

Research, Development and Engineering. In 2001, research, development and engineering expense increased to $64.0 million, or 24.0% of net sales, compared to $53.7 million, or 19.6% of net sales, in 2000. The increase was primarily due to asset impairment charges during 2001 of approximately $6.0 million related capital equipment that is no longer used in ongoing research and development programs. The asset impairment charges included $2.4 million of equipment that was designed by the Far East Joint Venture. In addition, the Company has incurred incremental hardware, software and process engineering costs related to the design and development of the Momentum300^TM system. The Company expects to continue investing substantial resources in research, development and engineering programs.

Selling, General and Administrative. In 2001, selling, general and administrative expense remained unchanged at $52.4 million, or 19.6% of net sales from $52.4 million, or 19.1% of net sales, in 2000. During 2001, significant marketing and promotional costs were incurred in connection with product launch activities related to the introduction of the Company’s new products, the Momentum™ and the Auriga Vision™. These incremental costs were largely offset by certain cost cutting measures implemented during 2001 in response to the industry downturn.

Merger, Integration and Restructuring. During the year ended June 2, 2001, the Company recorded restructuring charges of $8.6 million. Approximately $5.1 million related to restructuring associated with the Company’s exit from the manufacturing of silicon wafer and thin film memory disk polishing equipment and $3.5 million of restructuring charges were recorded during the quarter ended March 3, 2001 related to the industry downturn. In regards to the $5.1 million restructuring charges, $2.7 million related to fixed asset impairments, $1.2 million related to severance costs for three employees including a former executive of the Far East Joint Venture; and $1.2 million related to other restructuring charges associated with the Company’s plan to exit the manufacturing of wafer and disk polishing products. During the third quarter ended March 3, 2001, slowing worldwide demand for semiconductors resulted in a rapid decline in demand for manufacturing equipment. In response, the Company took actions to substantially reduce overall operating expenses. Cost-cutting measures included an 18-percent reduction in workforce, a 10-percent salary cutback for executives, the deferment of management raises until business conditions improve and a decrease in overall discretionary spending. As a result, the Company recorded approximately $3.5 million in restructuring and other special charges related to lease termination costs of $1.7 million; severance costs of $1.0 million for 247 employees, primarily manufacturing technicians, engineers and field service representatives; and $0.8 million of other charges. By the end of 2001, the Company completed the majority of its restructuring activities in accordance with its previously established plans. During 2001 the Company recorded $4.7 million in asset impairment charges and paid out cash related to restructuring activities of $3.4 million. The remaining restructuring accrual is approximately $0.5 million which the Company believes is adequate to cover the remaining cash outlays.

During 2000, the Company completed the majority of its merger, integration and restructuring activities in accordance with its previous plans established in 1999 at the time of the merger between SpeedFam

International, Inc. and Integrated Process Equipment Corporation (IPEC). Through June 2, 2001, the Company recorded $27.0 million in asset impairment charges and paid and charged to the liability $20.3 million. The remaining restructuring accrual for lease termination expenses associated with the merger was approximately $6.6 million as of June 2, 2001, which the Company believes is adequate to cover the remaining cash outlays. Cash expenditures related to the merger, integration and restructuring charges are expected to be approximately $1.0 million for 2002 and paid from cash generated from operations. During 2001, lease termination payments on certain vacated facilities (which were included in the restructuring charge) primarily related to remaining rent, related utilities and common area maintenance on the closed Phoenix, Arizona manufacturing and administrative facility. The Company had estimated in May 1999, given the then-current real estate market conditions, that it would take approximately 9-12 months to sublease the facility. Sublease activity began in May 2000 (as reflected in the remaining accrual) and is projected to be carried out through the Company’s lease term. The Company’s management has been and is currently in the process of securing additional subleases or other negotiated agreements for the Phoenix, Arizona manufacturing and administrative facility.

Other Income (Expense). Other income (expense) decreased to ($0.8) million in 2001 from ($0.5) million in 2000. This decrease resulted from lower average balances in cash, cash equivalents and short-term investments as well as a reduction in interest rates that occurred during 2001 yielding lower interest income when compared to 2000, offset by a $1.8 million gain on sale of land.

Gain (Loss) on Disposal of Investment in Affiliate and Equity in Net Earnings (Loss) of Affiliates. In the first quarter of 2001, the Company recorded a $10.8 million loss on disposal of investment in affiliate in connection with the dissolution of the Far East Joint Venture that occurred on August 30, 2000. During 2000, the Company recorded a $6.1 million gain on the sale of the Company’s 50% interest in its joint venture, Fujimi Corporation.

Equity in Net Earnings (Loss) of Affiliates. Equity in net earnings (loss) of affiliates was $0.1 million in 2001 compared to equity in net loss of $3.3 million in 2000. During 2001, the Company and Obara restructured the Far East Joint Venture effectively dissolving the joint venture; therefore, equity in earnings of affiliates was only recorded for the first quarter of 2001. Included in equity in net earnings of affiliates for 2000 are charges recorded by the former Far East Joint Venture for certain asset impairments, severance costs and other reorganization costs to account for the slowdown in the thin film memory disk media market and the transition of CMP research and development operations to the Company. The Company’s share of this charge was approximately $2.9 million.

Provision for Income Taxes. At the end of 2001 and 2000, the Company established a valuation allowance for deferred tax assets generated by its operating losses and is in a net operating loss carryforward position. As a result, the effective tax rate for 2001 and 2000 was zero.

Net Sales. Net sales for 2000 were $274.0 million, up 26.6% from net sales of $216.4 million in 1999. Sales of CMP systems totaled $230.2 million, or 84.0% of net sales, up 43.3% from the $160.6 million of CMP system sales in 1999. Sales of CMP systems increased significantly in 2000 as a reflection of strong demand for semiconductor manufacturing equipment, which was caused by an increasing demand from semiconductor device manufacturers. Sales volume was higher in 2000 than in 1999 because the semiconductor and semiconductor manufacturing equipment industries recovered from a severe industry downturn (that started in 1998) and entered a new period of growth, driven by customer investments in both capacity and advanced technology to meet rising demand.

Sales of thin film memory and silicon wafer products in 2000 accounted for $29.2 million, or 10.6% of net sales, as compared to $42.4 million, or 19.6% of net sales in 1999. During 2000, thin film memory disk manufacturers continued to experience manufacturing over-capacity which in turn reduced capital spending. In addition, this over-capacity situation created a larger market for used equipment making it even more difficult to sell new equipment. The silicon wafer market also experienced continued softness in demand due to

Sales of products for general industrial applications increased to $14.7 million, or 5.4% of net sales in 2000 compared with $13.3 million, or 6.2% of net sales in 1999, due to increased shipments in European markets.

Included in net sales are commissions from affiliates which increased to $2.9 million in 2000, compared to $2.2 million in 1999, due to an increase in the Company’s distribution in the U.S. and Europe of products manufactured by the Far East Joint Venture.

Gross Margin. In 2000, gross margin was $89.5 million, or 32.7% of net sales, compared to $21.4 million, or 9.9% of net sales, in 1999. Gross margin, both in dollars and as a percentage of total revenue, was up year over year primarily due to an increase in total revenue during 2000 compared to the prior year period, as well as increased production efficiencies as a merged Company. In addition, during 1999 the Company wrote down inventory in the amount of $13.6 million in connection with the merged Company’s new strategic plan to discontinue certain product lines and also increased its allowance for excess inventory and obsolescence. In 1999, the Company faced significant competition in the sale of its products from other equipment manufacturers, in addition to increased customer demands to meet changing process requirements and develop new technologies. As these factors grew in significance in 1999, the Company determined that additional excess and obsolescence reserves were necessary considering the weakness in order activity and lower demand for the Company’s products that became apparent in the fourth quarter of 1999.

Research, Development and Engineering. In 2000, research, development and engineering expense decreased to $53.7 million, or 19.6% of net sales, compared to $61.8 million, or 28.6% of net sales, in 1999. The decrease in research, development and engineering expense was due to management’s efforts to realign the Company’s research and development efforts around critical and key programs while eliminating duplicate projects.

Selling, General and Administrative. In 2000, selling, general and administrative expense decreased to $52.4 million, or 19.1% of net sales, from $68.2 million, or 31.5% of net sales, in 1999. The decrease in selling, general and administrative expense, both in dollars and as a percentage of total revenue, resulted primarily from management’s efforts to control expenses which included eliminating functional duplications throughout the merged Company.

Merger, Integration and Restructuring. In the fourth quarter of 1999, the Company recorded the following merger, integration and restructuring costs totaling $53.9 million: $6.9 million direct merger costs; $16.9 million lease termination costs including $2.3 million in lease improvement write-offs; $4.2 million write-down of equipment and $19.4 million write-down of inventory due to certain discontinued product lines; $4.7 million related to severance costs and $1.8 million related to other merger, integration and restructuring write-offs and costs. In 1999, merger, integration and restructuring expenses included in operating expenses were $40.3 million, or 18.6% of total revenue. These charges were incurred primarily to close duplicate facilities, record transaction costs, account for certain employee termination benefits and record adjustments and accruals resulting from strategic decisions to discontinue certain product lines and sales and marketing activities as a merged Company. The severance and other related employee costs provided for the reduction of approximately 70 employment positions resulting from facility closures, and the elimination of duplicate positions or positions no longer necessary due to the streamlining of operations. Notification of the planned severance and the amount of the related benefits were made to employees prior to May 31, 1999.

During 2000, the Company completed the majority of its restructuring activities in accordance with its previously established and announced plans. Through June 3, 2000, the Company incurred $27.0 million in asset write-downs and paid and charged to the liability $17.7 million. The remaining restructuring accrual for lease termination, severance and other expenses associated with the merger was approximately $9.2 million as of June 3, 2000. During 2000, lease terminations payments on certain vacated facilities (which were included in the restructuring charge) primarily related to remaining rent, related utilities and common area maintenance on the closed Phoenix, Arizona manufacturing and administrative facility. The Company also estimated

Other Income (Expense). Other income (expense) increased to $0.5 million in 2000 from $4.3 million in 1999. In the first quarter of 1999, the Company recorded a gain arising from the collection of insurance proceeds for a CMP tool, which was destroyed in transit. Other income in 1999 also included an increase in interest income due to the Company’s decision in the first quarter of 1999 to transfer a significant portion of the Company’s short-term investments to higher yielding taxable securities.

Equity in Net Earnings (Loss) of Affiliates. Equity in net loss of affiliates was $3.3 million in 2000 compared to equity in net earnings of $0.9 million in 1999. This decline compared to the prior year was due to significantly decreased sales revenue of the Far East Joint Venture. Investments by manufacturers of both silicon wafers and thin film memory disks continued to weaken in 2000. Also during 2000, the Far East Joint Venture recorded a charge for certain asset impairments, severance costs and other reorganization charges to account for the slowdown in the thin film memory disk media market and the transition of CMP research and development operations to the Company. The Company’s share of this charge was approximately $2.9 million.

During 2000, the Company’s share of the net loss of the Far East Joint Venture was $3.8 million compared with the Company’s share of the net earnings of the Far East Joint Venture of $0.1 million in 1999. Historically, the Far East Joint Venture has not paid significant dividends, although in 1999, the Far East Joint Venture paid $0.5 million in dividends to the Company.

Provision for Income Taxes. At the end of 1999, as well as at the end of 2000, the Company established a valuation allowance for deferred tax assets generated by its operating losses and is in a net operating loss carryforward position. As a result, the effective tax rate for 2000 was zero. Income tax benefit was $3.9 million for 1999. The effective tax benefit rate for 1999 was approximately 2.7%. In 1999, the expected tax benefit computed by applying the statutory rate to the current year loss was offset by a $51.5 million increase to the Company’s deferred tax valuation allowance. The deferred tax valuation allowance fully offsets the Company’s net deferred tax assets at June 3, 2000 and May 31, 1999.

As of June 2, 2001, the Company had $60.8 million in cash, cash equivalents and short-term investments compared to $100.3 million at June 3, 2000. The Company used $30.0 million of cash in operating activities during 2001 compared to $45.2 million in 2000. During 2001, $3.5 million in cash was used for working capital requirements. The net loss of $134.5 million included non-cash items totaling $107.8 million: fixed asset impairments and the non-cash portion of restructuring charges of $56.4 million; cumulative effect of change in accounting principle of $36.5 million; depreciation and amortization expense of $17.0 million, offset by gain on sale of assets of $2.0 million and equity in net earnings of affiliates of $0.1 million.

Net cash provided by investing activities totaled $4.3 million in 2001 compared with $18.4 million in 2000. The Company incurred capital expenditures of $15.3 million and $15.1 million in 2001 and 2000, respectively. The majority of the cash was used to fund building improvements, software and equipment purchases in 2001. During 2001, cash was also used to purchase short-term investments of $24.7 million offset by proceeds of maturing investments totaling $39.9 million. In addition, the Company received proceeds of $8.1 million primarily related to the sale of approximately 30 acres of land in Chandler, Arizona.

Financing activities provided $1.7 million and $2.3 million during 2001 and 2000, respectively. The sale of stock to employees and the exercise of stock options generated proceeds of $3.4 million during each year. Principal payments on capital lease obligations amounted to $1.7 million in 2001 compared to $1.2 million in 2000. Total long-term debt was $115.1 million at June 2, 2001 compared to $115.2 million in the prior year.

The Company has incurred operating losses of $86.5 million, $16.5 million, and $148.9 million in 2001, 2000 and 1999, respectively. Coinciding with these operating losses, the Company has incurred a decrease in its cash and investment balances of $39.4 million, $46.7 million, and $78.3 million in 2001, 2000 and 1999, respectively.

During 2001, there was a significant decrease in the worldwide demand for semiconductor capital equipment. As a result of a rapid decline in the demand for semiconductor devices, inventory buildups in telecommunications products, slower than expected personal computer sales and overall slower global economic growth, many semiconductor manufacturers reevaluated their capital spending plans. Accordingly, several of the Company’s customers rescheduled delivery or canceled existing orders. Furthermore, the Company experienced a substantial decline in new orders. In response to industry conditions and the introduction of new products that are technologically advanced, the Company recorded significant inventory write-downs, charges related to asset impairments and severance costs related to across-the-board headcount reductions. In addition, the Company implemented measures to reduce discretionary spending.

Due to the continuation and severity of the industry-wide downturn, the Company has implemented additional cost-cutting measures during the first quarter of 2002 which include further decreases in discretionary spending and reductions in worldwide headcount. Despite the expected continuation of the industry-wide downturn and uncertainty associated with the introduction of new products, and taking into account the Company’s actions to restructure and downsize the Company, management believes that the Company’s current cash and investment balances along with net cash generated through operations will be sufficient to meet the Company’s anticipated cash needs for working capital and capital expenditures at least through the year ended June 1, 2002. However, due to significant uncertainties related to the duration and severity of the semiconductor industry downturn, overall economic conditions and potential litigation costs, the Company is currently evaluating additional sources of funds in order to strengthen its working capital position. Based on discussions with various lenders, the Company believes that the sources of funds available include, but are not limited to, mortgage loan financing, a line of credit facility and term debt. If the Company were to raise additional funds through the issuance of equity securities, the percentage ownership of the Company’s stockholders would be reduced. In addition, these equity securities may have rights, preferences or privileges senior to the Company’s common stock. Furthermore, the Company may need to raise additional funds in future periods through public or private financing, or other sources, to fund working capital requirements driven by the expansion of the business during the industry’s upturn.

Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” and No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, established accounting and reporting standards related to derivative financial instruments and hedging activities. These statements require that the Company recognize all derivatives, including foreign currency exchange contracts, as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, must be recognized currently in earnings. The Company adopted SFAS 133 and SFAS 138 as of June 3, 2001 and the transition adjustment was not material. Subsequent to fiscal year end 2001, all of the Company’s derivative financial instruments are recorded at their fair value on the consolidated balance sheet.

The Company conducts business in a number of foreign countries, with certain transactions denominated in local currencies, primarily Japanese yen. The purpose of the Company’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. The Company does not use derivative financial instruments for trading or speculative purposes. The local currency is the functional currency for all foreign operations. Accordingly, translation gains or losses related to the foreign subsidiaries are included as a component of accumulated other comprehensive income and are not hedged.

The Company uses derivative financial instruments such as forward exchange contracts and currency option contracts to hedge certain forecasted foreign currency denominated transactions expected to occur within the next 12 months. In accordance with SFAS 133 and 138, these hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges, and will be evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges will be reported

as a component of other comprehensive income in stockholders’ equity, and reclassified into earnings when the hedged transaction affects earnings. All amounts included in other comprehensive income will be subsequently reclassified to earnings within 12 months. Changes in the fair value of currency option contracts due to changes in time value are excluded from the assessment of effectiveness and are recognized as interest expense. To date, premiums paid for currency option contracts have not been material. If the underlying transaction being hedged fails to occur, or occurs prior to the maturity of the financial statement, or if a portion of any derivative is ineffective, the Company immediately recognizes the gain or loss on the associated financial instrument in other income (expense), net.

Forward exchange contracts are used to hedge certain foreign currency denominated liabilities. These derivatives do not qualify for SFAS 133 hedge accounting treatment. Accordingly, changes in the fair value of these hedges are recorded immediately in earnings to offset the changes in the fair value of the liabilities being hedged.

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations”. SFAS No. 141 supersedes prior guidance and requires that all business combinations in the scope of this statement be accounted for using the purchase method. The provisions of this statement apply to all business combinations initiated after June 30, 2001, as well as all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. The Company adopted this statement as required on July 1, 2001.

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 supersedes prior guidance and requires that goodwill no longer be amortized to earnings, but instead be annually reviewed for impairment. In addition, goodwill should be tested for impairment upon adoption. The Company is required to adopt SFAS No. 142 in 2002 and is in the process of determining the impact of this adoption. There can be no assurance that the adoption of SFAS No. 142 will not have a material impact on the Company’s financial position and results of operations.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements because of a number of factors, risks and uncertainties, including the risk factors described in this discussion and elsewhere in this report. Such forward-looking statements include, but are not limited to, statements that relate to the Company’s future revenue, product development, product backlog, customers, demand, acceptance, market share, competitiveness, gross margins, levels of research and development and operating expenses, intellectual property, management’s plans and objectives for current and future operations of the Company, the effects of the Company’s reorganization of the Far East Joint Venture, and the markets in which the Company does business. In addition, the words “anticipate”, “expect”, “intend”, “believe” and similar expressions generally identify forward-looking statements. The information included in this report is as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein.

The Company’s business is subject to numerous risks, including those discussed below. If any of the events described in these risks occurs, the Company’s business, financial condition and results of operations could be seriously harmed.

The Company depends on selling a small number of high-priced machines. The Company derives a significant portion of its revenue from the sale of a relatively small number of CMP systems. Thus, order, delivery, and customer acceptance delays and cancellations, even of one or two systems, have caused and may continue to cause the Company to miss quarterly revenue and profit expectations.

Downturn in the semiconductor industry has led and may continue to lead to decreased revenue for the Company. During 2001, slowing worldwide demand for semiconductors resulted in significant inventory buildups for semiconductor companies and a rapid decline in demand for semiconductor manufacturing equipment. Presently, the Company has little visibility regarding how long the semiconductor industry downturn will last or how severe the downturn will be. During 2001, the Company experienced certain cancellations and pushouts of orders for its products. If the downturn continues or worsens, the Company may experience greater levels of cancellations and/or pushouts of orders for its products in the future.

The Company’s current business model is predicated on closing and fulfilling expected orders for its Momentum™ and Momentum300™ products. A significant portion of the Company’s projected revenue depends on sales of its Momentum™ product. Although initial customer reaction to Momentum™ has been positive, this response may not translate into sales of Momentum™ on the scale or on the time frame the Company anticipates. For instance, market conditions in the semiconductor industry have caused and may continue to cause potential purchasers of Momentum™ to delay investment in new equipment, which could reduce demand for Momentum™. If the Company is unable to close anticipated orders or fulfill orders for the Momentum™ product, the Company’s revenue will be adversely affected.

The Company must succeed in selling CMP equipment for 300 millimeter in order to increase its revenue and maintain market share. Semiconductor manufacturers currently purchase CMP equipment predominantly to manufacture 200 millimeter wafers, using CMP to polish the tungsten and oxide layers of these wafers. Many of those same manufacturers are now beginning to develop the ability to make 300 millimeter wafers and to process copper layers for both 200 millimeter and 300 millimeter wafers. Many of these manufacturers are currently qualifying CMP equipment for 300 millimeter tungsten, 300 millimeter oxide and for copper layers for both the 200 millimeter and 300 millimeter wafers. In the future, it is anticipated that semiconductor manufacturers will purchase CMP equipment for volume production of 300 millimeter and/or copper-based wafers. In addition, rollout of Momentum 300™ may be slowed due to manufacturing problems, unforeseen technical problems with the Momentum 300™ product itself or changes in the CMP marketplace that differ from our expectations. If the Company does not win qualification contests for 300 millimeter and/or copper-based wafers, it may experience difficulty achieving volume sales of this next-generation equipment to semiconductor manufacturers, which could result in declining revenues.

The Company’s quarterly operating results may fluctuate for reasons not within its control, which may affect the Company’s stock price. The Company’s quarterly operating results may fluctuate due to a variety of factors, including:


	•	industry demand for capital equipment, which depends on economic conditions in the semiconductor, memory disk and silicon wafer markets

	•	timing of new product introductions

	•	ability to develop and implement new technologies

	•	timing, cancellation or delay of customer orders, shipments and acceptance

	•	unexpected costs associated with sales and service of the CMP tools and processes

	•	foreign currency exchange rates

	•	announcements regarding restructuring, technological innovations, departures of key officers or employees, or the introduction of new products

Results of operations in any period are not an indication of future results. Fluctuations in the Company’s operating results may also result in fluctuations in the Company’s common stock price. The Company’s stock price may also fluctuate due to factors specific to the semiconductor industry, which has experienced significant price fluctuations in recent periods. Investors in the Company’s stock should be willing to incur the risk of such price fluctuations.

If the market price of the Company’s stock is adversely affected, the Company may experience difficulty in raising capital or making acquisitions. In addition, the Company may become the object of securities class

The Company faces intense competition, including from companies with greater resources. Several companies currently market CMP systems that directly compete with the Company’s products, including Applied Materials, Inc. and Ebara Corporation. For several reasons, the Company may not compete effectively with competitors. These reasons include:


	•	Some competitors may have greater financial resources than the Company. They also may have more extensive engineering, manufacturing, marketing and customer service and support capabilities.

	•	Some competitors may supply a broader range of semiconductor capital equipment than the Company. As a result, these competitors may have better relationships with semiconductor manufacturers, including current and potential customers of the Company.

	•	The Company expects competitors to continue to improve their existing technology and introduce new products.

	•	Other capital equipment manufacturers not currently involved in the development of CMP systems may enter the market or develop technology that reduces the need for the Company’s products.

	•	Once a semiconductor manufacturer commits to purchase a competitor’s equipment, the manufacturer generally relies on that equipment for an entire production line and continues to purchase that equipment exclusively for an extended period of time.

Increased competitive pressure could lead to lost revenue from sales for the Company’s products, thereby damaging the Company’s business. There can be no assurance that the Company will be able to compete successfully in the future.

Lost revenue from semiconductor industry downturn, general economic slowdown and/or increased competition could continue to lead to operating losses. If the Company experiences continued reductions in revenue from lost sales or price reductions for its products for any reason, including a continued downturn in the semiconductor industry, a general economic slowdown in the United States or increased competition, the Company’s gross margins will continue to be reduced and could lead to further operating losses.

The Company may not develop products in time to meet changing technologies. Semiconductor manufacturing equipment and processes are subject to rapid technological changes and product obsolescence. The success of the Company in developing, introducing and selling new and enhanced systems depends upon a variety of factors including:


	•	product selection

	•	timely and efficient completion of product design and development

	•	timely and efficient implementation of manufacturing and assembly processes

	•	product performance in the field

	•	effective sales and marketing

The Company’s business is highly cyclical. The Company’s business depends substantially on the capital expenditures of semiconductor manufacturers and, to a lesser extent, thin film memory disk and silicon wafer manufacturers. These industries are highly cyclical and semiconductor manufacturers are currently experiencing periodic downturns, which have had 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 have in the past and are expected in the future to damage the business and operating results of the Company.

The Company depends on a small number of major customers. Currently, and for the foreseeable future, the Company expects that it will sell machines to a limited number of major customers. To date, the CMP process has been used primarily to fabricate advanced semiconductors, which accounts for only a

portion of the overall semiconductor market. The loss of a significant customer or a substantial reduction in orders by any significant customer, including reductions due to customer departures from recent buying patterns, market, economic or competitive conditions in the semiconductor industry, could damage the Company’s business.

Orders in backlog may not result in future revenue if customers cancel or reschedule orders. The Company includes in backlog only those customer orders for which it has accepted purchase orders. Expected revenue may be lower if customers cancel or reschedule orders, which they can generally do without penalty.

The Company’s success depends on international sales, particularly in Asia and Europe. International sales accounted for 61% of the Company’s total revenue for 2001, 70% for 2000 and 37% for 1999. The Company expects that international sales will continue to account for a significant portion of total revenue in future periods.


	•	foreign exchange issues

	•	political, economic and regulatory environment of the countries where customers are located

	•	collection of accounts receivable

	•	inadequate intellectual property protection

	•	intense price competition

The Company derives a substantial portion of its revenues from customers in Asian countries, particularly Taiwan and Korea. Economic developments in late 1997 and early 1998 resulted in decreased capital investments by Asian customers. Recent economic developments indicate that the economies of Taiwan, Korea and other Asian countries have recovered somewhat from 1997 and 1998 levels. Any negative economic developments or delays in the economic recovery of Asian countries could result in the cancellation or delay of orders for the Company’s products from Asian customers, thus damaging the Company’s business.

Product or process development problems could harm the Company’s results of operations. The Company’s products are complex, and from time to time have defects or bugs that are difficult and costly to fix. This can harm results of operations for the Company, in the following ways:


	•	The Company incurs substantial costs to ensure the functionality and reliability of products earlier in their life cycle. This can reduce orders, increase manufacturing costs, adversely impact working capital and increase service and warranty expenses.

	•	The Company requires significant lead-times between product introduction and commercial shipment. As a result, the Company may have to write off inventory and other assets related to products and could lose customers and revenue.

There can be no assurance that the Company will be successful in preventing product and process development problems that could potentially harm the Company’s results of operations.

The success of the Company’s CMP operations in Asia after the reorganization depends upon its ability to retain key employees. None of the key employees in Asia have long-term employment contracts. The Company does not have any direct experience managing operations in Asia. Some employees may decide to leave after the reorganization for this and other reasons. This may negatively affect the Company’s operations in Asia, which represent a large portion of the Company’s total revenue.

Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could negatively affect the Company’s business. The Company uses numerous suppliers to supply parts, components and subassemblies for the manufacture and support of its products. In addition, some key parts may be obtained only from a single supplier or a limited group of suppliers. If the Company does not receive a sufficient quantity of parts in a timely and cost-effective manner to meet its production requirements, the results of operations may be damaged.

If the Company is unable to protect its intellectual property, its business could suffer. The Company’s intellectual property portfolio is very important to its success. However, the Company may not be able to protect its technology because:


	•	pending and new patent applications may not be approved in a timely manner or approved at all

	•	third parties may try to challenge or invalidate existing patents and new patents

	•	policing unauthorized use of intellectual property is difficult and expensive

	•	the laws of some foreign countries do not protect intellectual property rights as much as U.S. laws

	•	competitors may independently develop similar technology or design around intellectual property owned by the Company

Third parties may prevent the Company from selling products that allegedly infringe on those third parties’ intellectual property rights. The Company cannot be certain that third parties will not in the future claim that its products infringe their intellectual property rights. Third parties may:


	•	bring claims of patent, copyright or trademark infringement

	•	obtain patents or other intellectual property rights that limit the Company’s ability to do business or require the Company to license or cross-license technology

	•	bring costly, time consuming lawsuits

Third parties hold many patents relating to CMP machines and processes. In the event the Company loses any of its intellectual property rights or otherwise determines that it needs to obtain licenses to third party intellectual property, there is no assurance that the Company will be able to obtain such licenses on reasonable terms, if at all. The Company currently licenses the right to manufacture CMP machines employing an orbital motion in its 676, 776, 876 and Momentum™ and Momentum 300™ from a semiconductor manufacturer.

The Company may be subject to risks associated with acquisitions and dispositions. The Company continually evaluates strategic acquisitions of other businesses and dispositions of portions of its business that it determines are not complementary to its strategy. If the Company were to consummate an acquisition or disposition, the Company would be subject to a number of risks, including the following:


	•	difficulty in assimilating the acquired operations and retaining acquired personnel

	•	limits on the Company’s ability to retain acquired distribution channels and customers

	•	disruption of the Company’s ongoing business

	•	limits on the Company’s ability to successfully incorporate acquired technology and rights into its product and service offerings

	•	maintenance of uniform standards, controls, procedures and policies

The Company is dependent on key management and technical personnel. The Company’s performance and ability to execute is substantially dependent on the performance of the Company’s executive officers and key technical and engineering employees. Losing the services of any of these executive officers or key employees could damage the Company’s business.

The Company’s future success also depends on its ability to identify, hire, train and retain other highly qualified managerial and technical personnel. Competition for such personnel is intense. If the Company is not successful in identifying, hiring, training and retaining such personnel, it could damage the Company’s business.

The Company is subject to risks of non-compliance with environmental regulations. The Company is subject to environmental regulations in connection with its business operations, including but not limited to regulations related to the development, manufacturing and use of its products. From time to time, the

Company receives notices alleging violations of these regulations. It is the Company’s policy to respond promptly to these notices and to take necessary corrective action. Failure or inability to comply with existing or future environmental regulations could result in significant remediation liabilities, the imposition of fines and/or the suspension or termination of development, manufacturing or use of certain of its products, each of which could damage the Company’s financial condition and results of operations.

The Company uses financial instruments that potentially subject it to concentrations of credit risk. The Company enters into foreign exchange contracts to hedge certain firm commitments denominated in foreign currencies, primarily Japanese Yen. The Company also invests its cash in deposits in banks, money market funds, government and corporate debt securities. The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments with high credit quality issuers and by policy, limits the amount of credit exposure to any one issuer. The Company mitigates default risk by investing in only the safest and highest credit quality securities and by monitoring the credit rating of investment issuers. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. To date, the Company has not experienced material losses on these investments. However, there can be no assurance that the Company will not in the future experience losses that could damage the Company’s business.

Interest Rate Risk. The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio and long-term debt obligations. The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments with high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer.

The Company mitigates default risk by investing in only the safest and highest credit quality securities and by monitoring the credit rating of investment issuers. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity.

The Company has no cash flow exposure due to rate changes for cash equivalents and short-term investments, as all of these investments are at fixed interest rates. Long-term debt is at a fixed interest rate. The long-term debt was primarily incurred in connection with the Company’s issuance of convertible debenture bonds.

The table below presents principal amounts and related weighted average interest rates by year of maturity for the Company’s investment portfolio and debt obligations (in thousands).

Foreign Currency Risk. The Company transacts business in various foreign countries. Its primary foreign currency cash flows are in countries in Asia and Europe. During 2001, 2000 and 1999, the Company utilized financial instruments such as forward exchange contracts to hedge a portion, but not all, of its firm commitments denominated in foreign currencies, and uses currency option contracts to hedge a portion, but not all, of its anticipated and uncommitted transactions expected to be denominated in foreign currencies. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the committed or anticipated transactions being hedged. The purpose of the Company’s foreign currency management is to minimize the effect of exchange rate changes on actual cash flows from foreign currency

denominated transactions. Gains and losses on forward exchange and currency option contracts are deferred and recognized in the Consolidated Statements of Operations when the related transactions being hedged are realized. If the underlying transaction being hedged fails to occur, or occurs prior to the maturity of the financial instrument, the Company immediately recognizes the gain or loss on the associated financial instrument. Those forward exchange contracts that have been marked to market are included in accounts payable and accrued expenses on the Company’s Consolidated Balance Sheet. To date, premiums paid for currency option contracts have not been material. The Company does not use derivative financial instruments for trading or speculative purposes.

The following table provides information as of June 2, 2001 about the Company’s derivative financial instruments, which are comprised of foreign currency forward exchange contracts. The information is provided in U.S. dollar equivalent amounts, as presented in the Company’s financial statements. The table presents the notional amounts (at the contract exchange rates), the weighted average contractual foreign currency exchange rates, and the estimated fair value of those contracts.

We have audited the accompanying consolidated balance sheets of SpeedFam-IPEC, Inc. and consolidated subsidiaries as of June 2, 2001 and June 3, 2000, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the three fiscal years in the period from June 1, 1998 through June 2, 2001. These consolidated financial statements are the responsibility of the management of SpeedFam-IPEC, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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-IPEC, Inc. and consolidated subsidiaries as of June 2, 2001 and June 3, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period from June 1, 1998 through June 2, 2001 in conformity with accounting principles generally accepted in the United States of America.

SpeedFam-IPEC, Inc. (the Company), an Illinois corporation, is a leading global supplier of chemical mechanical planarization (or CMP) systems featuring the world’s largest installed base. The Company designs, develops, manufactures, markets and supports CMP systems which are used in the fabrication of semiconductor devices. In addition to CMP systems, the Company markets high-throughput precision surface processing equipment, manufactures and markets systems for the general industrial applications markets, and markets and distributes parts, consumables and slurries used in surface processing.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all significant intercompany accounts and transactions.

The Company’s investment in the common stock of its 50% joint venture, SpeedFam-IPEC Co., Ltd., was accounted for by the equity method prior to the dissolution of the joint venture in the first quarter of 2001. The Company’s investment in the common stock of its 50% joint venture, Fujimi Corporation, was accounted for by the equity method prior to the sale of the Company’s interest in the second quarter of 2000.

Cash and cash equivalents include deposits in banks and highly liquid investments with original maturities of three months or less at the date of purchase.

The Company’s short-term investments consist of government and corporate debt securities. All of the Company’s short-term investments are classified as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.

A decline in market value of any available-for-sale security below cost that is deemed to be other than temporary is considered an impairment of fair value. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective interest method. Interest income is recognized when earned.

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

Property, plant, and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows: building and improvements, 7 to 40 years; machinery and equipment, 5 to 7 years; furniture and fixtures, 3 to 5 years; and leasehold improvements, the shorter of 7 years or the lease term.

Equipment recorded under capital leases is stated at the lower of fair market value or the present value of minimum lease payments at the inception of the lease. Equipment recorded under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets.

Income taxes are accounted for 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 and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company generally warrants its systems for a period of up to 12 months from shipment for material and labor to repair and service the system. A provision for the estimated cost of warranty is recorded upon shipment for non-CMP systems and for CMP systems in which revenue is recorded as a multiple-element arrangement. A provision for the estimated costs of warranty is recorded upon acceptance for systems in which revenue is recorded upon acceptance.

The local currency is the functional currency for all foreign operations. Accordingly, translation gains or losses resulting from the translation of foreign denominated assets and liabilities into U.S. dollars are included as a component of accumulated other comprehensive income.

Basic earnings (loss) per common share is based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per common share assumes the exercise of all options and warrants which are dilutive, whether exerciseable or not.

In calculating diluted net loss per common share, common stock equivalent shares (determined under the treasury stock method) consisting of stock options, warrants, convertible notes, and convertible preferred stock have been excluded because their inclusion would have been anti-dilutive.

The Company sells products and services primarily to semiconductor manufacturers, and extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses.

Patents and trademarks included in other assets, in the net amount of $4.4 million and $7.6 million at the end of 2001 and 2000, respectively, are amortized on a straight-line basis over 5 to 17 years for patents and 5 years for trademarks.

Goodwill included in other assets, in the net amount of $2.5 million at the end of 2001 and 2000, represents the excess cost over the fair value of tangible and intangible assets acquired and is amortized over 5 to 10 years using the straight-line method.

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

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 disclosures 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.

The Company applies the intrinsic value-based method of accounting for its stock options issued to employees. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Under Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees”, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

The Company’s financial instruments at June 2, 2001 and June 3, 2000 include cash equivalents, short-term investments, trade receivables, trade payables, foreign exchange contracts, and long-term debt. Information about the fair value of short-term investments is presented in Note 5. The carrying value of cash equivalents, trade receivables, and trade payables approximates fair value because of the short maturity of these instruments. Fair values relating to foreign currency contracts (used for hedging purposes) reflect the estimated net amounts that the Company would receive or pay to terminate the contracts at the reporting date based on quoted market prices of comparable contracts and are not material at June 2, 2001 and June 3, 2000. The fair value of the Company’s long-term debt is not materially different from its financial statement carrying value at the end of 2001. The fair value of the Company’s long-term debt is approximately $52.9 million as of the end of 2001. The fair value of the Company’s long-term debt is estimated based on quoted market prices.

The Company continually evaluates whether events and circumstances have occurred that indicate the estimated useful lives of long-lived assets or intangible assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that an asset should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted net cash flows generated by the asset over the remaining estimated life of the asset in measuring whether the asset is recoverable. Material factors which may alter the useful life of the asset or determine that the balance may not be recoverable include effects of new technologies, obsolescence, demand, competition, and other economic factors. If an asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value.

An asset to be disposed of is reported at the lower of its carrying amount or fair value less costs to sell.

The Company conducts its business in various foreign currencies. The Company entered into forward foreign exchange contracts to buy and sell foreign currencies as economic hedges of trade receivables and accounts payable denominated in a currency other than the U.S. dollar. In 2001, 2000 and 1999 these hedging contracts were denominated primarily in the Japanese yen. The maturities of all the forward foreign exchange contracts are generally short-term in nature. As the impact of movements in currency exchange rates on forward foreign exchange contracts offset the related impact on the underlying items being hedged, the Company believes these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. Net foreign transaction currency gains and losses have not been significant.

timing of the transactions being hedged. The Company does not use derivative financial instruments for trading or speculative purposes.

Certain reclassifications have been made in the 2000 and 1999 financial statements to conform to the 2001 presentation.

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, “Goodwill and Other Intangible Assets”. SFAS No. 141 will supersede prior guidance and requires that goodwill no longer be amortized to earnings, but instead be annually reviewed for impairment. In addition, goodwill should be tested for impairment upon adoption. The Company is required to adopt SFAS No. 141 in 2002 and is in the process of determining the impact of this adoption. There can be no assurance that the adoption of SFAS No. 141 will not have a material impact on the Company’s financial position and results of operations.

During 2001, slowing worldwide demand for semiconductors resulted in a rapid decline in demand for manufacturing equipment. Inventory buildups in telecommunication products, slower than expected personal computer sales and slower global economic growth caused semiconductor companies to reevaluate their capital spending plans. A number of the Company’s customers revised the timing of their capital spending and rescheduled or canceled existing orders, resulting in the postponement or cancellation of equipment delivery and a decline in new orders. As a result, the Company was forced to record significant inventory write-downs and take swift actions to substantially reduce overall operating expenses. Cost-cutting measures included a 30 percent reduction in workforce, a 15 percent salary cutback for executives, as well as pay reductions for all mid- to upper-level employees and a decrease in overall discretionary spending.

During the year ended June 2, 2001, the Company recorded approximately $39.1 million in restructuring and other special charges which included inventory write-downs of $31.3 million; asset impairments of $4.4 million; lease termination costs of $1.7 million; severance costs of $1.0 million for 247 employees, primarily manufacturing technicians, engineers and field service representatives; and $0.8 million of other charges.

During the fourth quarter of 2001, the Company completed the majority of its restructuring activities in accordance with its previously established and announced plans. To date, the Company incurred $37.6 million in asset write-offs and paid and charged to the liability $1.0 million. The remaining liability of $0.4 million relates primarily to lease termination costs, and is expected to be paid out during the first two quarters of 2002. The following table summarizes the components of the restructuring and other charges (in thousands):

These costs were classified in the statement of operations for the year ended June 2, 2001 in cost of sales and operating expenses. The following table summarizes the classification of the restructuring and other charges (in thousands):

(3) Restructuring and Other Charges Associated with the Disposal of the Far East Joint Venture

On August 30, 2000, the Company and Obara Corporation (Obara) dissolved SpeedFam-IPEC Co., Ltd. (together with its subsidiaries and joint ventures, the Far East Joint Venture). Under the terms of the Master Reorganization Agreement with Obara, ownership of the CMP operations of the Far East Joint Venture was transferred to the Company and specific personnel involved in CMP efforts became employees of the Company. Obara continues the non-CMP activities of the joint venture, which include the manufacture of silicon wafer and thin film memory disk polishing products.

Under the terms of a distributor agreement signed on August 31, 2000, the Company continues to act as a direct distributor in the United States and Europe for the wafer and disk polishing products manufactured by Obara and is prohibited from manufacturing these products.

During the first quarter of 2001, the Company recorded charges totaling $10.8 million related to the loss on disposal of the Company’s 50% investment interest in the Far East Joint Venture and $8.4 million related to the Company’s exit from the manufacturing of wafer and disk polishing products as the Company is prohibited from manufacturing these products. The $8.4 million charge is comprised of inventory write-downs of raw materials and spare parts related to silicon wafer and thin film memory disk polishing products; impairment of fixed assets of the exited operations; severance costs for three employees including a former executive of the Far East Joint Venture and other charges associated with the Company’s exit from the manufacturing of wafer and disk polishing products.

During 2001, the Company completed all of its restructuring activities in accordance with its previously established and announced plans; therefore, no remaining liability exists as of June 2, 2001. During 2001, the Company incurred $15.8 million in asset write-offs and paid and charged to the liability $3.4 million. The following table summarizes the components of the restructuring and other charges (in thousands):

These costs were classified in the statement of operations for the year ended June 2, 2001 in cost of sales, loss on disposal of investment in affiliate and operating expenses. The following table summarizes the classification of the restructuring and other charges (in thousands):

Also included in 2001 was $2.4 million of asset impairment charges for CMP equipment that was designed by the Far East Joint Venture that is no longer used in ongoing research and development programs. These charges were classified in the statement of operations for the year ended June 2, 2001 as research and development expenses.

(4) Merger, Integration and Restructuring Costs Associated with the 1999 Merger

In connection with the merger of SpeedFam International, Inc. and Integrated Process Equipment Corp. in April 1999 (the merger), the Company recorded various merger, integration and restructuring costs. Direct merger costs primarily consisted of professional fees related to investment banking, legal and accounting services incurred through the date of the merger. The Company recorded integration and restructuring costs for lease terminations, the write-off of duplicative equipment previously used for demonstration purposes, the write-down of inventory and equipment related to product lines that are no longer supported, and severance costs resulting from workforce reductions.

Severance and other related employee costs provided for the reduction of approximately 70 employment positions resulting from facility closures, and the elimination of duplicate positions or positions no longer necessary due to the streamlining of operations.

Through June 2, 2001, the Company incurred $27.0 million in asset write-downs and paid and charged to the liability $20.3 million. The remaining restructuring accrual for lease terminations associated with the merger is approximately $6.6 million which the Company believes is adequate to cover the remaining costs. Lease termination costs on certain vacated facilities (which were included in the restructuring charge) primarily related to remaining rent, related utilities and common area maintenance on the closed Phoenix, Arizona manufacturing and administrative facility not recoverable through sublease income. Sublease activity began in May 2000 (as reflected in the remaining accrual) and is projected to be carried out through the end of the Company’s lease term. The Company’s management has been and is currently in the process of securing additional subleases or other negotiated agreements for the Phoenix, Arizona manufacturing and administrative facility. The following table summarizes the changes in the accrued liability for merger, integration, and restructuring costs (in thousands):

The 1999 merger, integration, and restructuring costs were classified in the statement of operations for the year ended May 31, 1999 in cost of sales and in operating expenses. The following table summarizes the classification of the merger and integration charges (in thousands):

The Company generates revenue from the sale of systems, spare parts and service contracts. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements,” addressing the timing of revenue recognition for sales of products that involve contractual customer acceptance provisions and installation if these events occur following shipment of the product and transfer of title. The Company elected early adoption of SAB 101 in the third quarter ended March 3, 2001, retroactive to June 4, 2000. Earnings for the quarter ended March 4, 2000 would have been ($7.9) million or ($0.27) per share if the accounting change related to revenue recognition required by SAB 101 had been applied to this quarter. Changes in the Company’s revenue recognition policy resulting from the implementation of SAB 101 (discussed below) did not involve the restatement of prior financial statements. However, in accordance with Statement of Financial Accounting Standards No. 3, “Reporting Accounting Changes in Interim Financial Statements,” the Company recorded the cumulative effect of the change in accounting principle of ($36.5) million, or ($1.22) per share, as of the beginning of the year (June 4, 2000) as a charge in the first quarter ended September 2, 2000. The impact on loss before cumulative effect of accounting change for 2001 was an increase of $5.4 million, or $0.18 per share. The financial information for interim periods reported prior to the change, in this case the first two quarters of 2001, have been adjusted to reflect the provisions of SAB 101.

recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured. The cumulative effect of the change in accounting principle discussed above includes system revenue, cost of sales and certain expenses that will be recognized when the conditions for revenue recognition have been met.

The amortized cost, gross unrealized gains, gross unrealized losses, and approximate fair value of short-term investments classified as available-for-sale are summarized as follows at the end of 2001 and 2000 (in thousands):

Inventories at the end of 2001 and 2000 are summarized as follows (in thousands):

Property, plant, and equipment at the end of 2001 and 2000 are summarized as follows (in thousands):

Depreciation expense was $15.2 million, $15.4 million, and $19.1 million in 2001, 2000, and 1999, respectively.

Accrued liabilities at the end of 2001 and 2000 are summarized as follows (in thousands):

In August 2000, the Far East Joint Venture was dissolved. Under the terms of the Master Reorganization Agreement with Obara, ownership of the CMP operations of the Far East Joint Venture was transferred to the Company and specific personnel involved in CMP efforts became employees of the Company. Obara continues the non-CMP activities of the former Joint Venture, which include the manufacturing of wafer and disk polishing products.

During the first quarter of 2001, the Company recorded charges totaling $10.8 million related to the loss on disposal of the Company’s 50% investment interest in the Joint Venture. The Company’s equity investment in the Joint Venture was $19.8 million at June 3, 2000. Summary financial information relating to the Joint Venture is as follows:

In November 1999, the Company sold its 50% interest in the joint venture, Fujimi Corporation, to its 50% partner, Fujimi Incorporated. Total proceeds from the sale were $10.0 million, resulting in a gain of $6.1 million. Summary financial information relating to Fujimi Corporation is as follows:

The Company files consolidated U.S. Federal income tax returns with its domestic subsidiary. Operations in the United Kingdom, Germany, Japan, Taiwan, Korea, Singapore and Malaysia file local income tax returns. Earnings (loss) before income taxes are as follows (in thousands):

The tax effects of temporary differences that give rise to the deferred tax assets (liabilities) at the end of 2001 and 2000 are attributable to (in thousands):

The net deferred tax liability has been recorded in the accompanying consolidated balance sheets as a component of other liabilities.

The Company has in excess of $250 million of Federal net operating loss carryforwards at June 2, 2001 which expire between 2002 and 2019. The Company also has $7.0 million of Federal research and development tax credit carryforwards available. These carryforwards begin to expire in 2011.

The valuation allowance for deferred taxes was increased by $46.8 million and $4.3 million during 2001 and 2000, respectively. A valuation allowance is required to be recorded against deferred tax assets if it is more likely than not that the tax assets will not be realized. This determination is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. The Company has established a full valuation allowance against all of its deferred tax assets. The Company will recognize future benefits only as reassessment demonstrates that the deferred tax assets are realizable. While the need for this valuation allowance is subject to periodic review, if the allowance is reduced, the tax benefits attributable to the deferred tax assets will be recorded in future operations as a reduction of the Company’s income tax expense.

A reconciliation between the Company’s effective tax rate and the expected tax rate on earnings before income taxes is as follows:

No provision is made for income taxes on undistributed earnings of wholly owned non-U.S. subsidiaries, because it is the Company’s present intention to reinvest substantially all the earnings of these operations. At the end of 2001, there was approximately $13.9 million 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. However, the Company would be able to apply foreign tax credits to reduce any such tax liability and also would be able to apply its net operating loss carryforward.

SpeedFam-IPEC Limited in the United Kingdom, a wholly owned subsidiary of the Company, has a £950,000 ($1.4 million) 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. If the line of credit is utilized, interest will accrue on the outstanding balance at 2.0% above the bank’s base rate (5.25% at June 2, 2001). As of June 2, 2001 and June 3, 2000, no amounts were outstanding under the line of credit.

Long-term debt at June 2, 2001 and June 3, 2000 consists of the following (in thousands):

The Company completed a private placement in the first quarter of 1998 of $115.0 million Convertible Subordinated Notes (Notes) due in 2004 bearing interest at a rate of 6.25%. The Notes were subsequently registered with the Securities and Exchange Commission in 1998. Interest is payable semi-annually in March and September. The Notes are subordinated to all existing and future senior indebtedness and are effectively subordinated to all liabilities, including trade payables and lease obligations of the Company and its subsidiaries. The Notes can be converted into the Company’s common stock at a conversion price of $54.93 per share. The Notes are redeemable by the Company. Debt issuance costs of $3.8 million incurred in connection with the issuance have been included in other assets and are being amortized over seven years.

The Company entered into lease financing arrangements for certain equipment that expire at various dates through September 2004.

The Company has 60.0 million shares of common stock authorized for issuance, at no par value. There were 30.1 million and 29.7 million shares issued and outstanding as of June 2, 2001 and June 3, 2000, respectively.

The holders of Series B preferred stock were entitled to an annual cumulative dividend amounting to $5.59 per share, payable semiannually on December 31 and June 30, commencing June 30, 1994. Each share of the Series B-1 preferred stock, Series B-2 preferred stock, and Series B-3 preferred stock was converted into 8.90, 8.10, and 10.65 shares of common stock, respectively, in connection with the merger. There are 21,478 shares authorized for each of the series B-1, B-2 and B-3 preferred stocks and no shares were issued and outstanding as of June 2, 2001 or June 3, 2000.

Each share of Class A common stock is entitled to four votes and can be converted into one share of the Company’s common stock. Each share of common stock is entitled to one vote. There are 2.5 million shares authorized but no shares were issued and outstanding as of June 2, 2001 or June 3, 2000.

On December 20, 1999, MEMC Electronics Materials, Inc. (MEMC) filed an action against IPEC Precision, Inc., Integrated Process Equipment Corporation, and the Company in the Circuit Court for St. Charles County, State of Missouri. An amended petition was filed on May 3, 2001 alleging causes of action for breach of contract and quantum meruit/ unjust enrichment arising out of a joint development agreement between MEMC and IPEC Precision, Inc. The plaintiff alleges that the defendants failed to fulfill their obligations required by the joint development agreement and is seeking damages of approximately $7.4 million plus interest and attorneys’ fees. On July 11, 2001, the court denied defendants’ motions to dismiss the amended petition. A trial is scheduled to begin September 24, 2001. The Company believes it has meritorious defenses to the action and intends to pursue them vigorously.

On October 4, 2000 Raytheon Aircraft Company (Raytheon) filed an action against Integrated Process Equipment Corporation, IPEC Planar, Inc. and SpeedFam-IPEC, Inc. in the United States District Court for the District of Kansas. In the action, Raytheon alleges damages arising from its purchase of a wire cutting system from Gaard Automation Inc., predecessor in interest to the Company and is seeking approximately $6.5 million. The Company answered Raytheon’s claims on behalf of all defendants on February 5, 2001 asserting that the wire cutting system performed properly under the terms of the contract. Alternatively, the Company contends that the problems experienced by Raytheon, if any, were caused by failure of a major component of the system not manufactured by the Company. As a result, on June 4, 2001, the Company brought a Third Party Complaint against Spectrum Technologies PLC (Spectrum), the United Kingdom-based manufacturer of this major component. Spectrum’s response to the Complaint was due by July 31, 2001. Discovery has just commenced. The Court issued a Scheduling Order on March 31, 2001, where discovery was to be completed by October 19, 2001 and trial was to take place on or after March 2002. However, with the addition of Spectrum as a party to the lawsuit, these deadlines will most likely be extended. The Company believes it has meritorious defenses to the action and intends to pursue them vigorously.

The Company is subject to various other legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business.

The Company and its subsidiaries occupy certain manufacturing and office facilities and use certain equipment under noncancelable operating leases expiring at various dates through 2006. Rental expense was approximately $3.4 million, $3.0 million, and $6.2 million in 2001, 2000, and 1999, respectively.

Future minimum lease payments for all noncancelable operating leases having remaining terms in excess of one year at the end of 2001, excluding the lease termination payments relating to the former IPEC Planar facility which are classified as restructuring costs (refer to Note 4), are as follows (in thousands):

The notional amounts of foreign exchange contracts as of June 2, 2001 and June 3, 2000 were as follows (in thousands):

All currency forward contracts outstanding at June 2, 2001 have maturities of less than one year and are primarily to buy or sell Japanese yen in exchange for U.S. dollars. Management believes that these contracts should not subject the Company to undue risk from foreign exchange movements, because gains and losses on these contracts generally offset gains and losses on the assets, liabilities, and transactions being hedged.

The Company maintains defined-contribution savings and profit-sharing plans for its employees. The plans cover certain employees who meet length of service requirements. Total Company contributions aggregated to $1.2 million, $1.1 million, and $1.0 million in 2001, 2000, and 1999, respectively.

The Company granted to an officer 50,000 shares of common stock which vested monthly from September 1997 through February 2000. At the merger date, all unvested shares became fully vested. The Company deferred the related compensation of $1.3 million and amortized the cost over the vesting period. Compensation expense of $0.9 million was recorded in 1999.

The Company’s 1995 Employee Stock Purchase Plan qualifies under Section 423 of the Internal Revenue Code. The maximum number of shares of the Company’s stock which shall be made available for sale under the Plan shall be 1,300,000 shares plus an annual increase to be added on June 1 of each year (beginning June 1, 2001) equal to the lessor of (i) 1,000,000 shares, (ii) 1% of the outstanding shares of the Company, or (iii) a number of shares determined by the Board of Directors of the Company. On June 1, 2001, 301,164 shares were added to the Plan. Payroll deductions for the purchase of stock may not exceed 10% of an employee’s base compensation or $25,000. The employee stock purchase plan provides that eligible employees

may purchase stock at 85% of its fair value on specified dates. Under the plan, the Company sold approximately 330,000, 67,000 and 198,000 shares in 2001, 2000, and 1999, respectively.

A total of 338,210 warrants to acquire common stock were issued in connection with preferred stock previously outstanding and were assigned a value of $4.8 million. The warrants have an exercise price of $34.61 and expire on December 16, 2002.

The Company grants options to employees under the 1991 Employee Incentive Stock Option Plan and the 1995 Stock Plan for Employees and Directors of the Company. Under the plans, options may be granted to purchase up to 6,800,000 shares of the Company’s authorized but unissued common stock. Stock options are granted at a price not less than the fair market value on the date of grant. Substantially all stock option vesting periods range from four to five years.

The Company’s 1992 Stock Option Plan provides for the issuance of incentive stock options and non-qualified stock options to purchase up to 3,727,500 shares of common stock to employees, directors, and consultants. The options vest over periods ranging up to five years. Options may be granted to purchase shares of the Company’s common stock at not less than fair market value at the date of grant, and are exercisable for a period not exceeding ten years from that date.

The Company’s 2001 Nonstatutory Stock Option Plan for employees and directors provides for the issuance of non-qualified stock options to purchase up to 3,000,000 shares of common stock. The vesting is determined for each grant issued. Options may be granted to purchase shares of the Company’s common stock at not less than fair market value at the date of grant, and are exercisable for a period not exceeding ten years from that date.

The following table summarizes information about stock options outstanding at June 2, 2001:

The Company applies the intrinsic value-based method of accounting for its fixed plan stock options. Accordingly, no compensation cost has been recognized for the stock option and stock purchase plans. Had compensation cost for the Company’s stock option and stock purchase plans been determined based on the fair value at the grant date for awards in 2001, 2000 and 1999, the Company’s net loss and loss per share would have been increased to the pro forma amounts indicated below (in thousands except per share data):

In calculating pro forma compensation, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions for grants made in 2001, 2000, and 1999.

The weighted average fair value of options granted was $3.34 per share, $6.88 per share, and $7.82 per share for 2001, 2000, and 1999, respectively.

The Company classifies its products into three core business segments: (i) the CMP Group, which is comprised of the Company’s development and production of chemical mechanical planarization systems; (ii) the Surface Technology Group, which is comprised of the distribution of high-throughput precision

surface processing equipment used in thin film memory disk media; and (iii) the Industrial Applications Group, which is comprised of the distribution of high-throughput precision surface processing equipment used in general industrial applications. Information concerning the Company’s business segments in 2001, 2000, and 1999 is as follows (in thousands):

Intersegment sales are not material. Segment operating profit represents total net sales less cost of sales and operating expenses, and excludes equity in net earnings of affiliates, general corporate expenses, interest income and expense and income taxes. Segment identifiable assets are those assets employed in each segment’s operation. Corporate assets consist primarily of cash and cash equivalents, short-term investments, investments in affiliates and property, plant and equipment used in corporate and research and development activities.

Information regarding the Company’s operations in the United States and internationally is presented below (in thousands):

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 all of the Company’s segments.

Following is a summary of unaudited quarterly information (in thousands except per share data). The amounts reported for each of the quarters during the year ended June 2, 2001 reflect the effect of the application of SAB 101. The amounts reported for each of the quarters during the year ended June 3, 2000 reflect the historical shipment method of revenue recognition.

Other income (expense) consisted of the following for 2001, 2000 and 1999 (in thousands):

Changes in accumulated other comprehensive income (loss) are as follows (in thousands):

During 2001, 2000 and 1999, the Company had purchases of raw materials of approximately $6.2 million, $2.9 million and $5.9 million, respectively, from Berkeley Process Controls, a California-based company, that is affiliated with a member of the Company’s Board of Directors.

During 2001, there was a significant decrease in the worldwide demand for semiconductor capital equipment. As a result of a rapid decline in the demand for semiconductor devices, inventory buildups in telecommunications products, slower than expected personal computer sales and overall slower global economic growth, many semiconductor manufacturers reevaluated their capital spending plans. Accordingly, several of the Company’s customers rescheduled delivery or canceled existing orders. Furthermore, the Company experienced a substantial decline in new orders. In response to industry conditions and the introduction of new products that are technologically advanced, the Company recorded significant inventory write-downs, charges related to asset impairments and severance costs related to across-the-board headcount reductions. In addition, the Company implemented measures to reduce discretionary spending.

severity of the semiconductor industry downturn, overall economic conditions and potential litigation costs, the Company is currently evaluating additional sources of funds in order to strengthen its working capital position. Based on discussions with various lenders, the Company believes that the sources of funds available include, but are not limited to, mortgage loan financing, a line of credit facility and term debt. If the Company were to raise additional funds through the issuance of equity securities, the percentage ownership of the Company’s stockholders would be reduced. In addition, these equity securities may have rights, preferences or privileges senior to the Company’s common stock. Furthermore, the Company may need to raise additional funds in future periods through public or private financing, or other sources, to fund working capital requirements driven by the expansion of the business during the industry’s upturn.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

These items, constituting Part III of the Form 10-K, have been omitted from this annual report pursuant to the provisions of Instruction G to Form 10-K, because a definitive proxy statement (which is incorporated herein by reference, except for the report of the compensation committee of the board of directors and the performance graph) will be filed within 120 days of the end of the Company’s fiscal year ended June 2, 2001. Information required for executive officers is included in Part I, Item 1.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SPEEDFAM-IPEC, INC.

	/s/J. MICHAEL DODSON

	J. Michael Dodson
	Secretary and Chief Financial Officer
	(Principal Financial Officer)

	/s/G. MICHAEL LATTA

	G. Michael Latta
	Corporate Controller
	(Principal Accounting Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, J. Michael Dodson and Richard J. Faubert, and each of them as his true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying, and confirming all that said attorney-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Under date of June 22, 2001, we reported on the consolidated balance sheets of SpeedFam-IPEC, Inc. and consolidated subsidiaries as of June 2, 2001 and June 3, 2000, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the three fiscal years in the period from June 1, 1998 through June 2, 2001, which are included in this Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in Item 14(a)(2) of this Form 10-K. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

59 EX-3.3 3 p65498ex3-3.txt EX-3.3 1 Exhibit 3.3 AMENDED AND RESTATED AS OF JULY 27, 2001 BY-LAWS OF SPEEDFAM-IPEC, INC. (FORMERLY KNOWN AS SPEEDFAM INTERNATIONAL, INC.) ARTICLE I OFFICES Section 1. Principal Office. The principal office of the corporation shall be located in Chandler, Arizona. The corporation may have such other offices, either within or without the States of Arizona or Illinois, as the business of the corporation may require from time to time. Section 2. Registered Office. The registered office of the corporation required by the Business Corporation Act of 1983 to be maintained in the State of Illinois may be, but need not be, identical with the principal office in the State of Illinois, and the address of the registered office may be changed from time to time by the board of directors. ARTICLE II SHAREHOLDERS Section 1. Annual Meetings. (a) The annual meeting of the shareholders shall be held each year for the purpose of electing directors and for the transaction of such other business that is properly brought before the meeting. The Board shall designate the date and time of the annual meeting. In the absence of such designation, the annual meeting of shareholders shall be held on the second Thursday in September in each year at the hour of 9:00 A.M. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held at the same time and place on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting, or at any adjournment thereof, the board of directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as conveniently may be. (b) At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (B) otherwise properly brought before the meeting by or at the direction of the board of directors, or (C) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting, the shareholder must have given timely notice thereof in writing to the secretary of the Corporation and such other 2 business must otherwise be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the secretary at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the first anniversary of the preceding year's annual meeting; provided, however, that in the event that (i) no annual meeting was held in the previous year or (ii) the date of the annual meeting has been changed by more than thirty (30) days from the date of the previous year's meeting, notice by the shareholder to be timely must be so received not later than the close of business on the later of one hundred twenty (120) calendar days in advance of such annual meeting or ten (10) calendar days following the date on which public announcement of the date of the meeting is first made. A shareholder's notice to the secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the meeting, (b) the name and address, as they appear on the corporation's books, of the shareholder proposing such business, (c) the class number of shares of the corporation which are owned beneficially by such shareholder, (d) any material interest of the shareholder in such business, and (e) any other information that is required to be provided by the shareholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") (or any successor thereto) in such shareholder's capacity as a proponent of a shareholder proposal. Notwithstanding the foregoing, in order to include information with respect to a shareholder proposal in the proxy statement and form of proxy for a shareholder's meeting, shareholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of shareholders by or at the direction of the board of directors or by any shareholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 1. Such shareholder's notice shall set forth (i) as to each person, if any, whom the shareholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the shareholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (or any successor thereto) (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such shareholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 1. At the request of the board of directors, any person -2- 3 nominated by a shareholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. Section 2. Special Meetings. Special meetings of the shareholders may be called by the chairman, chief executive officer, the president, the board of directors or by the holders of not less than one-fifth of all the outstanding shares of the corporation entitled to vote on the matter for which the meeting is called. Special meetings of the shareholders may not be called by any other person or persons. If a special meeting of the shareholders is called by any person or persons other than the board of directors, then such person or persons calling such meeting shall first deliver by registered mail a written request to the chairman, chief executive officer or secretary of the corporation specifying the general nature of the business proposed to be transacted. No business may be transacted at such special meeting other than as specified in such notice. The board of directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Section 4 of these by-laws. Section 3. Place of Meeting. The board of directors may designate any place, either within or without the State of Illinois, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. A waiver of notice signed by all shareholders may designate any place, either within or without the State of Illinois, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the registered office of the corporation in the State of Illinois. Section 4. Notice of Meetings. Written or printed notice stating the place, day and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty nor more than sixty days before the meeting, either personally or by mail, by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the records of the corporation, with postage thereon prepaid. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Section 5. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the -3- 4 board of directors of the corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, for a meeting of shareholders, not less than ten days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty days, immediately preceding such meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. If any shareholder meeting is adjourned, the shareholders entitled to notice of or to a vote at the adjourned meeting shall remain the same. Section 6. Voting Lists. The officer or agent having charge of the transfer books for shares of the corporation shall make, within twenty days after the record date for a meeting of shareholders or ten days before such meeting, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder, and to copying at the shareholder's expense, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in the State of Illinois, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting. Section 7. Quorum. A majority of the outstanding shares of the corporation, entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for consideration of such matter at any meeting of shareholders; provided, that if less than a majority of the outstanding shares entitled to vote on such matter are represented at said meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on a matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by applicable law or the Articles of Incorporation of the corporation. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. Withdrawal of shareholders from any meeting shall not cause the failure of a duly constituted quorum at that meeting. Section 8. Proxies. (a) A shareholder may appoint a proxy to vote or otherwise act for such shareholder by signing an appointment form and delivering it to the person so appointed. (b) No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this Section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is -4- 5 revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. (c) An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest in the shares or in the corporation generally. (d) The death or incapacity of the shareholder appointing a proxy does not revoke the proxy's authority unless notice of the death or incapacity is received by the officer or agent who maintains the corporation's share transfer book before the proxy exercises his or her authority under the appointment. (e) An appointment made irrevocable under subsection (c) hereof becomes revocable when the interest in the proxy terminates. (f) A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if the transferee was ignorant of its existence when the shares were acquired and both the existence of the appointment and its revocability were not noted conspicuously on the certificate (or information statement for shares without certificates) representing the shares. (g) Unless the appointment of a proxy contains an express limitation on the proxy's authority, the corporation may accept the proxy's vote or other action as that of the shareholder making the appointment. If the proxy appointed fails to vote or otherwise act in accordance with the appointment, the shareholder is entitled to such legal or equitable relief as is appropriate in the circumstances. Section 9. Voting of Shares. Each outstanding share, regardless of class, which is entitled to vote, shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. Section 10. Voting of Shares by Certain Holders. (a) Shares registered in the name of another corporation, domestic or foreign, may be voted by any officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of said corporation. The corporation may treat the president or other person holding the position of chief executive officer of such other corporation as authorized to vote such shares, together with any other person indicated by the corporate shareholder to the corporation as a person or an officer authorized to vote such shares. Such persons and officers indicated shall be registered by the corporation on the transfer books for shares and included in any voting list prepared in accordance with Section 6 hereof. (b) Shares registered in the name of a deceased person, a minor ward or a person under legal disability may be voted by his or her administrator, executor or court appointed guardian, either in person or by proxy, without a transfer of such shares into the name of such administrator, executor or court appointed guardian. Shares registered in the name of a trustee may be voted by such trustee, either in person or by proxy. -5- 6 (c) Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver, without the transfer thereof into the name of such receiver if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. (d) A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. (e) Shares of its own stock belonging to the corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares entitled to vote at any given time, but shares of the corporation held by the corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. (f) Any number of shareholders may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, for a period not to exceed ten years from the time shares subject thereto are transferred to such trustee or trustees, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust, and by transferring their shares to such trustee or trustees for the purpose of the agreement. Any such trust agreement shall not become effective until a counterpart of the agreement is deposited with the corporation at its registered office. The counterpart of the voting trust agreement so deposited with the corporation shall be subject to the same right of examination by a shareholder of the corporation, in person or by agent or attorney, as are the books and records of the corporation, and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for any proper purpose. Section 11. Inspectors. (a) At any meeting of shareholders, the chairperson of the meeting may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meeting. (b) Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. (c) Each report of an inspector shall be in writing and signed by the inspector or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 12. Informal Action by Shareholders. Unless otherwise provided in the Articles of Incorporation of the corporation, any action required to be taken at any annual or special meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken, -6- 7 shall be signed (i) by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting or (ii) by all of the shareholders entitled to vote with respect to the subject matter thereof. If such consent is signed by less than all of the shareholders entitled to vote, then such consent shall be come effective only if at least five days prior to the execution of the consent a notice in writing is delivered to all the shareholders entitled to vote with respect to the subject matter thereof and, after the effective date of the consent, prompt notice of the taking of the corporation action without a meeting by less than unanimous written consent shall be delivered in writing to those shareholders who have not consented in writing. Section 13. Voting by Ballot. Voting on any question or in any election may be by voice unless the chairperson of the meeting shall order or any shareholder shall demand that voting be by ballot. Section 14. Action by Shareholders. Any contract, transaction or act of the corporation or of the directors, which shall be ratified by a majority of a quorum of the shareholders of the corporation at any annual meeting, or at any special meeting called for such purpose, shall, insofar as permitted by applicable law or the Articles of Incorporation of the corporation, be as valid and as binding as though ratified by every shareholder of the corporation; provided, however, that any failure of the shareholders to approve or ratify any such contract, transaction or act, when and if submitted, shall not be deemed in any way to invalidate the same or deprive the corporation, its directors, officers or employees of its or their right to proceed with such contract, transaction or act. ARTICLE III DIRECTORS Section 1. General Powers. The business and affairs of the corporation shall be managed by its board of directors. Section 2. Number, Tenure and Qualifications. The number of directors of the corporation shall be determined from time to time by resolution of the Board. Each director shall hold office until the next annual meeting of shareholders or until his or her successor shall have been elected and qualified. Directors need not be residents of Illinois or shareholders of the corporation. The number of directors may be increased or decreased from time to time by the amendment of this Section; but no decrease shall have the effect of shortening the term of any incumbent director. Section 3. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this Section, immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide by resolution the time and place, either within or without the State of Illinois, for the holding of additional regular meetings without other notice than such resolution. Section 4. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman, chief executive officer, the president, or any director. The person or persons authorized to call special meetings of the board of directors may fix any place, either within -7- 8 or without the State of Illinois, as the place for holding any special meeting of the board of directors called by them. Section 5. Notice. Notice of any special meeting shall be given at least two (2) business days previous thereto by written notice mailed to each director at his or her business address or at least twenty-four (24) hours previous thereto if notice is delivered personally, by telephone, by facsimile, or by overnight courier. If mailed, such notice shall be deemed to be given two business days after it is deposited in the United States mail so addressed, with postage thereon prepaid. Notice given by any other method shall only be deemed to be delivered when actually received by the director for whom it was intended. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Section 6. Quorum. A majority of the number of directors fixed by [the board of directors under] these by-laws shall constitute a quorum for the transaction of business at any meeting of the board of directors, provided, that if less than a majority of such number of directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 7. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by statute, these By-laws or the Articles of Incorporation. Section 8. Vacancies. Any vacancy occurring in the board of directors and any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. In the event that one or more vacancies occur between meetings of shareholders, whether by increase in the number of directors or otherwise, the board of directors by majority vote of the directors then in office may fill such vacancy or vacancies and any such director so selected shall serve until the next annual or special meeting of shareholders at which directors are to be elected. Section 9. Removal. Except as otherwise provided by applicable law or the Articles of Incorporation of the corporation, one or more of the directors may be removed, with or without cause, at a meeting of the shareholders by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors; provided, however, that no director shall be removed at a meeting of the shareholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice, and only the named director or directors may be removed at such meeting. Section 10. Informal Action by Directors. Unless specifically prohibited by the Articles of Incorporation of the corporation or these by-laws, any action required to be taken at a meeting of the board of directors, or any other action which may be taken at a meeting of the board of directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so -8- 9 taken, shall be signed by all the directors entitled to vote with respect to the subject matter thereof, or by all the members of such committee, as the case may be. Any such consent signed by all the directors or all the members of a committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State. Section 11. Compensation. The board of directors, by the affirmative vote of a majority of directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. By resolution of the board of directors, the directors may be paid their expenses, if any, of attendance at each meeting of the board and for any other expenses incurred in the performance of their duties. Section 12. Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 13. Committees. A majority of the directors, by a resolution or resolutions duly adopted, may create one or more committees and appoint one or more directors to serve on the committee or committees, which committee or committees, to the extent provided in such resolution or resolutions, shall have and may exercise all of the authority of the board of directors in the management of the corporation, provided such committee or committees may not: (i) authorize distributions, except for dividends to be paid with respect to shares of any preferred or special classes or any series thereof; (ii) approve or recommend to shareholders any act applicable law requires to be approved by shareholders; (iii) fill vacancies on the board or any of its committees; (iv) elect or remove officers or fix the compensation of any member of the committee; (v) adopt, amend or repeal these by-laws; (vi) approve a plan of merger not requiring shareholder approval; (vii) authorize or approve reacquisition of shares, except according to a general formula or method prescribed by the board of directors; (viii) authorize or approve the issuance or sale, or contract for sale, of shares or determine the designation and relative rights, preferences, and limitations of a series of shares, except that the board of directors may direct a committee to fix the specific terms of the issuance or sale or contract for sale or the number of shares to be allocated to particular employees under an employee benefit plan; or (ix) amend, alter, repeal or take action inconsistent with any resolutions or action of the board of directors when the resolution or action of the board of directors provides by its terms that it shall not be amended, altered or repealed by action of a committee. ARTICLE IV OFFICERS Section 1. Number. The officers of the corporation shall be (i) a chairman, (ii) a chief executive officer, (iii) a president, (iv) a treasurer or chief financial officer and (v) a secretary. In -9- 10 addition, the corporation shall have any such other officers or assistant officers as may be elected or appointed from time to time by the board of directors, with such duties as designated by the board of directors. Any two or more offices may be held by the same person and the board of directors may elect more than one individual to share the duties of a particular office. Section 2. Election and Term of Office. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices filled at any meeting of the board of directors. Each officer shall hold office until his or her successors shall have been duly elected and shall have qualified or until his or her death or until he or she shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Removal. Any officer or agent elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the board of directors for the unexpired portion of the term. Section 5. Chairman. The chairman shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these by-laws. If there is no chief executive officer, then the chairman shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Article IV, Section 6 of these by-laws. Section 6. Chief Executive Officer. Subject to such supervisory powers, if any, as the board of directors may give to the chairman, the chief executive officer shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and affairs of the corporation and shall report directly to the board of directors. All other officers, officials, employees and agents shall report directly or indirectly to the chief executive officer. The chief executive officer shall see that all orders and resolutions of the board or directors are carried into effect. The chief executive officer shall serve as chairman of and preside at all meetings of the shareholders. In the absence of a chairman, the chief executive officer shall preside at all meetings of the board of directors. Section 7. President. In the absence or disability of the chairman and chief executive officer, the president shall perform all the duties of the chief executive officer. When acting as the chief executive officer, the president shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer. The president shall have such other powers and perform such other duties as from time to time may be prescribed for him by the board of directors, these by-laws, the chief executive officer or the chairman. -10- 11 Section 8. Vice Presidents. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president. When acting as the president, the appropriate vice president shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these by-laws, the chairman, the chief executive officer or, in the absence of a chief executive officer, the president. Section 9. Treasurer/Chief Financial Officer. If required by the board of directors, the treasurer or chief financial officer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors shall determine. The treasurer or chief financial officer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation, receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Article V of these by-laws; and (b) in general perform all the duties incident to the office of treasurer or chief financial officer and such other duties as from time to time may be assigned to the treasurer or chief financial officer by the president or by the board of directors. Section 10. Secretary. The secretary shall: (a) keep the minutes of the shareholders' and of the board of directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all certificates for shares prior to the issuance thereof and to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these by-laws; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) sign with the president certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to the secretary by the president or by the board of directors. Section 11. Assistant Treasurers and Assistant Secretaries. If any assistant treasurers or assistant secretaries shall have been appointed, they shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries as thereunto authorized by the board of directors may sign with the president or vice president certificates for shares of the corporation, the issuance of which shall have been authorized by a resolution of the board of directors. The assistant treasurers and assistant secretaries, in general, shall perform such duties as shall be assigned to them by the treasurer or chief financial officer or the secretary, respectively, or by the president or the board of directors. -11- 12 Section 12. Salaries. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the corporation. ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contracts. The board of directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. Section 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors may select. ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares. (a) The issued shares of the corporation shall be represented by certificates or shall be uncertificated shares. If represented by certificates, such certificates shall be in such form as may be determined by the board of directors. Such certificates shall be signed by the chairman, president or a vice-president, and by the secretary or an assistant secretary and may be sealed with the seal, or a facsimile of the seal, of the corporation, if the corporation utilizes a seal. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe. (b) The board of directors of the corporation may provide by resolution that some or all of any or all classes and series of its shares shall be uncertificated shares, provided that such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Section 6.35 of the Business Corporation -12- 13 Act of 1983. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical. Section 2. Lost Certificates. If a certificate representing shares has allegedly been lost, destroyed or mutilated, the board of directors may, in its discretion, except as may be required by law, direct that a new certificate be issued therefor upon such terms, indemnification to the corporation and other reasonable requirements as it may impose. Section 3. Transfer of Shares. Transfers of shares of the corporation shall be made only on the books of the corporation by the holder of record thereof or by such holder's legal representative, who shall furnish proper evidence of authority to transfer, or by such holder's attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. ARTICLE VII FISCAL YEAR The fiscal year of the corporation consists of 52 or 53 weeks ending on the Saturday nearest May 31. ARTICLE VIII DIVIDENDS The board of directors may from time to time, declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Articles of Incorporation of the corporation. -13- 14 ARTICLE IX SEAL The board of directors may provide for a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words, "Corporate Seal, Illinois." ARTICLE X INDEMNIFICATION OF OFFICERS AND DIRECTORS (a) Any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall be indemnified by the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the best interests of the corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation, unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. -14- 15 (c) To the extent that a director, officer, employee or agent of the corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in subsections (a) and (b) above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. (d) Any indemnification under subsections (a) and (b) above (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsections (a) or (b) above. Such determination shall be made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized in this Article X. (f) The indemnification and advancement of expenses provided by or granted under the other provisions of this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under these by-laws, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. (g) The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article X. (h) If the corporation indemnifies or advances expenses to a director or officer under Subsection (b) of this Article X, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. (i) For purposes of this Article X, references to "the corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers, employees or agents, so that any person who was a director, officer, employee or agent of such merging corporation, or was serving at the request of such merging corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same -15- 16 position under the provisions of this Article X with respect to the surviving corporation as such person would have with respect to such merging corporation if its separate existence had continued. (j) For purposes of this Article X, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to any employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" as referred to in this Article X. (k) The indemnification and advancement of expenses provided by or granted under this Article X shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of that person. ARTICLE XI WAIVER OF NOTICE Whenever any notice whatsoever is required to be given under the provisions of these by-laws or under the provisions of the Articles of Incorporation of the corporation or under the provisions of applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XII AMENDMENTS These by-laws may be altered, amended or repealed and new by-laws may be adopted by the shareholders or the board of directors of the corporation. -16- EX-10.37 4 p65498ex10-37.txt EX-10.37 1 Exhibit 10.37 SPEEDFAM-IPEC, INC. June 14, 2001 Mr. Peter Simone 61 Lehigh Road Wellesley, MA 02482 Dear Pete: After discussions with the SpeedFam-IPEC board of directors I am very pleased to offer you the position of Chairman of the board of directors. The board is very excited about your potential to help the company achieve greater success in the market, and dramatic enhancement of shareholder value, by adding your skills and experience to the existing team. ROLE AND TIME EXPECTATIONS As Chairman you would both serve as an employee and director of the company and participate actively as an officer managing the company. In your capacity as an officer, the CEO would report to you and you would have the same authority as the CEO to manage operations and bind the company. The board expects that over the longer term you would spend approximately 25% of your time working with SpeedFam-IPEC, with two or three days every other week at the SpeedFam-IPEC facility in Chandler, Arizona. In the near term, you may determine that you need to spend more time each week in Chandler or other locations to develop a deeper understanding of the company's goals, resources and action plans. We currently expect that you would concentrate on developing company strategies, coaching and reviewing the management team's progress, and with the full board's assistance, recruiting additional management and board personnel. You would keep the board informed and obtain approval as necessary for changes in your duties as you learn more about the company and your thinking evolves about your optimal role in enhancing company performance. The board may ask you to serve on board committees to the extent permitted by rules requiring corporate governance by independent directors. COMPENSATION 2 Your compensation package is designed primarily to provide equity incentives focused on significantly increasing overall shareholder value. - - You will receive cash compensation, subject to withholding, of $10,000 per month. If you wind up regularly spending more than 25% of your time working with SpeedFam-IPEC, the board will make an appropriate adjustment in your cash compensation. - - The company will reimburse your out of pocket expenses incurred in performing your duties. - - The board will grant you a nonqualified stock option to purchase 360,000 shares of SpeedFam-IPEC common stock with an exercise price equal to the closing price of the common stock on the date you begin employment with the company (which we anticipate will be the day you accept this offer). The company will file a registration statement to cover those shares. - The option will vest monthly over 18 months (20,000 shares per month) as long as you remain an employee or director of the company. - The option will terminate 36 months after the date of grant to the extent not exercised before that time. The option will also terminate 30 days after you cease to be an employee or director of the company to the extent not exercised before that time and provided no change of control has occurred. - If SpeedFam-IPEC is acquired before your options have fully vested: - Your options will continue to vest monthly post-acquisition if you continue to provide services to SpeedFam-IPEC or the acquiror. - Your options will vest 100% when the acquisition closes if the acquiror does not assume options. - Your options will vest 100% when the acquisition closes if the acquiror assumes options, but the acquiror terminates your services, or "constructively terminates" you by offering you a continuing service relationship which requires you to perform services below the senior executive level, or requires a greater than 25% time commitment, or creates other obligations on your part (such as post-employment noncompetition obligations). - If at the time of or after an acquisition you decide to terminate your services voluntarily, or you refuse to accept an offer to provide senior executive services (and which does not require a greater time commitment or other obligations on your part), your unvested options will terminate and you will have 30 days to exercise your vested options. -2- 3 INDEMNIFICATION AND INSURANCE. The company will sign the same indemnification agreement with you as it has signed with other directors. You will be covered by SpeedFam-IPEC's director and officer insurance policy. TERM. Your employment as an officer on these terms will remain in effect for six months, when the board will review your performance and has the option to continue your employment for an additional six months. If the board decides not to renew your employment, your salary and option vesting would cease. Your option would continue to be exercisable until 30 days after your board service ends. Pete, the entire SpeedFam-IPEC board would enthusiastically welcome you as Chairman of the company. Please indicate your acceptance of these arrangements by signing this letter below and sending me a copy. Your employment will start, and your option will be granted, the day you accept this offer. Sincerely yours, Neil Bonke, Director I accept SpeedFam-IPEC's offer described above. - ----------------------------------- Peter Simone - ----------------------------------- Date signed -3- EX-10.38 5 p65498ex10-38.htm EX-10.38 ex10-38

1. Purposes of the Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company’s business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.

(a) “Administrator” means the Compensation Committee or any successor thereto of the Board of Directors of the Corporation or by such other committee as shall be determined by the Board of Directors which shall administer the Plan, in accordance with Section 4 of the Plan. The Committee shall consist of not less than two members of the Board of Directors, each of whom shall qualify as a “disinterested person” to administer the Plan as contemplated by Rule 16b-3, as amended, or other applicable rules under Section 16(b) of the Securities Exchange Act of 1934, as amended.

(b) “Applicable Laws” means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan.

(d) “Change in Control” means the occurrence of any of the following events:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or

(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

(iii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors.

“Incumbent Directors” means directors who either (A) are Directors as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

(iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(f) “Committee” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

(i) “Consultant” means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(k) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(l) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(n) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

(o) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(q) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

(r) “Notice of Grant” means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement.

(s) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(u) “Option Agreement” means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

(v) “Option Exchange Program” means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price.

(w) “Optioned Stock” means the Common Stock subject to an Option or Stock Purchase Right.

(x) “Optionee” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

(z) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(bb) “Restricted Stock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

(cc) “Restricted Stock Purchase Agreement” means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

(dd) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

(gg) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

(hh) “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

(ii) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 5,300,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.

If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.

(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.

(ii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(iii) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

(ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder;

(iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder;

(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted;

(viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

(x) to modify or amend each Option or Stock Purchase Right (subject to Section 16(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan;

(xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

(xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator;

(xiii) to make all other determinations deemed necessary or advisable for administering the Plan.

(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights.

5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

(a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee’s relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee’s right or the Company’s right to terminate such relationship at any time, with or without cause.

7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

(a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:

(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.

(b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised.

(c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:

(iv) other Shares which, in the case of Shares acquired directly or indirectly from the Company, (A) have been owned by the Optionee for more than six (6) months on

the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

(v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee’s participation in any Company-sponsored deferred compensation program or arrangement;

(viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.

Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee’s death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the

Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised following the Optionee’s death within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Option Agreement), by the Optionee’s designated beneficiary, provided such beneficiary has been designated prior to Optionee’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee’s estate or by the person(s) to whom the Option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following Optionee’s death. If, at the time of death, Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

(b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s service with the Company for any reason

(including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.

(c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

(d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan.

12. Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate.

13. Formula Option Grants to Outside Directors. Discretionary awards can be made to Outside Directors pursuant to Section 4(b) hereof. All grants of Options to Outside Directors pursuant to this Section 13, however, shall be automatic and shall be made in accordance with the following provisions:

(a) All Options granted pursuant to this Section shall be Nonstatutory Stock Options and, except as otherwise provided herein, shall be subject to the other terms and conditions of the Plan.

(b) Each person who first becomes an Outside Director following the effective date of this Plan, as determined in accordance with Section 7 hereof, shall be automatically granted an Option to purchase 15,000 Shares (the “First Option”) or the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option.

(c) Each Outside Director shall be automatically granted an Option to purchase 5,000 Shares (a “Subsequent Option”) on the date of the annual meeting of the stockholders of the Company, if as of such date, he or she shall have served on the Board for at least the preceding six (6) months.

(d) Notwithstanding the provisions of subsections (c) and (d) hereof, any exercise of an Option granted before the Company has obtained shareholder approval of the Plan in

accordance with Section 20 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 20 hereof.

(e) The terms of each Option granted pursuant to this Section shall be as follows:

(ii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option.

(iii) subject to Section 14 hereof, the First Option and the Subsequent Option shall be immediately exercisable and fully vested.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, the number of Shares that may be added annually to the Plan pursuant to Section 3(i), the number of shares which may be granted pursuant to the automatic grant provisions of Section 13 and the number of shares of Common Stock as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

(c) Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. With respect to Options granted to an Outside Director pursuant to Section 13 that are assumed or substituted for, if following such assumption or substitution the Optionee’s status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, then the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable.

In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period.

For the purposes of this subsection (c), the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change in Control, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.

15. Date of Grant. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

18. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

20. Shareholder Approval. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws.

-13- EX-10.41 6 p65498ex10-41.txt EX-10.41 1 EXHIBIT 10.41 INDEMNIFICATION AGREEMENT This Indemnification Agreement ("AGREEMENT") is entered into as of the ___ day of ______________, 2001 by and between SpeedFam-IPEC, Inc., an Illinois corporation (the "COMPANY") and _______________ ("INDEMNITEE"). RECITALS A. The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. B. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. C. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection. D. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to continue to provide services to the Company, wishes to provide for the indemnification and advancing of expenses to Indemnitee to the maximum extent permitted by law, including without limitation for all acts taken by Indemnitee as a director of the Company, whether before or after execution of this Agreement. E. The Company believes that the terms of this Agreement are fair to the Company. F. In view of the considerations set forth above, the Company desires that Indemnitee be indemnified by the Company as set forth herein. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Indemnification of Expenses. The Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant 2 in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a "CLAIM") by reason of (or arising in part out of) any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity (hereinafter an "INDEMNIFIABLE Event"), including without limitation any action or inaction by Indemnitee as a director, officer, employee, agent or fiduciary before the execution of this Agreement, against any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (collectively, hereinafter "EXPENSES"), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of Expenses shall be made by the Company as soon as practicable but in any event no later than five days after written demand by Indemnitee therefor is presented to the Company. (b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the Reviewing Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c) hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party -2- 3 shall be the Independent Legal Counsel referred to in Section 1(c) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. (c) Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitees to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Articles of Incorporation or By-laws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (d) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 9 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit, proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 2. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than five days after written demand by Indemnitee therefor to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitees' right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give -3- 4 the Company such information and cooperation as it may reasonably require and as shall be within Indemnitees' power. (c) No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. (d) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee counsel shall be at the expense of the Company. The Company shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any claim against Indemnitee without the consent of the Indemnitee. 3. Additional Indemnification Rights; Nonexclusivity. -4- 5 (a) Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's By-laws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of an Illinois corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of an Illinois corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 8(a) hereof. (b) Nonexclusivity. The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the Business Corporation Act of 1983 of the State of Illinois, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity. 4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Articles of Incorporation, By-law or otherwise) of the amounts otherwise indemnifiable hereunder. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee are entitled. 6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Liability Insurance. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the -5- 6 Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify Indemnitee for Indemnitee's acts, omissions or transactions for which Indemnitee or the Indemnitee may not be indemnified under applicable law; (b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Articles of Incorporation or By-laws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 5/8.75 of the Illinois Business Corporation Act of 1983, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be; (c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 10. Construction of Certain Phrases. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a -6- 7 director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (c) For purposes of this Agreement a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 20% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company's assets. (d) For purposes of this Agreement, "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 1(c) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three -7- 8 years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (e) For purposes of this Agreement, a "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee are seeking indemnification, or Independent Legal Counsel. (f) For purposes of this Agreement, "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise at the Company's request. 13. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that each of Indemnitee material defenses to such action was made in bad faith or was frivolous. 14. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first -8- 9 class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee address as set forth beneath Indemnitee signatures to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten days' advance written notice to the other party hereto. 15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the state and federal courts of the State of Illinois for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in a state or federal court in the State of Illinois, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Illinois, as applied to contracts between Illinois residents, entered into and to be performed entirely within the State of Illinois, without regard to the conflict of laws principles thereof. 18. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 20. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. -9- 10 21. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries. -10- 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SPEEDFAM-IPEC, INC. By: --------------------------------- Title: ------------------------------ Address: 305 North 54th Street Chandler, AZ 85226 AGREED TO AND ACCEPTED BY: Signature: -------------------------- Printed Name: ----------------------- Address: ---------------------------- ---------------------------- ---------------------------- -11- EX-21.1 7 p65498ex21-1.htm EX-21.1 ex21-1

EX-23.1 8 p65498ex23-1.txt EX-23.1 1 EXHIBIT 23.1 CONSENT OF KPMG LLP The Board of Directors SpeedFam-IPEC, Inc.: We consent to incorporation by reference in the registration statement on Form S-3 (No. 333-75965) on Form S-8 (Nos. 33-62384, 333-16891, 333-50900, 333-50896, 333-75967, 333-75931, and 333-75969) and on Form S-2 (No. 333-77859) of SpeedFam-IPEC, Inc. of our reports dated June 22, 2001, relating to the consolidated balance sheets of SpeedFam-IPEC, Inc. and subsidiaries as of June 2, 2001 and June 3, 2000, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the three fiscal years in the period from June 1, 1998 to June 2, 2001, and related schedule, which reports appear in the June 2, 2001, annual report on Form 10-K of SpeedFam-IPEC, Inc. Chicago, IL August 22, 2001 -----END PRIVACY-ENHANCED MESSAGE-----






Illinois		36-2421613
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

305 North 54th Street		85226
Chandler, Arizona		(Zip Code)
(Address of principal executive offices)


	Item 1. Business
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
	Item 5. Market for Common Equity and Related Stockholder Matters.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
	Item 10, 11, 12 and 13.
PART IV
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. X
SIGNATURES
EXHIBIT INDEX
EX-3.3
EX-10.37
EX-10.38
EX-10.41
EX-21.1
EX-23.1


			Held Present		Other Positions Held
Name and Position	Age		Office Since		During Past Five Years

Richard J. Faubert		53		1999	Vice President of the T.V. and
President and Chief Executive Officer					Telecommunications Test Business Unit of Tektronix, Inc.




J. Michael Dodson		40		1999	Vice President, Corporate
Chief Financial Officer and Secretary					Controller and Chief Accounting Officer of Novellus Systems, Inc.




Giovanni N. Nocerino		49		2000	Executive Vice President of
Executive Vice President of Sales, Marketing and Service					CVC, Inc. (now Veeco Instruments); Vice President and General Manager at Varian; Executive Vice President and member of the Board at Sony Materials Research Company




Saket Chadda		35		2000	Senior Section Manager at
Vice President and Chief Technical Officer					Atmel Corporation; Project Manager at OnTrak Systems, Inc; Senior Development Engineer Specialist at Philips Semiconductors




Robert R. Smith		57		1974
Managing Director of SpeedFam-IPEC, U.K.


	Number of
	Stockholders of
	Record as of
Title of Class	July 31, 2001

Common Stock, no par value		167


		High		Low

2000




	First Quarter	$	18 3/8	$	8 11/16




	Second Quarter		14 3/8		9 9/16




	Third Quarter		29 7/8		10




	Fourth Quarter		29 1/8		11 1/8
2001




	First Quarter	$	22 1/4	$	13 7/8




	Second Quarter		18 13/16		5 3/16




	Third Quarter		9 5/8		4 3/16




	Fourth Quarter		8 1/8		4 1/2
2002




	First Quarter through July 31, 2001	$	4 7/8	$	2 15/16


Item
No.		Caption	Page





Part I




	1.	Business		1




	2.	Properties		8




	3.	Legal Proceedings		8




	4.	Submission of Matters to a Vote of Security Holders		9




Part II




	5.	Market for Common Equity and Related Stockholder Matters		9




	6.	Selected Financial Data		9




	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11




	7A.	Quantitative and Qualitative Disclosures about Market Risk		24




	8.	Financial Statements and Supplementary Data		26




	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		53




Part III




	10.	Directors and Executive Officers of the Company		53




	11.	Executive Compensation		53




	12.	Security Ownership of Certain Beneficial Owners and Management		53




	13.	Certain Relationships and Related Transactions		53




Part IV




	14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		53




		Signatures		54




		List of Exhibits	EXHIBIT INDEX



		Fiscal Year Ended
		?

		2001			2000			1999			1998			1997


		(in thousands, except per share data)




Consolidated Statements of Operations Data:




Net sales		$	267,080		$	274,048		$	216,425		$	374,268		$	318,112




Net income (loss) from continuing operations			(97,946	)		(14,178	)		(139,775	)		(18,818	)		15,037




Loss from discontinued operations			—			—			—			(10,578	)		(28,564	)




Cumulative effect of accounting change(1)			(36,542	)		—			—			—			—

Net loss(2)			(134,488	)		(14,178	)		(139,775	)		(29,396	)		(13,527	)




Cumulative dividend on preferred stock			—			—			(174	)		(244	)		(284	)

Net loss attributable to common stockholders		$	(134,488	)	$	(14,178	)	$	(139,949	)	$	(29,640	)	$	(13,811	)

Net income (loss) per common share:




Basic:




From continuing operations		$	(3.27	)	$	(0.48	)	$	(4.84	)	$	(0.69	)	$	0.67

From discontinued operations		$	(1.22	)	$	—		$	—		$	(0.39	)	$	(1.27	)

Net income (loss) attributable to common stockholders		$	(4.49	)	$	(0.48	)	$	(4.84	)	$	(1.08	)	$	(0.62	)

Diluted:




From continuing operations		$	(3.27	)	$	(0.48	)	$	(4.84	)	$	(0.69	)	$	0.62

From discontinued operations		$	—		$	—		$	—		$	(0.39	)	$	(1.19	)

From cumulative effect of accounting change		$	(1.22	)	$	—		$	—		$	—		$	—

Net income (loss) attributable to common stockholders		$	(4.49	)	$	(0.48	)	$	(4.84	)	$	(1.08	)	$	(0.57	)

Weighted average shares used in per share calculations:




Basic			29,961			29,503			28,890			27,469			22,441

Diluted			29,961			29,503			28,890			27,469			24,088

Consolidated Balance Sheet Data:




Working capital		$	140,110		$	238,196		$	243,735		$	374,426		$	205,918




Total assets			314,885			435,080			443,778			575,653			404,565




Long-term debt, less current maturities			115,124			115,162			116,129			117,078			19,818




Amounts as if the accounting change related to revenue was applied retroactively(3):




Net loss		$	(97,946	)	$	(36,183	)

Net loss per share:




	Basic and diluted	$	(3.27	)	$	1.22	)


(1)	Fiscal year 2001 reflects the adoption of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements”, which resulted in a non-


																					Fair Value
																					June 2,
		2002			2003			2004			2005			2006		Thereafter		Total			2001

Cash equivalents		$	47,344			—			—			—			—		—	$	47,344		$	47,344




	Average interest rate		3.96	%		—			—			—			—		—		3.96	%




Short-term investments		$	13,471			—			—			—			—		—	$	13,471		$	13,495




	Average interest rate		5.36	%		—			—			—			—		—		5.36	%




Total investment securities		$	60,815			—			—			—			—		—	$	60,815		$	60,839




	Average interest rate		4.31	%		—			—			—			—		—		4.31	%




Long term debt		$	229			67			115,042			15			—		—	$	115,353		$	52,900




	Average interest rate		7.87	%		5.45	%		8.79	%		4.08	%		—		—		6.25	%


		Notional			Average		Estimated
June 2, 2001		Amount			Contract Rate		Fair Value


		In thousands, except for average contract rate




Foreign currency forward exchange contracts:




	Japanese yen, purchases	$	(5,232	)		106.64	$	(4,722	)




	Japanese yen, sales	$	5,153			107.31	$	4,681


	Page

SPEEDFAM-IPEC, INC. AND CONSOLIDATED SUBSIDIARIES




Independent Auditors’ Report		27




Consolidated Balance Sheets — June 2, 2001 and June 3, 2000.		28




Consolidated Statements of Operations — Years Ended June 2, 2001, June 3, 2000 and May 31, 1999.		29




Consolidated Statements of Stockholders’ Equity — Years Ended June 2, 2001, June 3, 2000 and May 31, 1999.		30




Consolidated Statements of Cash Flows — Years Ended June 2, 2001, June 3, 2000 and May 31, 1999.		31




Notes to Consolidated Financial Statements		32


			2001			2000


			(in thousands)




ASSETS




Current assets:




	Cash and cash equivalents		$	47,344		$	72,060




	Short-term investments			13,495			28,236




	Trade accounts receivable, less allowance for doubtful accounts of $2,907 in 2001 and $2,549 in 2000.			60,619			129,102




	Inventories			88,059			81,192




	Shipped systems pending acceptance			13,953			—




	Prepaid expenses and other current assets			4,549			3,301

		Total current assets		228,019			313,891




Investments in affiliates				—			19,810




Property, plant, and equipment, net				75,241			87,913




Other assets				11,625			13,466

		Total assets	$	314,885		$	435,080

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current liabilities:




	Current portion of long-term debt		$	229		$	1,077




	Accounts payable			23,314			43,982




	Due to affiliates			—			7,372




	Deferred systems revenue			46,281			—




	Accrued liabilities			18,085			23,264

		Total current liabilities		87,909			75,695

Long-term liabilities:




	Long-term debt			115,124			115,162




	Other liabilities			5,911			7,253

		Total long-term liabilities		121,035			122,415

Stockholders’ equity:




	Common stock, no par value, 60,000 shares authorized, 30,116 and 29,703 shares issued and outstanding at June 2, 2001 and June 3, 2000, respectively			1			1




	Additional paid-in capital			434,090			430,706




	Retained earnings (deficit)			(328,977	)		(194,489	)




	Accumulated comprehensive income			827			752

		Total stockholders’ equity		105,941			236,970

		Total liabilities and stockholders’ equity	$	314,885		$	435,080


										Accumulated
										Other
					Additional		Retained			Comprehensive
		Common			Paid-in		Earnings			Income
		Stock			Capital		(Deficit)			(Loss)			Total


		(in thousands)




Balance at May 31, 1998		$	3		$	423,146	$	(38,026	)	$	(987	)	$	384,136

Comprehensive income (loss):




	Net earnings (loss)		—			—		(139,775	)		—			(139,775	)




	Foreign currency translation adjustments		—			—		—			927			927




	Net unrealized change in investment securities		—			—		—			(170	)		(170	)

Total comprehensive income (loss)														(139,018	)




Conversion of Class A common stock to common stock			(2	)		2		—			—			—




June 1999 IPEC net income			—			—		(2,232	)		—			(2,232	)




Preferred stock dividends paid			—			—		(278	)		—			(278	)




Unearned compensation, net			—			742		—			—			742




Exercise of stock options and employee stock plan purchases			—			3,400		—			—			3,400

Balance at May 31, 1999			1			427,290		(180,311	)		(230	)		246,750

Comprehensive income (loss):




	Net earnings (loss)		—			—		(14,178	)		—			(14,178	)




	Foreign currency translation adjustments		—			—		—			1,299			1,299




	Net unrealized change in investment securities		—			—		—			(317	)		(317	)

Total comprehensive income (loss)														(13,196	)




Exercise of stock options and employee stock plan purchases			—			3,416		—			—			3,416

Balance at June 3, 2000			1			430,706		(194,489	)		752			236,970

Comprehensive income (loss):




Net earnings (loss)			—			—		(134,488	)		—			(134,488	)




	Foreign currency translation adjustments		—			—		—			(436	)		(436	)




	Net unrealized change in investment securities		—			—		—			511			511

Total comprehensive income (loss)														(134,413	)




Exercise of stock options and employee stock plan purchases			—			3,384		—			—			3,384

Balance at June 2, 2001		$	1		$	434,090	$	(328,977	)	$	827		$	105,941



			Fourth Quarter Activity				Accrued
	Charges						Liability at
	Recorded in		Cash		Asset		June 2,
	2001		Expenditures		Write-offs		2001

Inventory write-offs	$	31,268		—		31,268	$	—




Asset impairments		4,358		—		4,358		—




Lease termination costs		1,666		—		1,239		427




Severance costs		1,023		1,023		—		—




Other costs		771		3		750		18

	$	39,086		1,026		37,615	$	445






Cost of sales	$	31,707




Research and development costs		3,623




Selling, general and administrative costs		296




Restructuring charges		3,460

	$	39,086



	2001

			Gross		Gross		Approximate
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Corporate debt securities and other	$	13,471	$	24	$	—	$	13,495



	2000

			Gross		Gross			Approximate
			Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

Municipal and state governments	$	20,511	$	—	$	(394	)	$	20,117




Corporate debt securities and other		8,212		—		(93	)		8,119

	$	28,723	$	—	$	(487	)	$	28,236


		2001		2000

Raw materials		$	49,081	$	54,058




Work-in-process			19,706		21,396




Finished goods			19,272		5,738

	Total inventories	$	88,059	$	81,192


		2001			2000

Land		$	2,634		$	8,547




Buildings and building improvements			42,463			38,709




Machinery and equipment			70,075			70,539




Furniture and fixtures			607			4,324




Leasehold improvements			2,457			1,131




Construction in progress			2,946			7,882

			121,182			131,132




Less accumulated depreciation			(45,941	)		(43,219	)

	Net property, plant, and equipment	$	75,241		$	87,913



	Activity During the Year
	Ended June 2, 2001

	Assets		Cash
	Write-offs		Expenditures

Loss on disposal of investment	$	9,741	$	1,022




Inventory write-downs		3,351		—




Fixed asset impairments		2,700		—




Severance costs		—		1,191




Other costs		—		1,232

	$	15,792	$	3,445



	Accrued		2001 Activity				Accrued
	Liability at						Liability at
	June 3,		Cash		Asset		June 2,
	2000		Expenditures		Write-downs		2001

Lease termination costs	$	8,565	$	2,000		—	$	6,565




Severance costs		372		372		—		—




Other costs		264		264		—		—

	$	9,201	$	2,636		—	$	6,565



	Accrued		2000 Activity				Accrued
	Liability at						Liability at
	May 31,		Cash		Asset		June 3,
	1999		Expenditures		Write-downs		2000

Direct merger costs	$	3,600	$	3,600	$	—	$	—




Lease termination costs		14,600		6,035		—		8,565




Discontinued product lines		100		100		—		—




Severance costs		4,200		3,828		—		372




Other costs		500		—		236		264

	$	23,000	$	13,563	$	236	$	9,201






Cost of sales	$	13,600




Merger, integration, and restructuring costs		40,300

	$	53,900


		2001		2000

Accrued warranty and installation costs		$	3,536	$	8,665




Accrued payroll and benefits			3,361		4,588




Accrued merger, integration, and restructuring costs			445		1,952




Other accrued liabilities			10,743		8,059

	Total accrued liabilities	$	18,085	$	23,264



					Years Ended April 30,
		May 1, 2000 -
		July 31, 2000			2000			1999

Net sales		$	29,626		$	108,000		$	136,232




Costs and operating expenses			29,267			118,922			135,378

	Earnings (loss) before income taxes		359			(10,922	)		854




Income taxes			(130	)		(3,346	)		1,332

	Net earnings (loss) before minority interest		229			(7,576	)		(478	)




Minority interest			9			50			684

	Net earnings (loss)	$	220		$	(7,526	)	$	206


		June 1, 1999 -			Year Ended
		November 30, 1999			May 31, 1999

Net sales		$	11,629		$	22,746




Costs and operating expenses			(10,629	)		(20,028	)

	Earnings before income taxes		1,000			2,718




Income taxes			(400	)		(1,039	)

	Net earnings	$	600		$	1,679


			2001			2000

Deferred tax assets:




	Deferred revenue, net		$	12,931		$	—




	Financial valuation accounts			18,516			13,781




	Expenses not currently deductible			3,065			3,683




	Merger, integration, and restructuring accruals			2,804			3,680




	Net operating loss and tax credit carryforwards			105,673			75,003




	Other			366			366

				143,355			96,513




	Valuation allowance			(142,698	)		(95,856	)

				657			657




Deferred tax liabilities:




	Depreciation and amortization differences			(668	)		(668	)

		Net deferred tax liability	$	(11	)	$	(11	)


		2001		2000

Convertible subordinated notes		$	115,000	$	115,000




Capital lease obligations, interest rates ranging from 4.08% to 9.8%			353		1,239

			115,353		116,239




Less current portion			229		1,077

	Long term debt, net of current portion	$	115,124	$	115,162


Years		Amount

2002		$	229




2003			67




2004			115,042




2005			15

	Total	$	115,353


Year	Amount

2002	$	2,450




2003		1,294




2004		1,040




2005		828




2006		290

Total	$	5,902


	2001		2000

Forward exchange contracts to buy foreign currency	$	5,232	$	1,981

Forward exchange contracts to sell foreign currency	$	5,153	$	1,197


							Weighted
							Average
							Exercise
		Options			Price Per Share		Price

Balance at May 31, 1998			3,979,307		$	2.04 - 59.00	$	22.32




	Granted		758,512			8.70 - 16.38		11.64




	Exercised		(186,790	)		2.04 - 15.32		3.26




	Canceled or expired		(737,190	)		2.04 - 56.25		26.23

Balance at May 31, 1999			3,813,839		$	2.04 - 59.00	$	20.71




	Granted		2,213,750			9.44 - 21.50		11.86




	Exercised		(242,214	)		2.04 - 25.18		12.05




	Canceled or expired		(402,292	)		2.04 - 56.25		19.98

Balance at June 3, 2000			5,383,083		$	2.04 - 59.00	$	17.51




	Granted		1,554,100			4.56 - 20.06		5.38




	Exercised		(84,480	)		2.04 - 19.54		9.81




	Canceled or expired		(1,457,596	)		2.04 - 59.00		17.10

Balance at June 2, 2001			5,395,107		$	2.04 - 59.00	$	13.77


Customer	2001			2000			1999

A		15	%		11	%		11	%




B		11	%		12	%		*




C		*			*			11	%




D		10	%		*			*


		First			Second			Third			Fourth
		Quarter(1,2)			Quarter(1)			Quarter(3)			Quarter

Year ended June 2, 2001:




	Net sales	$	73,019		$	83,911		$	58,818		$	51,332

	Gross margin	$	15,934		$	27,135		$	(15,289	)	$	10,755

	Net loss attributable to common stockholders	$	(69,515	)	$	(2,381	)	$	(50,929	)	$	(11,663	)

	Basic and diluted net loss per share	$	(2.32	)	$	(0.08	)	$	(1.70	)	$	(0.39	)


(1)	Restated from original amounts reported to reflect the change in the Company’s revenue recognition policy that occurred in the third quarter of 2001 as a result of SAB 101 (refer to Note 1).

(2)	Includes a non-cash charge of $36.5 million, or ($1.22) per share, to reflect the cumulative effect of the accounting change for revenue recognition. Also includes restructuring and other charges totaling $19.2 million associated with the disposal of the Far East Joint Venture (refer to Note 3).

(3)	Includes restructuring charges associated with the industry downturn of $39.1 million (refer to Note 2).


Name	Title	Date

/s/ PETER J. SIMONE Peter J. Simone	Executive Chairman	8/23/01
/s/ RICHARD J. FAUBERT Richard J. Faubert	President, Chief Executive Officer and Director	8/23/01
/s/ J. MICHAEL DODSON J. Michael Dodson	Secretary and Chief Financial Officer (Principal Financial Officer)	8/23/01
/s/ NEIL R. BONKE Neil R. Bonke	Director	8/23/01
/s/ SANJEEV CHITRE Sanjeev Chitre	Director	8/23/01


						Charged to
						Other Accounts
				Charged		(Translation			Deductions
		Balance at		to Costs		Adjustments			(Write-offs		Balance
		Beginning		and		and			and		at End
Description		of Year		Expense		Recoveries)			Adjustments)		of Year


		(in thousands)




Allowance for doubtful accounts:




	1999	$	4,487		3,598		(1	)		2,484	$	5,600




	2000	$	5,600		82		—			3,133	$	2,549




	2001	$	2,549		558		—			200	$	2,907


Exhibit
Number		Description

	*2.1	Agreement and Plan of Merger dated November 19, 1998. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Form S-4 filed on February 5, 1999 (Registration No. 333-71897)).
	*3.1	Articles of Incorporation of SpeedFam International, Inc. (incorporated by reference to Exhibit 3 to the Registrant’s Form 10-Q for the quarter ended November 30, 1997 (Exchange Act File No. 0-26784)).
	*3.1a	Amendment to the Articles of Incorporation.
	*3.2	By-laws of SpeedFam International, Inc. (incorporated by Reference to Exhibit 3.2 to the Registrant’s Form 10-K for the fiscal year ended May 31, 1996 (Exchange Act File No. 0-26784)).
	3.3	Amended and Restated By-laws of SpeedFam-IPEC, Inc.
	*4.2	Warrant Certificate, dated as of December 16, 1996, issued by IPEC to Fletcher. (Incorporated by reference to Exhibit 99.1 to IPEC’s Current Report on Form 8-K for reporting date December 16, 1996 and filed on December 30, 1996 (File No. 0-20470)).
	*4.5	Indenture between IPEC and State Street Bank and Trust Company of California, N.A., dated as of September 15, 1997. (Incorporated by reference to Exhibit 10.2 to IPEC’s Quarterly Report on Form 10-Q filed on November 13, 1997 for the Quarter ended September 30, 1997 (File No. 0-20470)).
	*4.6	First Supplemental Indenture by and among the Registrant, IPEC and State Street Bank and Trust Company of California, N.A., as Trustee, dated April 6, 1999.
	*4.7	Registration Rights Agreement between IPEC and the Initial Purchasers, dated September 15, 1997. (Incorporated by Reference to Exhibit 4.12 to IPEC’s Registration Statement on Form S-3 filed on December 16, 1997 (File No. 333-42369)).
	*10.1	Employment Agreement between the Registrant and Richard J. Faubert.
	*10.2	Employment Agreement between the Registrant and J. Michael Dodson.
	*10.8	Employment Agreement between the Registrant and Robert R. Smith.
	*10.9	Form of Agreement between Registrant and SpeedFam Co., Ltd. with respect to services provided by Makoto Kouzuma.
	*10.19	1991 Employee Incentive Stock Option Plan as amended and restated July 27, 1995 and as further amended as of May 22, restated July 27, 1995 and as further amended as of May 22, 1997 (incorporated by reference to Exhibit 10.10 to the Registrant’s Form 10-K for fiscal 1997, File No. 0-26784).
	*10.20	1995 Stock Plan for Employees and Director of SpeedFam International, Inc. as amended as of May 22, 1997 (incorporated by reference to Exhibit 10.11 to the Registrant’s Form 10-K for fiscal 1997, File No. 0-26784).
	*10.21	Registrant’s 1995 Stock Purchase Plan (incorporated by Reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1, File No. 33-95628).
	*10.22	SpeedFam Employees’ Savings and Profit Sharing Plan and Trust, as amended and restated June 1, 1989 (incorporated by Reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1, File No. 33-95628).
	*10.24	Lease Agreement between Seldin Properties and IPEC, dated December 26, 1996. (Incorporated by reference to Exhibit 10.1 to IPEC’s Quarterly Report on Form 10-Q filed on February 14, 1997 for the quarter ended December 31, 1996).


SpeedFam-IPEC Corporation	Wholly Owned	Direct




SpeedFam-IPEC Precision, Inc.	Wholly Owned	Indirect




SpeedFam-IPEC Limited	Wholly Owned	Direct




SpeedFam-IPEC GmbH	Wholly Owned	Direct




SpeedFam-IPEC International Services	Wholly Owned	Indirect




SpeedFam-IPEC Sales, Inc.	Wholly Owned	Indirect




SpeedFam-Ipec K.K	Wholly Owned	Indirect




SpeedFam-IPEC Korea Ltd.	Wholly Owned	Indirect




SpeedFam-IPEC (S.E.A.) Pte. Ltd.	Wholly Owned	Indirect




SpeedFam-IPEC (Malaysia) Sdn.. Bhd	Wholly Owned	Indirect